Corporate haven
Template:Short descriptionTemplate:ComplicatedTemplate:Taxation Corporate haven, corporate tax haven, or multinational tax haven is used to describe a jurisdiction that multinational corporations find attractive for establishing subsidiaries or incorporation of regional or main company headquarters, mostly due to favourable tax regimes (not just the headline tax rate), and/or favourable secrecy laws (such as the avoidance of regulations or disclosure of tax schemes), and/or favourable regulatory regimes (such as weak data-protection or employment laws).
Unlike traditional tax havens, modern corporate tax havens reject they have anything to do with near-zero effective tax rates, due to their need to encourage jurisdictions to enter into bilateral tax treaties that accept the haven's base erosion and profit shifting (BEPS) tools. CORPNET show each corporate tax haven is strongly connected with specific traditional tax havens (via additional BEPS tool "backdoors" like the double Irish, the Dutch sandwich, and single malt). Corporate tax havens promote themselves as "knowledge economies", and intellectual property (IP) as a "new economy" asset, rather than a tax management tool, which is encoded into their statute books as their primary BEPS tool. This perceived respectability encourages corporates to use these International Financial Centres (IFCs) as regional headquarters (i.e. Google, Apple, and Facebook use Ireland in EMEA over Luxembourg, and Singapore in APAC over Hong Kong/Taiwan).
While the "headline" corporate tax rate in jurisdictions most often implicated in BEPS is always above zero (e.g. Netherlands at 25%, U.K. at 19%, Singapore at 17%, and Ireland at 12.5%), the "effective" tax rate (ETR) of multinational corporations, net of the BEPS tools, is closer to zero. To increase respectability, and access to tax treaties, some jurisdictions like Singapore and Ireland require corporates to have a "substantive presence", equating to an "employment tax" of approximately 2–3% of profits shielded and if these are real jobs, the tax is mitigated.
In corporate tax haven lists, CORPNET's "Orbis connections", ranks the Netherlands, U.K., Switzerland, Ireland, and Singapore as the world's key corporate tax havens, while Zucman's "quantum of funds" ranks Ireland as the largest global corporate tax haven. In proxy tests, Ireland is the largest recipient of U.S. tax inversions (the U.K. is third, the Netherlands is fifth). Ireland's double Irish BEPS tool is credited with the largest build-up of untaxed corporate offshore cash in history. Luxembourg and Hong Kong and the Caribbean "triad" (BVI-Cayman-Bermuda), have elements of corporate tax havens, but also of traditional tax havens.
Economic Substance legislation introduced in recent years has identified that BEPS is not a material part of the financial services business for Cayman, BVI and Bermuda. While the legislation was originally resisted on extraterritoriality, human rights, privacy, international justice, jurisprudence and colonialism grounds, the introduction of these regulations has had the effect of putting these jurisdictions far ahead of onshore regulatory regimes.
Global BEPS hubs
[edit]Modern corporate tax havens, such as Ireland, Singapore, the Netherlands and the U.K., are different from traditional "offshore" financial centres like Bermuda, the Cayman Islands or Jersey.<ref name="dut">Template:Cite web</ref><ref name="dutx">Template:Cite web</ref> Corporate havens offer the ability to reroute untaxed profits from higher-tax jurisdictions back to the haven;<ref name="bbbg"/><ref name="qzz"/> as long as these jurisdictions have bi-lateral tax treaties with the corporate haven.<ref name="singapore">Template:Cite news</ref> This makes modern corporate tax havens more potent than more traditional tax havens, who have more limited tax treaties, due to their acknowledged status.<ref>Template:Cite web</ref>
The Cayman Islands, BVI, Bermuda, Jersey and Guernsey are more properly now known as IFCs or Offshore Financial Centres (OFCs).
