Showing posts with label Corporate tax. Show all posts
Showing posts with label Corporate tax. Show all posts

Sunday, April 5, 2020

5/4/20: Effective Corporate Tax Rates in the U.S.: 1980-2019


Evolution of effective corporate tax rates in the U.S. from 1980 through 2019:

Source: Yardeni Research, with my annotations

Effective tax cuts rates rankings by Presidential Administration:
Bush Jr (largest cuts)
Bush Sr (second largest cuts)
Trump (third largest cuts)
Clinton (fourth largest cuts)
Obama (net change approximately zero)
Reagan (net change positive)

Taxes and tax burdens are complicated, folks...

Wednesday, January 9, 2019

9/1/19: Corporate tax inversions and shareholder wealth


Our new paper "U.S. Tax Inversions and Shareholder Wealth" has been accepted for publication in the International Review of Financial Analysis:


The paper abstract:
"We examine a sample of corporate inversions from 1993-2015 by firms active in the U.S. markets and find that shareholders experience positive abnormal returns in the short-run. In the long-run, inversions have a deleterious effect on shareholder wealth. The form of the inversion and country-pair differences in geographic distance, economic development and corporate governance standards are determinants of shareholder wealth. Furthermore, we find evidence of a negative and non-linear relation between CEO total return and long-run shareholder returns."

Sunday, November 19, 2017

18/11/17: Say thanks BEPS, as Sweden Cuts Corporate Tax Rates Again...


Sweden, the tough-fighting 'socialist' haven of capitalism is cutting its corporate tax rates. Again.

Yes, that is right. Sweden used to have a decisively 'socialist' rate of corporate income tax (irony implied) of 28% until 2008. In 2009 this rate dropped to a relatively convincing 'socialist' rate of 26.3%, before falling to a sort-of-'socialist' softy 22%. It now plans a cut to 20%.
 h/t for the chart to @mattyglesias 

The announcement is made here: http://www.ey.com/gl/en/services/tax/international-tax/alert--sweden-proposes-major-corporate-income-tax-changes h/t to @tylercowen for the link. 

Note, extensive compliance changes proposed for Swedish tax code to bring it in line with the OECD's BEPS scheme. The scheme was designed, as defined by its objectives, to make it harder for the corporations to avoid taxes in the future. Which means, of course, that to maintain effective tax rates closer to where they were before the BEPS, Sweden, as other states, will need to offset BEPS-induced accounting changes with lower headline rates. 

Tax optimization, folks, just went mainstream in Europe and the U.S. Which is a good thing for transparency (reducing the disparity between the effective rates and the headline rates). But a bad news for personal income taxes. To offset the declines in corporate tax revenues that BEPS changes will inevitably engender, Governments from Sweden to Italy, from Canada to the U.S. will have to either cut spending or increase personal income tax rates. No medals for guessing what they will opt for.

Tuesday, February 2, 2016

2/2/16: MNC Ireland: A new Documentary


A new and well-worth watching documentary on the power of multinational companies in Ireland and Ireland's status as a corporate tax haven is available here: https://vimeo.com/137175562.


Note: Strangely enough, the documentary cites me as a Chairman of the IRBA (which I was at the time). It is worth repeating again that I never speak on behalf of any organisation I am involved with and the IRBA never had a corporate opinion on any policy-related issues. I only express my own personal views.

Friday, November 20, 2015

20/11/15: The Inversion Debate Isn’t Over: Credit Suisse


A brief Credit Suisse note on corporate inversions, with an honourable mentioning for Ireland: https://www.thefinancialist.com/spark/the-inversion-debate-isnt-over/ over the story covered on this blog earlier (see background here including further links).

I especially like that little twist on tax optimisation that are inter-company loans: whilst the original inversion leads to a direct negative impact on tax revenues for our trading and investment partners, it adds a cherry on the proverbial cake by reducing companies' tax liabilities even further through lending to U.S.-based business.

OECD compliant, it all is...

Friday, October 30, 2015

30/10/15: None of Them 'Harmful' Tax Inversions, Dupes...


Remember how in recent months, on foot of an uproar in the U.S. and across the EU, Irish Government has told us that there will be no ‘harmful’ corporate inversions? In other words, there will be no redomiciling of the U.S. companies into Ireland purely for tax purposes?

Well, the mother of all inversions is currently underway, and it is brand new. Behold, Allergan (Irish-based previously inverted U.S. company making Botox) is in talks with Pfizer (U.S.-based global pharma giant) on a merger that will lead to, well, in the words of BusinessInsider: “In this case it would have Pfizer moving its tax domicile - not necessarily its management headquarters - to Ireland, where Allergan is based.”

