Why do US multinationals declare half of their European profit in Ireland?

American multinational companies report 52% of profits abroad through subsidiaries in countries with lax taxation or, directly, in tax havens. Large European economies have a huge tax sink in a handful of countries that prefer tax competition to cooperation between partners. In 2018, the last year for which figures are available, US multinationals declared almost half of their profits made in the EU through their Irish subsidiaries, thus taking advantage of their large tax incentives, according to data released by the Office of Economic Analysis (OEA)). Around 47% of the profits reported in Europe by large US companies – and 17% of those worldwide – were placed in the accounts of these subsidiaries in the country of origin: almost 98 billion dollars that should pay taxes in other countries of the European bloc. Meanwhile, US multinationals declared 52% of their profits outside their country through subsidiaries located in lax tax jurisdictions. Ireland is one of the European countries that has made the most of its advantageous taxation to attract the interest of multinationals and establish themselves on the island. It does this, basically, through schemes that allow these companies to declare through their Irish subsidiaries – subject to low taxes – profits ultimately obtained in other community countries where the taxation of profits is much more onerous. The practice is especially simple in the case of digital businesses, in which it is not necessary to have a physical presence in a country to develop your business there. “Ireland offers very low tax rates to multinationals, on some occasions, as I have seen in the case of Apple, close to 0%”, stresses Gabriel Zucman, professor at the University of Berkeley. “And since they are also active in Ireland itself, the movement of profits obtained in other countries is less suspicious than in small, sparsely populated islands like Bermuda, which has appeared until recently on the list of tax havens of the EU”. To identify flagrant cases of profit transfers between jurisdictions with the aim of paying fewer taxes, the French economist makes use of a very simple calculation: comparing the cost of workers that a company has in a country and the profits it declares in it. And the numbers are conclusive: for every dollar spent on salaries in Ireland, US multinationals made nine in profits. The figures produced by the same calculation for Spain, Germany or France are radically different: for every dollar spent on wages, they only achieved earnings of 0.5, 0.2 and 0.15 dollars, respectively. Still, the Irish case is not unique. Something very similar happens with other European nations that carry a record equally marked by a more than doubtful fiscal behavior: the Netherlands, Luxembourg and Belgium, among others. All of them have been involved in recent years in investigations by the European Commission of course favoring companies such as Apple, Amazon, Starbucks or Fiat. And all of them are high on the list published: subsidiaries of US companies in the Netherlands accounted for 14% of the total profit obtained in Europe; some 29 billion, those based in Belgium almost 4%, or 7,8 billion and those of Luxembourg close to 3%; or 5.8 billion. Figures much higher than their GDP dictates. In 2018, the year to which the data just published in the US corresponds, the then European Commissioner for Economic and Monetary Affairs harshly rebuked a group of countries – Ireland, the Netherlands, Belgium, Cyprus, Hungary, Luxembourg, Malta. for their “aggressive” practices. They have, said Pierre Moscovici, the potential to weaken justice and a level playing field in our single market and increase the burden on European taxpayers ”. None of them are included in the international lists of tax havens, but some specialists, such as Zucman, clearly point them out as such. “Ireland, like the Netherlands and Luxembourg, is a super-aggressive tax haven: not only does it have a much lower general rate of companies; 12.5%, half that in Spain, but in practice, it often is even lower. With so many advantages, there are “many” large companies that are even transferring a good part of their operations from traditional tax havens such as the Virgin Islands or some of the Caribbean to these legitimate tax havens, which are not considered as such despite being so. Although both the European Commission and the Organization for Economic Cooperation and Development (OECD) have put the matter on their priority list, the general feeling is that – if achieved – it will still be many years until the tax scheme is disassembled.   Read the rest below at the source link