Tools
[edit]Tax academics identify that extracting untaxed profits from higher-tax jurisdictions requires several components:<ref name="dut2">Template:Cite news</ref><ref name="zew">Template:Cite web</ref> Template:Ordered list Once the untaxed funds are rerouted back to the corporate tax haven, additional BEPS tools shield against paying taxes in the haven. It is important these BEPS tools are complex and obtuse so that the higher-tax jurisdictions do not feel the corporate haven is a traditional tax haven (or they will suspend the bilateral tax treaties). These complex BEPS tools often have interesting labels:<ref name="zew"/><ref name="caid">Template:Cite web</ref> Template:Ordered list
Execution
[edit]Building the tools requires advanced legal and accounting skills that can create the BEPS tools in a manner that is acceptable to major global jurisdictions and that can be encoded into bilateral tax treaties, and does not look like a "tax haven" type activity. Most modern corporate tax havens therefore come from established financial centres where advanced skills are in-situ for financial structuring.<ref name="dut5"/><ref name="dut3"/> In addition to being able to create the tools, the haven needs the respectability to use them. Large high-tax jurisdictions like Germany do not accept IP–based BEPS tools from Bermuda but do from Ireland. Similarly, Australia accepts limited IP–based BEPS tools from Hong Kong but accepts the full range from Singapore.<ref name="dut4"/>
Tax academics identify a number of elements corporate havens employ in supporting respectability:<ref name="ftt">Template:Cite news</ref> Template:Ordered list
Aspects
[edit]Misnomer
[edit]While jurisdictions traditionally labelled as tax havens have often marketed themselves as such, modern Offshore Financial Centres reject the tax haven label.<ref>Template:Cite web</ref><ref>Template:Cite news</ref><ref name="straits">Template:Cite news</ref> This is to ensure that other higher-tax jurisdictions, from which the corporate's main income and profits often originate, will sign bilateral tax-treaties with the haven,<ref name="xyz"/> and also to avoid being black-listed.<ref name="reuters1">Template:Cite news</ref><ref name="independent1">Template:Cite news</ref><ref>Template:Cite web</ref>
This issue has caused debate on what constitutes a tax haven,<ref name="sing"/> with the OECD most focused on transparency (the key issue of traditional tax havens),<ref name="pod"/><ref name="ced">Template:Cite web</ref><ref>Template:Cite news</ref> but others focused on outcomes such as total effective corporate taxes paid.<ref>Template:Cite news</ref><ref>Template:Cite news</ref><ref name="aa4">Template:Cite news</ref><ref name="aa2">Template:Cite web</ref> It is common to see the media, and elected representatives, of a modern corporate tax haven ask the question, "Are we a tax haven ?"<ref name="aa1">Template:Cite web</ref><ref>Template:Cite web</ref><ref>Template:Cite web</ref><ref name="forbes">Template:Cite magazine</ref>
For example, when it was shown in 2014, prompted by an October 2013 Bloomberg piece,<ref name="bbbg"/><ref name="ftt"/> that the effective tax rate of U.S. multinationals in Ireland was 2.2% (using the U.S. Bureau of Economic Analysis method),<ref>Template:Cite news</ref><ref name="weil">Template:Cite web</ref><ref>Template:Cite news</ref><ref name="qzz">Template:Cite news</ref> it led to denials by the Irish Government<ref name="cnbc1">Template:Cite web</ref><ref>Template:Cite news</ref> and the production of studies claiming Ireland's effective tax rate was 12.5%.<ref name="pwcrates">Template:Cite web</ref> However, when the EU fined Apple in 2016, Ireland's largest company,<ref name="itb">Template:Cite news</ref> €13 billion in Irish back taxes (the largest tax fine in corporate history<ref>Template:Cite magazine</ref>), the EU stated that Apple's effective tax rate in Ireland was approximately 0.005% for the 2004-2014 period. The EU's position was found, on appeal in the EU's court, to be unsupported by the facts. However, the G7 leaders in the wake of reporting about a Microsoft subsidiary's level of taxation in 2020, have proposed an agreement on a global minimum corporate tax rate of 15%. Template:Quote