Read more on this here: http://uk.businessinsider.com/pfizer-allergan-tax-inversion-2015-10?r=US&IR=T

So about none of that business with ‘harmful’ inversions thus?..  staying all OECD-compliant...


Friday, September 26, 2014

26/9/2014: Some recent links on tax inversions


Some interesting recent articles on tax inversions and Irish role as a tax-conduit to tax havens:

US Treasury new rules tightening tax inversions: http://www.treasury.gov/press-center/press-releases/Pages/jl2645.aspx

And Irish reaction to these: http://businessetc.thejournal.ie/us-tax-inversions-ireland-1685263-Sep2014/?utm_source=twitter_self and here: http://www.irishtimes.com/business/economy/us-launches-crackdown-on-overseas-tax-avoidance-1.1938583

While markets broader impact here: http://www.reuters.com/article/2014/09/23/us-usa-tax-inversion-idUSKCN0HI1WK20140923?feedType=RSS&feedName=topNews&utm_source=twitter

Here is a more detailed discussion of the net impact of the new rules, mentioning so-called 'Levin solution' http://fortune.com/2014/09/24/the-treasurys-chicken-soup-take-on-tax-inversions/

And an earlier article from Arthur Cox solicitors on the benefits of inversions into Ireland and associated restrictions: http://www.arthurcox.com/wp-content/uploads/2014/07/April2014_SpotlightOn.pdf Hilariously, the above quotes: "Ireland is a popular country for inversions because of its favorable tax regime and extensive tax treaty network."

And an official response from Ireland to US tightening is 'not our problem': http://www.irishtimes.com/business/economy/kenny-defends-us-firms-irish-presence-1.1939192#.VCKA645RJ3A.twitter

You can track previous articles and posts on Ireland's role in global tax optimisation by searching this blog for "corporate tax". 


Tuesday, August 26, 2014

26/8/2014: Betting on Corporate Tax Inversions? Ireland almost made the top of this strategy...


These haven't been slow-days-of-summer on the Irish corporate tax reputation front.

Few weeks ago, the story of Microsoft admission of holding a USD92bn large stash of cash in locations, including Ireland, has been put out to air: http://billmoyers.com/2014/08/23/microsoft-admits-keeping-92-billion-offshore-to-avoid-paying-29-billion-in-us-taxes/

And today, an interesting disclosure on foot of Ireland-free tax inversion deal by the Burger King popped up: a fund investing in tax inversion companies https://www.motifinvesting.com/motifs/tax-inversion-targets#/overview where Ireland is the second largest exposure after the UK...


These folks should list on Irish Stock Exchange... oh, poor Bermuda and Bahamas, obviously lacking in that skills-and-talent competitiveness we have so much of.

Time for another 'We Are Not a Tax-Haven' white paper from one of the Departments...

You can track my notes on the topic starting from here: http://trueeconomics.blogspot.ie/2014/08/382014-this-week-in-corporate-not-tax.html

Sunday, August 3, 2014

3/8/2014: This Week in Corporate 'Not Tax Haven' News




Some links from recent press articles on Irish Corporate Tax regime:

  • BloombergView on the U.S. politicians' logic concerning the issue of tax breaks: http://www.bloombergview.com/articles/2014-07-28/by-lew-s-logic-all-tax-breaks-are-unpatriotic With respect to Ireland, it no longer matters if there is any logic whatsoever to the U.S. Government and senior officials' statements on the matter. What does matter, however, is that we are now being increasingly / more frequently presented as an international tax arbitrage facilitators. That is the reputational cost of our decades-long policies. The real economic cost of our tax policies is that we no longer have any meaningful strategy or long-term outlook on manufacturing, productivity growth and/or investment. Instead, we have a strategy that relies, in part explicitly, but in full implicitly, on beggar-thy-neighbour tax arbitrage facilitation. 
  • Vox provides its own musings on the matter in "Tax inversions: 9 questions about the hottest new trend in tax avoidance" article. It describes tax inversion with a direct reference to Ireland (and Switzerland) as: "So a company whose business is subject to relatively heavy taxation in one country (say, the United States) can buy a smaller company located in a country where its business is taxed at a lower rate (say, Ireland) and then declare the merged entity to be domiciled in the low-tax country for the purposes of taxation. Walgreens, for example, is in the process of buying a Swiss company called Alliance Boots and is considering re-labelling itself as a subsidiary of the Swiss company to pay lower Swiss tax rates." This is not a debate about Double-Irish scheme or other aggressive tax optimisation loopholes, but about the actual headline tax rate - the sacred Irish cow of 12.5%. And this is serious, real danger to Ireland, as we have no meaningful industrial / manufacturing / services etc growth pillars outside our reliance on tax-attracted FDI. The full article is here: http://www.vox.com/2014/7/28/5944263/corporate-tax-inversions-deserters-vs-economic-patriotism
  • Reuters wades in with an excellent piece on the potential costs of Ireland losing the war on international tax regime. "Ireland has too much to lose to deter U.S. companies re-homing" (http://www.reuters.com/article/2014/07/30/us-usa-tax-ireland-analysis-idUSKBN0FZ1FA20140730?feedType=RSS&feedName=businessNews) also dives into the issue of our 12.5% rate. "It would be difficult to block inversions without jeopardizing the broader benefits," says the author. Which I agree with. We have lost the leadership momentum in the global debate on tax optimisation and now our headline rate is firmly in the crosshair. But our delirious tax advisory experts are still not getting the picture: ""It's a dangerous road to go down," said Kevin McLoughlin, who as head of tax at accounting firm Ernst & Young… I really struggle to see how they can legislate against companies choosing Ireland as a destination in a way that's confined only to these types of situations. I think it's extremely unlikely because I just don't know what they can do." Well, the problems of legislating outside of Ireland may be tough, but I'd love to see Kevin struggling to fill the potential void left in our economy if the legislators abroad do succeed in legislating on the matter. Somehow, I doubt EY will be that creative with coming up with economic development strategy ideas as they are with coming up with tax optimisation ideas.
  • Robert Reich writes in Salon.com that “American” corporations are a farce (http://www.salon.com/2014/07/29/robert_reich_american_corporations_are_a_farce_partner/) and names a list of the Irish-based European operations of blue-chip corporates as the "American farce". Reich pushes the agenda of tax optimisation to R&D supports… which is… oh, surprise surprise, at the top of Irish Government agenda… Now, is there an area of tax arbitrage we haven't captured yet?..
  • Last, but not least, remember the solemn, stern statements from Irish senior public figures arguing that Ireland does not promote itself as a tax arbitrage play, but rather focuses on 'human capital', 'regulatory environment' (aka - regulatory arbitrage) and 'headline rate of tax' (aka - inversions-enabling rate)? Well, they don't have to - instead of senior political and state leaders, we have a swarm of senior lawyers and accountants and corporate finance specialists and… to do the bidding, as reported by Reuters in "Irish, Dutch, UK law firms in tax inversion beauty contest in U.S." (http://www.reuters.com/article/2014/07/24/deals-taxinversions-lawfirms-idUSL2N0PK1L820140724).


Time to cut some FDI ribbons, Ministers…

Note: you can track previous links and discussions relating to Irish corporate tax policies and debates by using 'search' option for 'corporate tax' on this blog or by following blog-links from here: http://trueeconomics.blogspot.ie/2014/07/2672014-this-week-in-corporate-not-tax.html

Wednesday, June 25, 2014

25/62014: IMF on Corporate Tax Spillovers: Ireland one of top names

IMF just published a watershed document on Corporate Taxation - relating to the tax avoidance and aggressive tax optimisation - and its effects on emerging and developed economies. Ireland features prominently in the report.

Here's what it is about.

A new IMF Policy Paper, titled "SPILLOVERS IN INTERNATIONAL CORPORATE TAXATION" considers "the nature, significance and policy implications of spillovers in international corporate taxation—the effects of one country’s rules and practices on others."

Emphasis, throughout is mine (in italics and bold).

The paper develops further the concerns about potentially harmful spillovers from corporate tax regimes in countries with regimes permitting more aggressive tax optimisation onto other economies, in line with concerns expressed by G7, G20 and the OECD and developed under the OECD framework project on Base Erosion and Profit shifting (BEPS).

I wrote about this some time ago and covered it extensively on the blog and in the media. Here are couple of top-line links on the BEPS issues relating to Ireland and other EU countries:

  1. Link to my Cayman Financial Review paper on corporate taxation issues in Ireland: http://trueeconomics.blogspot.ie/2014/04/2242014-on-irish-taxes-quangos-trade.html
  2. My CNBC interview on Apple case: see third link here http://trueeconomics.blogspot.ie/2014/06/2062014-some-recent-media-links-for.html
  3. My WallStreet Journal op-ed on Apple case: http://trueeconomics.blogspot.ie/2014/06/1762014-irelands-regulatory-resource.html


The IMF paper starts by arguing that tax spillovers can matter for macroeconomic performance, as "…there is considerable evidence that taxation powerfully affects the behavior of multinational enterprises. New results reported here confirm that spillover effects on corporate tax bases and rates are significant and sizable. They reflect not just tax impacts on real decisions but, and apparently no less strongly, tax avoidance."

