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OECD agreement on taxing multinationals calls for a strategic emphasis on developing indigeneous Irish companies

Patslatt1

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See G20 agrees to wrap up Big Tech tax rules by 2020 The rules aimed at taxing big US tech internet companies like Facebook and Google in countries where they sell their services instead of in low tax counties like Ireland and the Netherlands will likely also apply to smaller companies. Such taxes will likely be arbitrary and provoke rows with the US government.
For instance, most of the profits of a US drug discovery that costs say a billion dollars should be taxed where the major costs and value added occur,mostly for R&D, not where the relatively minor marketing and distribution costs occur in countries such as Germany and France.
In the case of internet companies, the value added likely occurs considerably in the marketing and distribution costs in countries where sales occur but it is hard to estimate value added figures and related profits. Tax distortions will likely occur under OECD rules for estimating profits. Such estimates are likely to be based on sales, assets and numbers of employees of a multinational but that can encourage a government to tax a company even if it is losing money since the tax would come at the expense of other countries' taxes.
If the OECD comes to the agreement predicted in the link, Ireland will need a strategic emphasis on developing indigeneous companies to compensate for the likely erosion of foreign direct investment attracted by the low Irish corporate tax rate. Since the late 1950s, a consisent policy of low taxes has been the key attraction for multinationals.
The first action the government should prioritise is to match the very attractive UK (and Northern Ireland) incentive to software startups that allows them to make £10 million tax free. US tax incentives are also generous Bloomberg - Are you a robot? While many will think this is too generous, the reality is that most Irish software startups have moved to London. That will prove a big loss to the Irish economy since it is generally predicted that software in AI (artificial intelligence) and machine learning will revolutionise economies in coming decades.
Other government actions would be to support venture capital investing in every way possible, including generous tax breaks for what is a high risk business.
 
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Dame_Enda

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Its concerning that the UK, traditionally an opponent of tax harmonisation, is now suddenly supporting this crackdown. There's no doubt we are overdependent on FDI, but at the same time this is not unusual for countries our size, as Luxembourg also shows.

This proposal sounds like CCCTB, which the EU has been pushing for at least 11 years. The larger, high tax countries like France are trying to punish small, more efficient, lower tax economies like Ireland for our success by making our exporters pay their corporate taxes to the country of destination. This would be devastating to the Irish economy,where exports account for most of our GDP.
 

Patslatt1

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Its concerning that the UK, traditionally an opponent of tax harmonisation, is now suddenly supporting this crackdown. There's no doubt we are overdependent on FDI, but at the same time this is not unusual for countries our size, as Luxembourg also shows.

This proposal sounds like CCCTB, which the EU has been pushing for at least 11 years. The larger, high tax countries like France are trying to punish small, more efficient, lower tax economies like Ireland for our success by making our exporters pay their corporate taxes to the country of destination. This would be devastating to the Irish economy,where exports account for most of our GDP.
France has had a bossy statist and overly regulatory attitude towads business in the centuries since Louis the Fourteenth. While that attitude was justified by the historic threat of wars,it is long past its sell by date. The small EU countries need to tell that to Macron.
 

wombat

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The problem with taxing internet companies on where sales take place is that it will reduce profits which are repatriated to the U.S. so its going to be difficult to reach an agreement. The dogs in the street have known that the internet golden goose would eventually be cooked but I'm not sure that will have as big an impact as people fear. If Google closed, how many Irish people would lose their jobs? Compare that to what happens when a pharma plant closes.
 

cytex

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The problem with taxing internet companies on where sales take place is that it will reduce profits which are repatriated to the U.S. so its going to be difficult to reach an agreement. The dogs in the street have known that the internet golden goose would eventually be cooked but I'm not sure that will have as big an impact as people fear. If Google closed, how many Irish people would lose their jobs? Compare that to what happens when a pharma plant closes.
Google employes 7k people in Ireland that is from 2017 it may well have changed since then .

Johnson and Johnson a big pharma plant in Ireland employees 3k
phizer employess 3300 again 2017 figures .
Ireland is a home for 24 of the world’s top biotech and pharma companies.