Activists in the Tax Justice Network propose that Ireland's effective corporate tax rate was not 12.5%, but closer to the BEA calculation. Studies cited by The Irish Times and other outlets suggest that the effective tax rate is close to the headline 12.5 percent rate – but this is a theoretical result based on a theoretical "standard firm with 60 employees" and no exports: in reality, multinational businesses and their corporate structures vary significantly. It is not just Ireland, however. The same BEA calculation showed that the ETRs of U.S. corporates in other jurisdictions was also very low: Luxembourg (2.4%), the Netherlands (3.4%) and the US for multinationals based in other parts of the World.<ref name="qzz"/> When Gabriel Zucman, published a multi-year investigation into corporate tax havens in June 2018, showing that Ireland is the largest global corporate tax haven (having allegedly shielded $106 billion in profits in 2015), and that Ireland's effective tax rate was 4% (including all non-Irish corporates),<ref name="gabrielzucman">Template:Cite web</ref> the Irish Government countered that they could not be a tax haven as they are OECD-compliant.<ref name="pod"/>
Financial impact
[edit]It is difficult to calculate the financial effect of tax havens in general due to the obfuscation of financial data. Most estimates have wide ranges (see financial effect of tax havens). By focusing on "headline" vs. "effective" corporate tax rates, researchers have been able to more accurately estimate the annual financial tax losses (or "profits shifted"), due to corporate tax havens specifically. This is not easy, however. As discussed above, havens are sensitive to discussions on "effective" corporate tax rates and obfuscate data that does not show the "headline" tax rate mirroring the "effective" tax rate.
Two academic groups have estimated the "effective" tax rates of corporate tax havens using very different approaches: Template:Ordered list
They are summarised in the following table (BVI and the Caymans counted as one), as listed in Zucman's analysis (from Appendix, table 2).<ref name="gabrielzucman"/>
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Zucman used this analysis to estimate that the annual financial impact of corporate tax havens was $250 billion in 2015.<ref name="zuc10"/> This is beyond the upper limit of the OECD's 2017 range of $100–200 billion per annum for base erosion and profit shifting activities.<ref name="BEPS Background">Template:Cite web</ref>
The World Bank, in its 2019 World Development Report on the future of work suggests<ref>Template:Cite web</ref> that tax avoidance by large corporations limits the ability of governments to make vital human capital investments.
Conduits and Sinks
[edit]Template:Main Modern corporate tax havens like Ireland, the United Kingdom and the Netherlands have become more popular for U.S. corporate tax inversions than leading traditional tax havens, even Bermuda.<ref name="bbb">Template:Cite web</ref>
However, corporate tax havens still retain close connections with traditional tax havens as there are instances where a corporation cannot "retain" the untaxed funds in the corporate tax haven, and will instead use the corporate tax haven like a "conduit", to route the funds to more explicitly zero-tax, and more secretive traditional tax havens. Google does this with the Netherlands to route EU funds untaxed to Bermuda (i.e. dutch sandwich to avoid EU withholding taxes),<ref name="google1">Template:Cite news</ref><ref name="Bloomberg">Template:Cite web</ref> and Russian banks do this with Ireland to avoid international sanctions and access capital markets (i.e. Irish Section 110 SPVs).<ref name="rus2">Template:Cite web</ref><ref name="rus3">Template:Cite news</ref>
A study published in Nature in 2017 (see Conduit and Sink OFCs), highlighted an emerging gap between corporation tax haven specialists (called Conduit OFCs), and more traditional tax havens (called Sink OFCs). It also highlighted that each Conduit OFC was highly connected to specific Sink Template:Not a typo. For example, Conduit OFC Switzerland was highly tied to Sink OFC Jersey. Conduit OFC Ireland was tied to Sink OFC Luxembourg,<ref name="llux">Template:Cite web</ref> while Conduit OFC Singapore was connected to Sink OFCs Taiwan and Hong Kong (the study clarified that Luxembourg and Hong Kong were more like traditional tax havens).
The separation of tax havens into Conduit OFCs and Sink OFCs, enables the corporate tax haven specialist to promote "respectability" and maintain OECD-compliance (critical to extracting untaxed profits from higher-taxed jurisdictions via cross-border intergroup IP charging), while enabling the corporate to still access the benefits of a full tax haven (via double Irish, dutch sandwich type BEPS tools), as needed.
