More bad publicity

This article in the Guardian is going to infuriate British readers — not that they have any particular right to be infuriated, while British territories continue to operate as tax havens.

None of this is sustainable in the long run, and we need to start planning for the long run now.

4 replies on “More bad publicity”

It was only a matter of time until this got us into trouble. For example, as far as I know Microsoft puts all of its revenue for Europe, Middle East and Africa through Dublin, despite very little product (windows) development occurring here…..
I’m surprised we’ve gotten a away with these things for so long. That said, short of harmonising taxes is there anything the EU can really do about this?

Microsoft isn’t really in the same situation as the companies in the article. MS has a substantial Dublin presence that creates value. For any mature software product, much (probably most) of the value is created or maintained by stuff outside the codebase (support, consulting, 3rd party software, translation, customization, marketing …..). This is the sort of stuff that is (apparently) done or organized by MS from Sandyford, for MS in EMEA.

Of course they probably also leverage the tax environment.

And no, I don’t work for MS, and never have.

The Microsoft deal is based on “registered cost-sharing agreements”. How these work is that if the Irish operations servicing the EMEA region expect to derive say 40 percent of the revenues from a new innovation and the US expects 60 percent, then the Irish subsidiary agrees to pay 40 percent of the cost of the necessary R&D no matter where it is done. These are the tax agreements in place at present. Of course there are loopholes that can be exploited. (My students find them easy to identify).

The US Deficit Reduction Act of 1984 rescinded an exemption that allowed US firms to transfer IP developed in the US to lower tax locations without triggering US tax liability, as long as the goods produced by the intangibles were sold outside the United States. I am speculating that further moves in this direction might be in store. This is much more likely than the US moving on the deferral of profit repatriation about which some commentators expressed fears over the course of the Obama campaign.

Moves against IP and HQ offshoring would cost Ireland corporation tax revenues but should have minimal employment effects.

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