Another quarter of data, and still no sign that the Tax Cuts and Jobs Act reduced the incentive for US firms to shift profits to the world's main low tax jurisdictions ...
1/x
1/x
One of the biggest loopholes in the old tax law was the provision that allowed firms to defer US tax on profits earned abroad, including in low tax jurisdictions. A massive incentive to profit shift (as firms could borrow against their untaxed foreign profits as needed)
2/x
2/x
But the new tax law set the global minimum tax (on intangibles) at too low a rate (and didn't assess it on a country-by-country basis), so the incentive to shift profits to low tax jurisdictions (and pay 10.5 rather than the headline 21%) remained
3/x
3/x
Defenders of the reform say it is too early to tell, as it will take time for firms to reorganize in response to the law.
Fair enough. But Microsoft did just reorganize, and it basically decided to consolidate its global tax operations in Ireland.
4/x
Fair enough. But Microsoft did just reorganize, and it basically decided to consolidate its global tax operations in Ireland.
4/x
That effectively means it decided not to reshore its IP, but rather take advantage of the generous Irish provisions for depreciating intangible capital "investment" and the low US "GILTI" rate
5/x
5/x
The net result: the obvious skew in the data on the location where US firms "earn" their large offshore profits remains ...
and that distortion is so big that the numbers almost speak for themselves.
6/6
and that distortion is so big that the numbers almost speak for themselves.
6/6