We increasingly find offshore magic circle law firms, such as Maples and Calder and Appleby,<ref name="appley"/> setting up offices in major Conduit OFCs, such as Ireland.<ref>Template:Cite web</ref><ref>Template:Cite news</ref><ref>Template:Cite web</ref>
Employment tax
[edit]Several modern corporate tax havens, such as Singapore and the United Kingdom, ask that in return for corporates using their IP-based BEPS tools, they must perform "work" on the IP in the jurisdiction of the haven. The corporation thus pays an effective "employment tax" of circa 2–3% by having to hire staff in the corporate tax haven.<ref name="smh">Template:Cite web</ref> This gives the haven more respectability (i.e. not a "brass plate" location), and gives the corporate additional "substance" against challenges by taxing authorities. The OECD's Article 5 of the MLI supports havens with "employment taxes" at the expense of traditional tax havens.
Irish IP-based BEPS tools (e.g. the "capital allowances for intangible assets" BEPS scheme), have the need to perform a "relevant trade" and "relevant activities" on Irish-based IP, encoded in their legislation, which requires specified employment levels and salary levels (discussed here), which roughly equates to an "employment tax" of circa 2–3% of profits (based on Apple and Google in Ireland).<ref name="rev1">Template:Cite web</ref><ref name="cap2">Template:Cite web</ref>
For example, Apple employs 6,000 people in Ireland, mostly in the Apple Hollyhill Cork plant. The Cork plant is Apple's only self-operated manufacturing plant in the world (i.e. Apple almost always contracts to 3rd party manufacturers). It is considered a low-technology facility, building iMacs to order by hand, and in this regard is more akin to a global logistics hub for Apple (albeit located on the "island" of Ireland). No research is carried out in the facility.<ref>Template:Cite web</ref> Unusually for a plant, over 700 of the 6,000 employees work from home (the largest remote percentage of any Irish technology company).<ref>Template:Cite news</ref><ref name="appleq">Template:Cite news</ref>
When the EU Commission completed their State aid investigation into Apple, they found Apple Ireland's ETR for 2004–2014, was 0.005%, on over €100bn of globally sourced, and untaxed, profits.<ref name="europax">Template:Cite web</ref> The "employment tax" is, therefore, a modest price to pay for achieving very low taxes on global profits, and it can be mitigated to the extent that the job functions are real and would be needed regardless.<ref>Template:Cite web</ref>
"Employment taxes" are considered a distinction between modern corporate tax havens, and near-corporate tax havens, like Luxembourg and Hong Kong (who are classed as Sink OFCs). The Netherlands has been introducing new "employment tax" type regulations, to ensure it is seen as a modern corporate tax haven (more like Ireland, Singapore, and the U.K.), than a traditional tax haven (e.g. Hong Kong).<ref name="ned">Template:Cite news</ref>
U.K. transformation
[edit]The United Kingdom was traditionally a "donor" to corporate tax havens (e.g. the last one being Shire plc's tax inversion to Ireland in 2008<ref>Template:Cite news</ref>). However, the speed at which the U.K. changed to becoming one of the leading modern corporate tax havens (at least up until pre-Brexit), makes it an interesting case (it still does not appear on all Template:Slink).
