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Google Warns Irish Government Against Tax Increase
theodp writes "The Irish government has been given a stark warning from some of the biggest American companies in Ireland on the risk of a mass exodus if the country's controversial low corporate tax rate is raised in return for an IMF/EU bailout to shore up the country's beleaguered banking system. According to The Telegraph, a statement signed by senior execs at Microsoft, HP, Bank of America, Merrill Lynch, and Intel points out that although Ireland's tax rate may be low in European terms, it is not when compared with locations such as Singapore, India and China. Separately, the head of Google's 2,000-strong European HQ in Dublin told the Belfast Telegraph, 'anything that impinges on Ireland's competitiveness is going to be a big thing for Google,' adding, 'anything that increases the cost-base of a business is negative for competitiveness.'"
I haven't specifically found what I'm talking about, but some of the various problems can be found outlined, with citations, here: http://wakeupwalmart.com/facts/
Except they do contribute - indirectly. By exporting goods to other countries, those companies bring money into their host country, where they pay it out as wages, spend it on locally-purchased supplies, etc. The host country then has ample opportunity to obtain tax revenue via personal income, payroll, or consumption taxes.
Not in the Irish case. Companies "in Ireland for tax reasons" don't necessarily employ many people there. They just have to allocate certain revenues to an Irish subsidiary for tax purposes, and then re-"export" these same on-paper revenues to tax havens like Bermuda. The so called "Double Irish" and "Dutch Sandwich" (they use another holding company in Holland too) that meant Google paid only 2.4% tax rather less than Ireland's 12.5% to 25% rates. It doesn't depend on how many people you employ. Nor on actually making much in Ireland. Just on sharp practice to ensure that even the toilet cleaners at these countries pay higher rates of tax than the company does.
Don't be naive, companies don't pay taxes. It's an indirect tax on people. People are the only source of tax revenue.
If you raise corporate tax, they simply raise their prices and lower their operating costs in other ways. If they are unable to maintain their margin, they move the business somewhere else. Companies can move faster than labor can follow. The barrier to labor mobility is maintained by companies through their subtle manipulation of nationalism. Companies being able to move and labor not being able to follow, allows companies to keep playing the "we'll relocate your job right from under your ass" game.
Silly people (ie: most people, aka: "joe average", "john q. public", "unwashed masses", "chumps") buy the illusion that corporations actually pay tax. It allows politicians to pretend they're screwing someone other than the people. Corporations are only logical entities, not real ones.
Bottom line: the people *always* pay.
The reasoning for the money-from-nothing argument is this:
Bank opens. Alice deposits $1000. Bank loans Bob $250 of Alice's money. Alice still has $1000, Bob now has $250. As long as Alice never withdraws more than $750, the $250 the bank just created on paper still exists. When she tries to withdraw $751, the universe explodes. Luckily it's not just Alice, it's 10,000 Alices, and it's unlikely that they will all withdraw $751 at the same time, so the universe is safe. Sort of.
As much as I agree with the sentiment, these companies are also publicly traded and have obligations to shareholders in. They're just playing smart by choosing the lowest cost areas to place offices. Yes, it would be nice if they'd all just sit and pay increased taxes, but if there's ever a good place to open shop, you can be sure they'll all jump ship without a second thought. So it then becomes a question: does the economic impact of the company in the area mean more than the taxes? Often times, it does...
yup, it's called fractional reserve banking. For X units of currency on the books under 'loans', bank has to hold only n% of X to be considered legit.
That means that, assuming 10% of mandatory reserve, having 1 dollar in deposits allows for 10 dollars in loans. Nowadays the level of reserves around the world is much less than 10%, i'd even risk saying that it's less than 5%.
But that is just what they want you to think BadAnalogyGuy. Banks are FDIC insured with the main requirement being they keep 10% of deposits on hand. Example, if a postal worder deposits $1,000, then the bank can make me a loan of $900, correct? Not so fast...
What they do is take $100 of that money, and loan someone $1000. And then take another $100 and loan someone else $1,000, etc. They can loan out $10,000 on your $1,000 deposit. Now this too is a simplification, but you get the idea.
Now where did they money come from they loaned out? Why, "out of thin air" when they electronically deposited funds to the borrower's account. They need more cash on hand.. they call their "local" Federal Reserve bank and get their nice new crisp bills. Why, the Federal Reserve isn't even a government entity.. no more federal than say, Federal Express. Yet, we pay $0.60 on the dollar to them, for our government to print (borrow) money from them to pay the depositing postal worker.
Interested in more info, please see these links:
http://video.google.com/videoplay?docid=-8484911570371055528#
http://video.google.com/videoplay?docid=6507136891691870450#
On a side note (watch the first video), I live near Jekyll Island.
Like a city whose walls are broken down is a man who lacks self-control.
