Slashdot Mirror
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.'"
Fareed Zakaria: "While businesses have a way to navigate this new world of technological change and globalization, the ordinary American worker does not. Capital and technology are mobile; labor isn't...That makes it more difficult for the American middle-class worker to benefit from technology and global growth in the same way that companies do. At this point, economists will protest. Historically, free trade has been beneficial to rich and poor. By forcing you out of industries in which you are inefficient, trade makes you strengthen those industries in which you are world-class. That's right in theory, and it has been right in practice...And yet something feels different this time."
.. and to eat it at same time. It does not mind all governments to be near broke, as long as they have the money. Well it does not work that way, as it seems that all countries that give them safe tax haven will either fail or be unstable to do business in long term.
Corporations should not be above people and government - as we can see they can abuse both to get what they want ($). It is okay to make money, don't get me wrong, but it appears in this process there's only one winner - Big Co, and Joe Smith ends up with the (tax) bill.
How come we have situations where companies make insane amount of money and governments that allow them to be in market are near broke? Well answer is obvious - they abuse system, or lack of it.
So if google wants to help - well it can pay their debt bill. Because they are partially responsible for it.
Kind'a...
If you do not contribute to the economy of your host country one of the results is that it will have a low living standard, housing in disarray, unemployment through the roof. This will automatically put a number of limitations on what kind of people you can hire. To be more specific - you can hire only wageslaves with non-working dependants.
While that may be OK if your aim is to import labour from Talebanic countries where the wife is a houseslave, it does not work well in the civilised world. If it did, Google would not have had to post 200+ positions on a weekly basis for Dublin and consistently _FAIL_ to fill them. The situation with a lot of other emloyers in Ireland is not much different. They all continue to have a long list of positions for qualified labour open.
That is to expected, because foreign labour does not want to move into the middle of a dump (and Ireland in the economic sense is a dump) and the Irish educational system does not have enough money (taxes are actually used for something ya know) to produce an equivalent.
So overall, Google should stop wingeing here and realise that by moving a high skilled labour activity into a low tax rate country it has shot itself in the foot in the long term. High skilled labour, Low Taxes and Growth - you have to pick two. All three together are mutually exclusive.
Baker's Law: Misery no longer loves company. Nowadays it insists on it
http://www.sigsegv.cx/
You can find a good few of the studies that have been done catalogued here. The tl;dr version is that Wal-Mart does not pay well or offer benefits, so its workers generally require public assistance to make up the shortfall. Very little of the money it makes stays local (most of it, of course, is being shipped right off to China), and it's often structured or "incentivized" by the city to pay very little tax. This results in a group of people who are long-term dependent on public assistance (both those who work at Wal-Mart and those who do not, since Wal-Marts tend to drastically reduce the number of decent jobs in an area), so it's a massive drain but only a small boost to the local economy.
I recall a story some time ago of how Wal-Marts actually had materials in some of their break rooms of how to apply for food stamps and the like. Admittedly, I can't find the cite for that, but it certainly illustrates the problem. People with a steady, full-time job shouldn't need food and medical aid.
Granted, it's not only Wal-Mart. A lot of these "minimum wage" type places are similar leeches. They're basically taking the money states and cities are putting into food and medical aid and pocketing it, since they're not paying a wage anyone could realistically live on.
To fight the war on terror, stop being afraid.
Perhaps you're not looking at the question properly. Please, change your perspective. slightly, then take another look. Let's ask the question, like this: "If having all those corporations in the country tax-free is so good, then WHY is Ireland going bankrupt?" I'll be honest - I am no economist. I don't understand all the tax schedules, or who gets tax breaks, or why, or how. What I DO KNOW for certain is, the corporations are parasitic entities, with only their own welfare in mind. If the corporations were symbiotic, instead of parasitic, they would be examining how taxes benefit the host nation, and negotiating over those taxes. You know, give and take, compromise, stuff like that. Instead, we see here that the parasites are ready to find a new host if this one goes belly up.
"Windows is like the faint smell of piss in a subway: it's there, and there's nothing you can do about it." - Charlie Br
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.
What I don't understand is why this is legal outside of Ireland (i.e. in those countries which are losing money because of it).
Don't get me wrong - if countries want to compete on income tax to attract businesses, I'm all for it. It's up to the citizens of a democratic state to decide how they want to run things in it, and that includes tax rates. And Google, Intel, Microsoft etc are quite welcome to enjoy the benefits of those low taxes - by moving their actual production facilities to those places.
But why the hell do they get to pay low taxes in Ireland off products that are actually made - and often sold! - on US soil? Their businesses enjoy all benefits of that society, but then skirt their obligation. Why is this legal?
There are actually two separate issues here.
Issue 1.
We're talking about American companies based in the U.S. that base their European headquarters in Ireland for the Tax breaks. All this occurs only because higher level executive can order some European executive to live in Ireland. Alcatel, Airbus, Nokia, etc. are not based in Ireland because Ireland is a shit hole.
If Ireland raises their tax rates, but still keeps their taxes slightly lower than France, German, England, etc., all these American companies will keep their existing European corporate headquarters in Ireland. Ireland would need to raise their tax rates slight above some other European country before any corporate headquarters moves.