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The U.K. changed its tax regime in 2009–2013. It lowered its corporate tax rate to 19%, brought in new IP-based BEPS tools, and moved to a territorial tax system.<ref name="uk1"/> The U.K. became a "recipient" of U.S. corporate tax inversions,<ref name="bbb"/> and ranked as one of Europe's leading havens.<ref name="econ"/> A major study now ranks the U.K. as the second largest global Conduit OFC (a corporate haven proxy). The U.K. was particularly fortunate as 18 of the 24 jurisdictions that are identified as Sink OFCs, the traditional tax havens, are current or past dependencies of the U.K. (and embedded into U.K. tax and legal statute books).<ref name="tjn1">Template:Cite web</ref>
New IP legislation was encoded into the U.K. statute books and the concept of IP significantly broadened in U.K. law.<ref name="ukipo"/> The U.K.'s Patent Office was overhauled and renamed the Intellectual Property Office. A new U.K. Minister for Intellectual Property was announced with the 2014 Intellectual Property Act.<ref>Template:Cite news</ref> The U.K. is now 2nd in the 2018 Global IP Index.<ref name="gipc"/>
The U.K.'s successful transformation from "donor" to corporate tax havens, to a major global corporate tax haven in its own right, was quoted as a blueprint for type of changes that the U.S. needed to make in the Tax Cuts and Jobs Act of 2017 tax reforms (e.g. territorial system, lower headline rate, beneficial IP-rate).<ref name="uuu1">Template:Cite web</ref><ref name="uk1">Template:Cite web</ref><ref name="uktax1">Template:Cite web</ref>
Distorted GDP/GNP
[edit]
Some leading modern corporate tax havens are synonymous with offshore financial centres (or OFCs), as the scale of the multinational flows rivals their own domestic economies (the IMF's sign of an OFC<ref name="imf">IMF working paper: Concept of Offshore Financial Centers: In Search of an Operational Definition; Ahmed Zoromé; IMF Working Paper 07/87; April 1, 2007 Template:Webarchive. (PDF). Retrieved on 2011-11-02.</ref>). The American Chamber of Commerce Ireland estimated that the value of U.S. investment in Ireland was €334bn, exceeding Irish GDP (€291bn in 2016).<ref name="amc">Template:Cite news</ref> An extreme example was Apple's "onshoring" of circa $300 billion in intellectual property to Ireland, creating the leprechaun economics affair.<ref name="cofr">Template:Cite web</ref> However Luxembourg's GNI is only 70% of GDP.<ref name="economic-incentives.blogspot.ie">Template:Cite web</ref> The distortion of Ireland's economic data from corporates using Irish IP-based BEPS tools (especially the capital allowances for intangible assets tool), is so great, that it distorts EU-28 aggregate data.<ref name="brad">Template:Cite web</ref>
This distortion means that all corporate tax havens, and particularly smaller ones like Ireland, Singapore, Luxembourg and Hong Kong, rank at the top in global GDP-per-capita league tables. In fact, not being a county with oil & gas resources and still ranking in the top 10 of world GDP-per-capita league tables, is considered a strong proxy sign of a corporate (or traditional) tax haven.<ref>Template:Cite web</ref><ref name="atlantic"/><ref name="qqtz">Template:Cite news</ref> GDP-per-capita tables with identification of haven types are here Template:Slink.
Ireland's distorted economic statistics, post leprechaun economics and the introduction of modified GNI, is captured on page 34 of the OECD 2018 Ireland survey:<ref name="oecd">Template:Cite web</ref> Template:Ordered list
This distortion leads to exaggerated credit cycles. The artificial/distorted "headline" GDP growth increases optimism and borrowing in the haven, which is financed by global capital markets (who are misled by the artificial/distorted "headline" GDP figures and misprice the capital provided). The resulting bubble in asset/property prices from the build-up in credit can unwind quickly if global capital markets withdraw the supply of capital.<ref name="atlantic">Template:Cite magazine</ref> Extreme credit cycles have been seen in several of the corporate tax havens (i.e. Ireland in 2009-2012 is an example).<ref name="ber"/> Traditional tax havens like Jersey have also experienced this.<ref>Template:Cite news</ref>
