, 9 tweets, 3 min read Read on Twitter
The great profit shift.

There has been essentially no growth in the profits US firms report in the world's major markets (apart from the UK) over the last twenty years. All the growth in profits has been in a small number of low tax jurisdictions

According to IRS data (from a newish data), the average employee of a U.S. firms in Bermuda generated $50m of profits each year, the average employee in Caymans and BVI about $5m.

The majority of the US firms foreign profits (over $300b) is now booked in the world's corporate tax havens. And firms pay less that $15b in tax in these jurisdictions.

(back in 16 they still had a deferred US tax liability,not they owe the low US GILTI rate)

The pre-tax reform effective rate US firms paid on their US income was around 20%.

On their foreign income in low jurisdictions it was around 5% -- a rate well below Ireland's famous headline 12.5%

Before the tax reform US firms shifting profits to low and no tax jurisdictions could defer paying US so long as the funds notionally remained offshore. Their deferred liability was eventually settled at 15.5% (on cash)

The tax rate on these profits now? Just over 10.5%

85% of taxes paid abroad can be deducted v GITLI, so the 4% effective tax rate paid in aggregate in the low tax jurisdictions pre-reform + 10.5% GILTI rate produces an 11% effective rate (to the first approximation) ...

The net result, one highlighted by Martin Wolf: the tax reform hasn't ended incentives to shift profits to low tax jurisdictions


An example: Microsoft just consolidated its global operations in Ireland, moving some valuable IPR from Singapore to Ireland rather than back to the United States. Looks like the first step toward emulating Apple's new Irish tax strategy.


Bottom line: the tax reform itself needs to be reformed ...

the OECD's BEPS process on its own isn't going to solve the problem of profit shifting; there are too many new BEPS compliant tax structures springing up.

Missing some Tweet in this thread?
You can try to force a refresh.

Like this thread? Get email updates or save it to PDF!

Subscribe to Brad Setser
Profile picture

Get real-time email alerts when new unrolls are available from this author!

This content may be removed anytime!

Twitter may remove this content at anytime, convert it as a PDF, save and print for later use!

Try unrolling a thread yourself!

how to unroll video

1) Follow Thread Reader App on Twitter so you can easily mention us!

2) Go to a Twitter thread (series of Tweets by the same owner) and mention us with a keyword "unroll" @threadreaderapp unroll

You can practice here first or read more on our help page!

Follow Us on Twitter!

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just three indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3.00/month or $30.00/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!