You clearly don't understand corporate taxes. If you want a good economy, you don't want corporate taxes - that's why most economists will tell you that the best policy is no corporate tax. Why? Because the lower corporate taxes are, the lower their cost to operate and the lower a price they can charge for their product. That means they sell more, which means they hire more people, which means they produce more....
Then there's the fact that, depending on the demand for a product, companies don't pay all taxes - there's always a portion that is shifted on to consumers in the form of higher prices (the incidence of the tax depends on how elastic demand is). If it's something deemed vital, like food, consumers will pay the full amount of the tax in the form of increased prices. If it's something less vital but still in high demand (say an iPhone), then it'll be split with the company paying some money in taxes and the consumer paying some in the form of a higher price, but not as high as if they were paying the full amount of the tax.
For every person who cries about the evils of outsourcing, which given your attitude towards businesses, I'll wager you're one, you fail to realize that the higher the corporate tax rate is, the more incentive companies have to move their operations to a country with lower corporate taxes. That was actually the primary reason why when Daimler bought Chrysler a decade ago they kept the global HQ in Germany - because Germany had a lower corporate tax rate than the US, which means that there were fewer jobs in the US (we lost out on jobs for building a new HQ and staffing it with secretaries, janitors, low level employees, etc) and less income tax revenue coming in than there would have been if the US had a lower corporate tax rate.
"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants." ~Thomas Jefferson
ITYM the US should slap Google with a huge tax bill for running a bunch of business through Ireland's 12.5% tax rate rather than the Us 35% corporate tax rate in the first place. They are based in the US, after all. Google shelters itself from US taxes using Ireland and shelters itself from Irish taxes in Bermuda. It's not speculation on my part. It's all very well documented. The sad part is that right now it's all perfectly legal to move money around internationally for the express purpose of lowering the taxes paid.
These arrangements allow Google, a US company, to put its sales of ads for everywhere outside the US into a wholly owned Irish subsidiary and lower the tax rate on all of those non-domestic sales to 2.4% when their domestic tax rate on profits is 35% and their Irish tax rate would normally be 12.5%. They screw the US with Ireland and then screw Ireland with Bermuda. Lots of other companies do the same, sometimes with the Caymans replacing or supplementing Bermuda. Sometimes they move money through The Netherlands or somewhere else for even more benefits.
"The income and payroll taxes, as well as all the rules and regulations are turning the once productive societies into the third world countries, by creating huge disincentives for people to produce, by moving capital out because societies with gigantic tax rates and so called 'social obligations' have produced entirely unsustainable parasitic governments of enormous size that are strangling the host economy."
The Scandinavian economies are the strongest in the world yet all are highly taxed and highly involved with 'social obligations'
The actual facts do not meet with your dogma, I'm afraid.
The political donor class pays good money for loopholes like these.
When the axe came to the forest, the trees said, "Look out - the handle was once one of us."
If having all those corporations in the country tax-free is so good, then WHY is Ireland going bankrupt?
Because they are not related. The country is going bankrupt because the government gave guarantees to a large commercial bank and a number of commercial/consumer banks that had lended heavily to support a ridiculous property bubble. They didn't do proper due dilligence on the guarantees, were lied to by the bankers about the size of the hole they were in and now the tax payer is now faced with a debt so large that the 'real' economy can't possibly generate enough revenue to repay.
There's a decent explanation here: http://finance.yahoo.com/news/Why-the-Irish-Crisis-is-Going-usnews-4028366968.html?x=0
Corporations don't decide that they want a margin of % percent. They always increase their margin to the highest possible amount. So don't think that keeping taxes low will do anything to lower prices or increase the wages they pay.
I live in Ireland, and like many Irish people I'm sick about hearing about the economy. Things on the ground in Ireland are actually pretty good: people are still spending so VAT income is good, and our exports are doing well throughout this recession. It is widely predicted that we will have a medium-term export led recovery. The problem we have is that the financial markets are not prepared to lend to us at less that an exorbitant interest rate of ~8% due to the perception that our deficient is massive, which is an anomaly due to the EU forcing us to include our own internal bank bailout (NAMA) on the countries balance sheet. Basically our problems are at the macro level not at the micro level: lots of Irish companies including the one I work for are still doing very well in this tough global economy thank you. The only reason we have to go to EU & IMF for funding at 5% interest is because the markets are screwing us at 8%. It is the markets that are hurting us, not corporations like Google etc. which are creating a lot of wealth in the country with the high salaries they pay.
The people who work there?
What about the other 6.2 million people who are actually being hurt by their lack of corporate taxes? They might be helping the citizens overall by letting the corporations leave.
What facilities? What jobs?
Many companies use Irish tax rates through complicated legal arrangements that rarely involve actual business operations other than a post-office box.