Intellectual-property–based BEPS toolsTemplate:Anchor
[edit]
Raw materials of tax avoidance
[edit]Whereas traditional corporate tax havens facilitated avoiding domestic taxes (e.g. U.S. corporate tax inversion), modern corporate tax havens provide base erosion and profit shifting (or BEPS) tools,<ref name="zew"/> which facilitate avoiding taxes in all global jurisdictions in which the corporation operates.<ref name="tilburg">Template:Cite web</ref> This is as long as the corporate tax haven has tax-treaties with the jurisdictions that accept "royalty payment" schemes (i.e. how the IP is charged out), as a deduction against tax.<ref name="bbbg">Template:Cite news</ref> A crude indicator of a corporate tax haven is the amount of full bilateral tax treaties that it has signed. The U.K. is the leader with over 122, followed by the Netherlands with over 100.<ref name="ukx">Template:Cite web</ref><ref name="dut2"/><ref name="ukx1">Template:Cite news</ref>
BEPS tools abuse intellectual property (or IP), GAAP accounting techniques, to create artificial internal intangible assets, which facilitate BEPS actions, via:<ref name="zew"/><ref name="caid"/> Template:Ordered list IP is described as the "raw material" of tax planning.<ref name="fordam">Template:Cite web</ref><ref name="ucla">Template:Cite web</ref><ref name="raw">Template:Cite web</ref> Modern corporate tax havens have IP-based BEPS tools,<ref>Template:Cite news</ref><ref name="lx"/> and are in all their bilateral tax-treaties.<ref>Template:Cite web</ref> IP is a powerful tax management and BEPS tool, with almost no other equal, for four reasons:<ref name="zew"/><ref name="tilburg"/>
When corporate tax havens quote "effective rates of tax", they exclude large amounts of income not considered taxable due to the IP-based tools. Thus, in a self-fulfilling manner, their "effective" tax rates equal their "headline" tax rates. As discussed earlier (Template:Slink), Ireland claims an "effective" tax rate of circa 12.5%, while the IP-based BEPS tools used by Ireland's largest companies, mostly U.S. multinationals, are marketed with effective tax rates of <0-3%.<ref name="maples"/><ref name="matheson1">Template:Cite web</ref> These 0-3% rates have been verified in the EU Commission's investigation of Apple (see above), and other sources.<ref name="face1">Template:Cite news</ref><ref name="face3">Template:Cite news</ref><ref name="google1"/><ref name="Bloomberg"/><ref name="apple">Template:Cite web</ref>
Encoding IP–based BEPS tools
[edit]Template:See also The creation of IP-based BEPS tools requires advanced legal and tax structuring capabilities, as well as a regulatory regime willing to carefully encode the complex legislation into the jurisdiction's statute books (note that BEPS tools bring increased risks of tax abuse by the domestic tax base in corporate tax haven's own jurisdiction, see Template:Slink for an example).<ref name="oxf">Template:Cite web</ref><ref name="dut"/><ref name="dut5">Template:Cite web</ref> Modern corporate tax havens, therefore, tend to have large global legal and accounting professional service firms in-situ (many classical tax havens lack this) who work with the government to build the legislation.<ref name="econ"/> In this regard, havens are accused of being captured states by their professional services firms.<ref>Template:Cite news</ref><ref>Template:Cite web</ref><ref name="amzn">Template:Cite news</ref><ref name="caid"/> The close relationship between Ireland's International Financial Services Centre professional service firms and the State in Ireland, is often described as the "green jersey agenda". The speed at which Ireland was able to replace its double Irish IP-based BEPS tool, is a noted example.<ref name="xx">Template:Cite news</ref><ref>Template:Cite news</ref><ref>Template:Cite web</ref>