The real problem with taxing these companies where sales take place is that is unfair to the companies and the places making these products. So for example if I develop and make a widget or program a widget . The majority of the value going into the product is the design and making/programming . If I then sell in another country it gets the tax from that value . Sales does add value but not a lot of value to the product if it is not devleoped and made there is no product to sell. The making and designing the product in a country uses that countries resources roads internet etc and that country should get the majority of tax from the sale.
 

wombat

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The real problem with taxing these companies where sales take place is that is unfair to the companies and the places making these products. So for example if I develop and make a widget or program a widget . The majority of the value going into the product is the design and making/programming .
I doubt there will be an attempt to change where manufactured goods are taxed, the difficulty is with service type companies such as Google where nothing of a solid nature is traded. The Apple case is another example where Apple funnelled profits through its Irish office rather than in the countries where sales were made. Its obvious that the large European countries want a change but if they gain, the U.S. ultimately lose (as well as ourselves)
 

cytex

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I doubt there will be an attempt to change where manufactured goods are taxed, the difficulty is with service type companies such as Google where nothing of a solid nature is traded. The Apple case is another example where Apple funnelled profits through its Irish office rather than in the countries where sales were made. Its obvious that the large European countries want a change but if they gain, the U.S. ultimately lose (as well as ourselves)
Google's services are exactly as described.the devops team is in Ireland /us. servers are in Ireland/us. android and there advertising platform is developed in those countries why should profits be taxed in France just because that's where the service is sold ? Surely it should be taxed where the value was generated?
 

Patslatt1

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Google employes 7k people in Ireland that is from 2017 it may well have changed since then .

Johnson and Johnson a big pharma plant in Ireland employees 3k
phizer employess 3300 again 2017 figures .
Ireland is a home for 24 of the world’s top biotech and pharma companies.

The real problem with taxing these companies where sales take place is that is unfair to the companies and the places making these products. So for example if I develop and make a widget or program a widget . The majority of the value going into the product is the design and making/programming . If I then sell in another country it gets the tax from that value . Sales does add value but not a lot of value to the product if it is not devleoped and made there is no product to sell. The making and designing the product in a country uses that countries resources roads internet etc and that country should get the majority of tax from the sale.
The tax should occur where economic value added occurs, a very difficult measurement for accountants. This difficulty could lead to tax grabs by countries at each others' expense.
 

Watcher2

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See G20 agrees to wrap up Big Tech tax rules by 2020 The rules aimed at taxing big US tech internet companies like Facebook and Google in countries where they sell their services instead of in low tax counties like Ireland and the Netherlands will likely also apply to smaller companies. Such taxes will likely be arbitrary and provoke rows with the US government.
For instance, most of the profits of a US drug discovery that costs say a billion dollars should be taxed where the major costs and value added occur,mostly for R&D, not where the relatively minor marketing and distribution costs occur in countries such as Germany and France.
In the case of internet companies, the value added likely occurs considerably in the marketing and distribution costs in countries where sales occur but it is hard to estimate value added figures and related profits. Tax distortions will likely occur under OECD rules for estimating profits. Such estimates are likely to be based on sales, assets and numbers of employees of a multinational but that can encourage a government to tax a company even if it is losing money since the tax would come at the expense of other countries' taxes.
If the OECD comes to the agreement predicted in the link, Ireland will need a strategic emphasis on developing indigeneous companies to compensate for the likely erosion of foreign direct investment attracted by the low Irish corporate tax rate. Since the late 1950s, a consisent policy of low taxes has been the key attraction for multinationals.
The first action the government should prioritise is to match the very attractive UK (and Northern Ireland) incentive to software startups that allows them to make £10 million tax free. While many will think this is too generous, the reality is that most Irish software startups have moved to London. That will prove a big loss to the Irish economy since it is generally predicted that software in AI (artificial intelligence) and machine learning will revolutionise economies in coming decades.
Other government actions would be to support venture capital investing in every way possible, including generous tax breaks for what is a high risk business.
Many people including me have been banging on for years about switching the over reliance on FDI to a more indigenous focus. The gombeens among the annals of p.ie think this attitude to be an awful idea. How dare we decide FDI is not sacrosanct.
 

Watcher2

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The problem with taxing internet companies on where sales take place is that it will reduce profits which are repatriated to the U.S. so its going to be difficult to reach an agreement. The dogs in the street have known that the internet golden goose would eventually be cooked but I'm not sure that will have as big an impact as people fear. If Google closed, how many Irish people would lose their jobs? Compare that to what happens when a pharma plant closes.
If the servers are not in say France, do the sales take place in France or the location of the servers?
 

Watcher2

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Google employes 7k people in Ireland that is from 2017 it may well have changed since then .

Johnson and Johnson a big pharma plant in Ireland employees 3k
phizer employess 3300 again 2017 figures .
Ireland is a home for 24 of the world’s top biotech and pharma companies.