Google uses an arrangement called the 'Double Irish' which involves a chain of an Irish-registered entity, to a Dutch-registered entity, and then to another entity which also comes under Irish law (hence double irish) which gives them something like a 2% corporate tax rate. They attribute their profits (I'm not sure if that's all profits, only non-US profits, or only European profits) to this entity, which is pretty much only something that exists on paper.
September 2011: Looking for Cocoa/iOS work in Boston area Cocoa Programmer Quincy, MA
Here's a story at Bloomberg about Google's "Double Irish" arrangement:
http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-lost-to-tax-loopholes.html
September 2011: Looking for Cocoa/iOS work in Boston area Cocoa Programmer Quincy, MA
Probably because there is no logic to it. There's been a considerable amount of conservative anger about proposals in the US to require that companies book their profits in the US before they're allowed to book their losses here. The reason being that they'd been able to get deductions without having to pay taxes here, in effect subsidizing the investments they were making in other countries without providing the US tax payers doing the subsidizing with any benefits.
And really of the proposed ways of handling the problem, it's probably the most moderate as corporations would still be allowed to not book profits from overseas operations in the US, they just wouldn't be allowed to offset domestic profits with overseas losses.
Ah yes, the "reverse *this* is the year of Linux on the desktop" argument. If the data doesn't fit, just make a wild, unsupported accusation and call it fact, then rely on it as the crux of your argument.
If the Scandinavian countries are on borrowed time, they are certainly riding their luck - they show no signs of turning into Greece and have been stable and prosperous for a long time without having to cook any books to make it appear so. I think you are grasping at straws to attempt to discredit any data points that don't fit with your narrow, anti-welfare-program, anti-big government tea party talking points.
I work for a company that is ostensibly "Irish" and we have a handful of employees, there. The number of employees in the US is larger by at least 3-4 orders of magnitude.
.. pa-ra-bo-la, pa-ra-bo-la, 2 pi R, 2 pi R, where's your latus rectum, where's your latus rectum, 2 pi R
You do realize that Bush was probably the most notable proponent of spontaneous wealth generation that the country has ever known, right? The lock box was Gore's thing, and I don't recall the specifics, but it was kind of moot as he wasn't allowed to take office.
Bush OTOH ran this country into the ground by cutting taxes on the wealthiest on the basis that they would do more investing, even as he blew up the DoD budget to gigantic proportions and ran the debt up to somewhere around $10tn.
At least with Gore and the lockbox we don't really know precisely what he meant. And with good reason, the conservatives get away with that crap all the time, and the Democrats haven't been doing themselves any favors allowing the conservatives to do it. Not sure stooping to that level is wise, but the voters seem dumb enough to fall for it.
Congress cut taxes, not Bush, though it was his initiative. They also cut them for every tax bracket, not just the wealthy. The highest tax bracket still pays a higher percentage than the lower brackets under our 'progressive' tax system.
As for spending, yes he spent money like a drunken sailor on leave, but the increase in defense spending was a drop in the bucket compared to the increases in Medicare spending for his prescription drug plan.
I'm not fan of Bush, I just don't like revisionist history.
So the proper lesson here is never build your economy on the basis of large corporations that can leave you as part of a "race to the bottom".
A robust economy will have many small, local businesses that are tied to the community. When you hook your city's, state's, or nation's economic well-being to some megacorp, you are then forever at that megacorp's mercy.
Unfortunately, corporatist politicians will instead take this as an excuse to further kowtow to their masters, and seek even lighter corporate taxes and looser regulations. And the class warfare continues.
Tom Swiss | the infamous tms | my blog
You cannot wash away blood with blood
I find your 1800s, Punch magazine style characterisation of Ireland as a "shit hole" grossly offensive.
By what standard is it a shit hole? The UN recently ranked it fifth in the world in terms of quality of life. The education system compares well with other western European countries.
from http://en.wikipedia.org/wiki/Education_in_the_Republic_of_Ireland
"Ireland's secondary students rank above average in terms of academic performance in both the OECD and EU; having reading literacy, mathematical literacy and scientific literacy test scores better than average. Ireland has the second best reading literacy for teenagers in the EU, after Finland"
Why would anyone expect Airbus or any other large manufacturer to locate their European headquarters in the ROI? At the very least, that would make absolutely no sense logistically. Ireland is on the fringes of Europe, and has a population of just 4 million, heavily concentrated on the west coast.
There are plenty of indigenous Irish tech success stories. Two that come to mind are Havok, and Intrade.
Full disclosure: I am Irish
You mean, the 'tax and spend liberals' are actually proving to increase the debt just as little as the side of fiscal good sense and small government? interesting!
No conservative has ever accused Mr Bush of fiscal good sense. But even so, we're talking 8 years vs 2 years here.
Socialism: a lie told by totalitarians and believed by fools.