It is considered that this type of legal and tax work is beyond the normal trust-structuring of offshore magic circle-type firms.<ref name="appley">Template:Cite news</ref> This is substantive and complex legislation that needs to integrate with tax treaties that involve G20 jurisdictions, as well as advanced accounting concepts that will meet U.S. GAAP, SEC and IRS regulations (U.S. multinationals are leading users of IP-based BEPS tools).<ref>Template:Cite web</ref><ref name="ukipo">Template:Cite web</ref> It is also why most modern corporate tax havens started as financial centres, where a critical mass of advanced professional services firms develop around complex financial structuring (almost half of the main 10 corporate tax havens are in the 2017 top 10 Global Financial Centres Index, see Template:Slink).<ref name="dut3">Template:Cite web</ref><ref>Template:Cite news</ref><ref name="dut4">Template:Cite web</ref>
The EU Commission has been trying to break the close relationship in the main EU corporate tax havens (i.e. Ireland, the Netherlands, Luxembourg, Malta and Cyprus; the main Conduit and Sink OFCs in the EU-28, post Brexit), between law and accounting advisory firms, and their regulatory authorities (including taxing and statistical authorities) from a number of approaches: Template:Ordered list
The "Knowledge Economy"
[edit]Modern corporate havens present IP-based BEPS tools as "innovation economy", "new economy" or "knowledge economy" business activities<ref name="sing">Template:Cite web</ref><ref>Template:Cite web</ref> (e.g. some use the term "knowledge box" or "patent box" for a class of IP-based BEPS tools, such as in Ireland and in the U.K.), however, their development as a GAAP accounting entry, with few exceptions, is for the purposes of tax management.<ref>Template:Cite web</ref><ref name= "ucla"/> A lawyer said "Intellectual property (IP) has become the leading tax-avoidance vehicle."<ref name="ucla"/>
When Apple "onshored" $300 billion of IP to Ireland in 2015 (leprechaun economics),<ref name="cofr"/> the Irish Central Statistics Office suppressed its regular data release to protect the identity of Apple (unverifiable for 3 years, until 2018),<ref name="cso">Template:Cite web</ref> but then described the artificial 26.3% rise in Irish GDP as "meeting the challenges of a modern globalised economy". The behaviour of the CSO was described as putting on the "green jersey".<ref>Template:Cite web</ref> Leprechaun economics an example of how Ireland was able to meet with the OECD's transparency requirements (and score well in the Financial Secrecy Index), and still hide the largest BEPS action in history.Template:Cn
As noted earlier (Template:Slink), the U.K. has a Minister for Intellectual Property and an Intellectual Property Office,<ref name="ukipo"/> as does Singapore (Intellectual Property Office of Singapore). The top 10 list of the 2018 Global Intellectual Property Center IP Index, the leaders in IP management, features the five largest modern corporate tax havens: United Kingdom (#2), Ireland (#6), the Netherlands (#7), Singapore (#9) and Switzerland (#10).<ref name="gipc">Template:Cite web</ref> This is despite the fact that patent-protection has traditionally been synonymous with the largest, and longest established, legal jurisdictions (i.e. mainly older G7-type countries).
German "Royalty Barrier" failure
[edit]In June 2017, the German Federal Council approved a new law called an IP "Royalty Barrier" (Lizenzschranke) that restricts the ability of corporates to deduct intergroup cross-border IP charges against German taxation (and also encourage corporates to allocate more employees to Germany to maximise German tax-relief). The law also enforces a minum "effective" 25% tax rate on IP.<ref>Accordingly, as of 1 January 2018, German-based licensees will be unable to deduct royalties paid to affiliates to the extent that the licensor's royalty income is not subject to the regular tax regime (e.g. IP box regime) and taxed at a low rate within the meaning of the royalty barrier (effective tax rate of < 25 %).Template:Cite web</ref> While there was initial concern amongst global corporate tax advisors (who encode the IP legislation) that a "Royalty Barrier" was the "beginning of the end" for IP-based BEPS tools,<ref>Template:Cite newsTemplate:Dead link</ref> the final law was instead a boost for modern corporate tax havens, whose OECD-compliant, and more carefully encoded and embedded IP tax regimes, are effectively exempted. More traditional corporate tax havens, which do not always have the level of sophistication and skill in encoding IP BEPS tools into their tax regimes, will fall further behind.