The real problem with taxing these companies where sales take place is that is unfair to the companies and the places making these products. So for example if I develop and make a widget or program a widget . The majority of the value going into the product is the design and making/programming . If I then sell in another country it gets the tax from that value . Sales does add value but not a lot of value to the product if it is not devleoped and made there is no product to sell. The making and designing the product in a country uses that countries resources roads internet etc and that country should get the majority of tax from the sale.
Manufacturing is actually quite non value add. The tax authorities to now for transfer pricing purposes allow cost +15%. In the case of pharma, the costs element is quite small. So place of manufacture is not where the focus would be.

Also, on your point of number of employees, they are mostly low level employees and likely very few involved in global decision making.
 

wombat

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Many people including me have been banging on for years about switching the over reliance on FDI to a more indigenous focus. The gombeens among the annals of p.ie think this attitude to be an awful idea. How dare we decide FDI is not sacrosanct.
The reason that FDI is important is because the IDA have been very successful at attracting U.S. investment. Its fine saying that we should develop more native companies but the sad fact remains that Irish people prefer to invest in property rather than in manufacturing and without a manufacturing base its difficult to develop a service sector. Forget about the Trots' ideas of setting up workers cooperatives to manufacture goods that no one wants to buy.
 

wombat

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why should profits be taxed in France just because that's where the service is sold ? Surely it should be taxed where the value was generated?
That's what the argument is about, the fact that the successful companies are mostly American is a major factor.
 

ruman

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Good idea many of the MNC's here pay effective CT rates of close zero.
Its effectively a state subsidy not available to small indigeous firms who consequently are unable to compete for talent.

MNC's have helped raise standards but longer term we need to start trying to develop indigenous industry.
 

Patslatt1

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Good idea many of the MNC's here pay effective CT rates of close zero.
Its effectively a state subsidy not available to small indigeous firms who consequently are unable to compete for talent.

MNC's have helped raise standards but longer term we need to start trying to develop indigenous industry.
The low to almost zero corporation tax in some companies results from aggressive tax strategies that direct profits through Ireland from foreign activities that often have little connection to Ireland except in a legalistic way. THis doesn't affect small Irish companies.
 

Patslatt1

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Google employes 7k people in Ireland that is from 2017 it may well have changed since then .

Johnson and Johnson a big pharma plant in Ireland employees 3k
phizer employess 3300 again 2017 figures .
Ireland is a home for 24 of the world’s top biotech and pharma companies.

The real problem with taxing these companies where sales take place is that is unfair to the companies and the places making these products. So for example if I develop and make a widget or program a widget . The majority of the value going into the product is the design and making/programming . If I then sell in another country it gets the tax from that value . Sales does add value but not a lot of value to the product if it is not devleoped and made there is no product to sell. The making and designing the product in a country uses that countries resources roads internet etc and that country should get the majority of tax from the sale.
One exception is branded goods where the brand generates most of the value added through brand tradition,advertising, promotions etc. If brand development in the end market accounts for most of the costs and value added in a country, most of the corporation tax should go to that country.
 

ruman

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The low to almost zero corporation tax in some companies results from aggressive tax strategies that direct profits through Ireland from foreign activities that often have little connection to Ireland except in a legalistic way. THis doesn't affect small Irish companies.
Of course it does. MNC's are able to hire talent as they effectively dont have to pay CT unlike small firms. The net result is a lower cost base and an unfair advantage. In essence a state subsidy.

How can you possibly compete against soneone who doesnt have the costs you do?
 

Myler

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Its fine saying that we should develop more native companies but the sad fact remains that Irish people prefer to invest in property rather than in manufacturing and without a manufacturing base its difficult to develop a service sector.
I think you are right, but doesn't it still raise a question of what we do about it?

And, no, I don't have a ready solution.
 

wombat

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MNC's have helped raise standards but longer term we need to start trying to develop indigenous industry.
We have quite a lot of indigenous industry but we don't have many which are multinationals. The U.S. companies based here are very profitable which skews tax returns but I'm not convinced that the employment returns from the international service sector are that great - specifically Google, highly profitable but how many of their employees are Irish?
 

wombat

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I think you are right, but doesn't it still raise a question of what we do about it?

And, no, I don't have a ready solution.
I worked for a company, almost 40 years ago which was a specialist supplier to the ESB. The ESB had a policy at the time of insisting that when they gave a contract for a new boiler to an international company that they would subcontract some work to Irish companies. They had a meeting with my employer to discuss diversification and were told, they were happy as they were and had no interest in diversification. The ESB told them that if they did not diversify, they would cease to give them contracts i.e. they had to threaten them to get them to do more profitable work. The story has a mixed end - the company is long gone but their sales manager who left in frustration founded a successful company which although based here, does most of their work overseas.
The point of my story is that without private risk takers, there is little a government can do.
 


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