Per IMF, globally, "The institutional framework for addressing international tax spillovers is weak. As the strength and pervasiveness of tax spillovers become increasingly apparent, the case for an inclusive and less piecemeal approach to international tax cooperation grows."

In other words, prepare for a greater push toward closing loopholes and harmful practices that so far have been the cornerstone of the Irish corporate tax policy conveniently obscured by the benign headline rate.


In fact, Ireland is at the forefront of the problems identified in the IMF paper and it is also at the forefront of the table of countries that will lose should aggressive tax optimisation be curbed.

In relation to problem countries, we feature prominently as an economy heavily dependent on FDI and tax optimisation (surprise, surprise):



Here's what the IMF have to say about the above evidence: "One set of questions concerns whether international corporate tax spillovers matter for macroeconomic performance. For capital movements, at least, it seems clear that they do. Table 1, showing characteristics of the ten countries with the highest FDI stocks relative to GDP, suggests that patterns of FDI are impossible to understand without reference to tax considerations (though these of course are not the only explanation). And the point is significant not only for some individual countries (accounting for a stock of FDI extremely high relative to their GDP) but globally (with relatively small countries accounting for a very large share of global FDI). The potential economic implications of international tax spillovers thus go well beyond tax revenue, with wider implications for the broader level and distribution of welfare across nations."


On pervasiveness of corporate income tax (CIT) optimisation in the overall host economy, IMF defines ‘CIT-efficiency’ in country A as the ratio of actual CIT revenue in this country to the reference level of CIT revenue, with the latter computed as the standard CIT rate multiplied by a reference tax base… To the extent that the reference CIT base is larger than the actual ‘implicit’ CIT base [CIT-efficiency measure] will be less than unity; and the further [CIT-efficiency measure] lies below unity, the less effective is the CIT in raising revenue relative to the benchmark."

Per IMF: "Variations in [‘CIT-efficiency’ metrics across countries and time] might reflect behavioral responses that affect GOS [gross operating surplus] and the implicit CIT base in different ways. One obvious candidate is profit shifting, the incentives for which are determined by differences in statutory CIT rates: if a country has a relatively high CIT rate, outward profit shifting will likely cause an erosion of the tax base, without a corresponding reduction in GOS. Conversely, for a country with a relatively low CIT rate, inward profit shifting will tend to expand the implicit base."

Key here is that "…profit shifting would be expected to induce a negative correlation between [‘CIT-efficiency’ metric] and [Corporate Tax Rate]." In other words, to spot profit shifting into the country from abroad, we need to have low corporate tax rate and very high CIT efficiency at the same time…

And guess who's at the top of the global bottom-feeding food chain here?

CHART: Mean CIT Efficiency, 2001–2012

Note: CIT efficiency for Cyprus is 213 percent.

Just look who is second in the world in terms of mean CIT efficiency (we know we are at the top of the world distribution when it comes to low corporation tax rate)… So remember: per IMF, high CIT efficiency combined with low tax rate = a signal that profit shifting is taking place into the economy.

IMF usefully decomposes tax shifting effects for the case of US MNCs as follows.

"The calculations begin with the net incomes of U.S. parents and Majority Owned Foreign Affiliates (MOFAs) by country of affiliate, taken from Bureau of Economic Affairs data… These are adjusted by the average effective corporate income tax rate in the respective country to obtain estimates of taxable income. The average effective tax rate for global taxable income is weighted according to countries’ GDP. Country shares of U.S. MNEs’ sales, assets, compensation of employees and number of employees are obtained from the same tables, adding totals for U.S. parents and MOFAs in all countries. Shares of each apportionment key are applied to global taxable income to derive changes in taxable income."

Here is the main kicker: "Appendix Table 8 shows the country-specific estimates… Broadly, a country gains from FA [global reforms in tax if tax were to accrue in the country where the company bases its activity that generates taxable income] on the basis of some factor if its share in the global total of that factor exceeds its share in the net income of US MNEs. That Italy, for instance, gains under all factors reflects the very low share of US MNEs net income reported there: about 0.16 percent. Whether that reflects inherently low profitability or particularly aggressive outward profit shifting cannot be determined from these data."

In other words, broadly speaking, positive values in the table below are when countries will benefit from tax shifting being shut down, and negative are where the countries will lose from such reforms. Alternatively - positive values show the effective losses incurred by the country from tax shifting. Negative values represent the gains to the country from acting as a tax shifting platform.