Issue 2.
All these American companies maintain European work forces in Ireland because the corporate tax rates are lower. If Ireland raised it's tax rates, they might consider moving some facilities to European countries with cheaper labor, like Spain, Poland, etc.
We're not talking about a terribly fast process however for various reasons such as : The company benefiting from specific work forces being near their European corporate headquarters, which we've established won't move. Inability to simple move the people coupled with a lack of suitable workers in the new country. etc.
So what is the real cost of raising taxes?
Easy, Ireland will cease growth due to new foreign investment. American companies will not establish new divisions in an expensive shit hole like Ireland once the corporate taxes rise to European standards. Instead, they'll either look for lower wage locations in Eastern or Southern Europe, or preferably India and Singapore. Or they'll invest in more expensive but better educated workers in probably Germany, but maybe Scandinavia or France.
In fact, almost any jobs that could be exported to India and Singapore will most likely be exported eventually anyways. So honestly all the other countries of Europe will benefit enormously from forcing Ireland to raise it's corporate tax rates. I'd argue this holds true even if this means the ECB must bail them out eventually.
Ireland fucked up. Germany & co. now own their ass. Time to pay the piper guys. And one payment will be more American investment in Germany instead of Ireland.
p.s. Don't forget that China isn't exactly an option. Google is currently only discussing their moral qualms with China. All the industrial espionage is however a major problem for *all* companies. You realize even being married to a chinese national precludes you from any kind of U.S. security clearance? It's entirely realistic that the U.S. could start banning software developed in China from any sort of sensitive industrial processes. etc. China isn't a good option, plus the Indians do software better.
The Christian religion has been and still is the principal enemy of moral progress in the world. -- Bertrand Russell
No, the problem with Ireland getting hit so hard isn't because of tax breaks
Actually, the problem with Ireland getting hit so hard is because they have an external debt of over 1300% of GDP. See, contrary to what some believe there's no actual difference between private debt and government debt these days, when government steps in to guarantee any private debt.
If your private sector is running with a huge deficit, borrowing to finance itself, your government is going to be on hock for that. For the purpose of economic prediction you might as well count that deficit as part of the actual deficit. And in the case of Ireland, it's been running on such a very high deficit.
The last couple of decades, the systematic privatization of many government functions appears to have included the accumulation of unpayable debt and fiscal irresponsibility, cheered on, if not enforced, by the central banks.
What will solve it is getting inflation under control and making sure the banks in Ireland are solvent
Banks aren't going to get solvent (on a real mark-to-market basis) until fractional reserves are forbidden. The only actual fix to these problems would be to have market set rates and full reserves, in which case you'd get automatic rate adjustment as demand for loans increases/availability of capital decreases, preventing and/or rapidly liquidating gross malinvestments.
Of course, such an adjustment into a sustainable economy would be painful for the profligate, which means we'll get taxed instead by inflated fiat currencies to erode the debt of the irresponsible and the savings of the thrifty.
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.
There's a reason for that. The anti-tax folks don't want to name the cuts they'd make in order for it to work out to a balanced budget. I don't think there's anything inherently wrong with wanting low taxes, but there is something inherently wrong with Bush/Regan style tax cuts which not only aren't backed by spending cuts, but are really backed by spending increases of a substantial amount. At some point somebody has to find the money and it seems to usually end up in the lap of the Democratic party. The alternative being at some point defaulting on the loans.
Most of the folks complaining about the tax burden are unwilling to allow the spending which is focused on benefiting them to be cut. It's easy to call for cuts when the cuts don't affect you but quite a bit harder to actually be the one to make the sacrifice. Likewise it's easier to cut programs that you don't expect to need than ones that you do expect to need. And easier to cut things you hope to never need than the ones you hope to someday need.
This is a huge issue for Google. But not because of Google's operations in Ireland. Google's whole tax-avoidance strategy, which gets Google's tax rate down to 2.4% (!), is based on a tax strategy which exploits Irish law:
Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.
Google's income shifting -- involving strategies known to lawyers as the "Double Irish" and the "Dutch Sandwich" -- helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries.
"It's remarkable that Google's effective rate is that low," said Martin A. Sullivan, a tax economist who formerly worked for the U.S. Treasury Department. "We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 percent."
The Bloomberg article describes how this works. Google "licenses its advertising technology" to "Google Ireland Holdings", which owns "Google Ireland Limited". That unit sells 88% of Google's $12.5 billion in non-US advertising. Google Ireland Limited then pays royalties to Google Netherlands Holdings B.V. in Amsterdam (which, according to Bloomberg, is a dummy company with no employees), to get the benefit of a tax break for royalties paid between European Union countries. Then Google Netherlands Holdings B.V. pays royalties to Google Ireland Holdings (headquartered in Bermuda) $5.4 billion in "royalties". "You accumulate profits within Ireland, but then you get them out of the country relatively easily. And you do it by using Bermuda." After all that, the tax liability has been laundered out of existence.
That's why Google is concerned about changes in Ireland's tax laws.