CHART: Appendix Table 8. Reallocation of Taxable Income from Alternative Factors, U.S. MNEs Percent of change


Ireland features prominently in this table as a country with:

  • the fourth highest benefit from tax shifting in terms of sales activity booked
  • first highest in terms of assets booked, 
  • third highest in terms of compensation and employment. 

Crucially, we are in line with such tax-transparent jurisdictions as Bermuda and Luxembourg, ahead of the Netherlands and well ahead of Singapore and Switzerland.

But keep repeating to yourselves, we are not a tax haven… not a tax haven…

Friday, October 11, 2013

11/10/2013: What's 'new' in German Coalition talks... what's Ireland...


So today's report in the Irish Times on German Government coalition talks and demands by the Social Democrats (SPD) on Germany blocking use of ESM to cover Irish Exchequer debt exposures arising from the banking crisis and for Germany to adopt a tougher stance on irish corporate tax regime are news... Read them here: http://www.irishtimes.com/business/economy/irish-debt-linked-to-angela-merkel-talks-on-coalition-1.1556845

Now, recall this: http://trueeconomics.blogspot.ie/2013/10/8102013-german-voters-go-for-status-quo.html where all of this fall-out from the German elections was foretold...

Saturday, May 25, 2013

25/5/2013: Saturday Reading Links

Some interesting reading links:

FT Weekend edition has a full supplement on Venice Biennale 2013 - no link, but here's the official page: http://www.labiennale.org/en/art/exhibition/index.html?back=true


A fascinating article from The Economist on the movement toward technology displacing 'knowledge' workers nexthttp://www.economist.com/news/business/21578360-brain-work-may-be-going-way-manual-work-age-smart-machines

This cuts across my own view that we are seeing rising complementarity between technology and human capital, as opposed to substitutability thesis advanced in the article. The Economist view is thought provoking, for sure.


At last, there is a proof of the theorem that postulates that gaps between prime numbers are bounded: http://blogs.ethz.ch/kowalski/2013/05/21/bounded-gaps-between-primes/ and more on same http://www.slate.com/articles/health_and_science/do_the_math/2013/05/yitang_zhang_twin_primes_conjecture_a_huge_discovery_about_prime_numbers.single.html


An excellent piece on the changes big data is bringing to economics - not from the point of view of new studies directions, but from the point of view of verifiability: http://www.guardian.co.uk/business/economics-blog/2013/may/17/economic-big-data-rogoff-reinhart?CMP=twt_gu
There added 'bonus' points in the article discussing overall relationship between the research recognition, rewards and background work.


And a brilliant example of just how atavistic and primitive is the understanding of the web-based and mobile-platformed services in the top political echelons in Europe:
http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/electronics/10054717/France-preparing-tax-on-Apple-and-Google-to-fund-culture.html
Apparently, dinosaurs in French political elites have trouble comprehending just how revolutionary to culture and its creators (artists, thinkers, analysts, developers etc) Apple 'i'- and Google platforms are. It is highly likely that iTunes, for example, are doing more to distribution of Francophone music across the world than the entire Ministry of 'French' Culture. Then again, the entire tax debate in Europe is never about culture or arts or anything tangible, but about finding ever more elaborate and bizarre paths for milking the economy to sustain ever expanding state.


While on topic of matters European, a fascinating study on genetic persistency in European populations covered in http://www.presseurop.eu/en/content/article/3770411-europeans-we-re-all-kissing-cousins
Given it comes from the US (original home to Apple and Google), may be the French can pay a special levy to the US for bothering to include their subjects in global research? Afterall, shall they fail to pay up, ignoring France should not be that hard - it works in geopolitics and economics, after all...


Saturday, May 4, 2013

4/5/2013: Corporate tax rate Laffer Curve


A very interesting, albeit not too rigorous (econometrically) exercise on the relationship between corporate tax rates and corporate tax revenues (the Laffer Curve):
http://alephblog.com/2013/05/03/on-the-laffer-curve-regarding-marginal-corporate-tax-rates/

Worth a read.

Top of the line conclusion: ex-Norway, "...at a 5% level of significance, the equation is significant, with a prob-value of 1.4%, and all but one of the coefficients are significant, and the coefficient on the squared term has a prob value of 11.6%. The signs all go the right way, and the intercept is near zero."

So: "It looks like there is some validity to the idea that as marginal corporate tax rates rise, so do corporate taxes as a percentage of GDP, until the taxes get too high. I didn’t test anything else.  With both equations we learn two ideas:
  • The tax take tops out at a 30% marginal rate
  • You don’t give up much if you set the marginal rate at 20%"