The German "Royalty Barrier" law exempts IP charged from locations which have: Template:Ordered list
One of Ireland's main tax law firms, Matheson, whose clients include some of the largest U.S. multinationals in Ireland,<ref>At least 125 major U.S. companies have registered several hundred subsidiaries or investment funds at 70 Sir John Rogerson's Quay, a seven-story building in Dublin's docklands, according to a review of government and corporate records by The Wall Street Journal. The common thread is the building's primary resident: Matheson, an Irish law firm that specializes in ways companies can use Irish tax law.Template:Cite news</ref> issued a note to its clients confirming that the new German "Royalty Barrier" will have little effect on their Irish IP-based BEPS structures - despite them being the primary target of the law.<ref>Template:Cite web</ref> In fact, Matheson notes that that new law will further highlight Ireland's "robust solution".<ref name="math">Template:Cite web</ref>
The failure of the German "Royalty Barrier" approach is a familiar route for systems that attempt to curb corporate tax havens via an OECD-compliance type approach (see Template:Slink), which is what modern corporate tax havens are distinctive in maintaining. It contrasts with the U.S. Tax Cuts and Jobs Act of 2017 (see Template:Slink), which ignores whether a jurisdiction is OECD compliant (or not), and instead focuses solely on "effective taxes paid", as its metric. Had the German "Royalty Barrier" taken the U.S. approach, it would have been more onerous for havens. Reasons for why the barrier was designed to fail is discussed in complex agendas.
IP and post-tax margins
[edit]The sectors most associated with IP (e.g., technology and life sciences) are generally some of the most profitable corporate sectors in the world. By using IP-based BEPS tools, these profitable sectors have become even more profitable on an after-tax basis by artificially suppressing profitability in higher-tax jurisdictions, and profit shifting to low-tax locations.<ref name="zuc"/>
For example, Google Germany should be even more profitable than the already very profitable Google U.S. This is because the marginal additional costs for firms like Google U.S. of expanding into Germany are very low (the core technology platform has been built). In practice, however, Google Germany is actually unprofitable (for tax purposes), as it pays intergroup IP charges back to Google Ireland, who reroutes them to Google Bermuda, who is extremely profitable (more so than Google U.S.).<ref name="google1"/><ref>Template:Cite news</ref> These intergroup IP charges (i.e. the IP-based BEPS tools), are artificial internal constructs.
Commentators have linked the cyclical peak in U.S. corporate profit margins, with the enhanced after-tax profitability of the biggest U.S. technology firms.<ref>Template:Cite web</ref><ref>Template:Cite web</ref><ref>Template:Cite web</ref>
For example, the definitions of IP in corporate tax havens such as Ireland has been broadened to include "theoretical assets", such as types of general rights, general know-how, general goodwill, and the right to use software.<ref name="acox">Template:Cite web</ref> Ireland's IP regime includes types of "internally developed" intangible assets and intangible assets purchased from "connected parties". The real control in Ireland is that the IP assets must be acceptable under GAAP (older 2004 Irish GAAP is accepted), and thus auditable by an Irish International Financial Services Centre accounting firm.<ref name="rev1"/><ref>Template:Cite web</ref>
A broadening range of multinationals are abusing IP accounting to increase after-tax margins, via intergroup charge-outs of artificial IP assets for BEPS purposes, including: Template:Ordered list
It has been noted that IP-based BEPS tools such as the "patent box" can be structured to create negative rates of taxation for IP-heavy corporates.<ref>Template:Cite web</ref>
IP–based Tax inversions
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Brad Setser & Cole Frank
(Council on Foreign Relations)<ref name="cofr"/>
Apple vs. Pfizer–Allergan
[edit]Modern corporate tax havens further leverage their IP-based BEPS toolbox to enable international corporates to execute quasi-tax inversions, which could otherwise be blocked by domestic anti-inversion rules. The largest example was Apple's Q1 January 2015 restructuring of its Irish business, Apple Sales International, in a quasi-tax inversion, which led to the Paul Krugman labeled "leprechaun economics" affair in Ireland in July 2016 (see article).
In early 2016, the Obama Administration blocked the proposed $160 billion Pfizer-Allergan Irish corporate tax inversion,<ref>Template:Cite news</ref><ref>Template:Cite news</ref> the largest proposed corporate tax inversion in history,<ref>Template:Cite news</ref> a decision which the Trump Administration also upheld.<ref>Template:Cite news</ref><ref>Template:Cite web</ref>
However, both Administrations were silent when the Irish State announced in July 2016 that 2015 GDP has risen 26.3% in one quarter due to the "onshoring" of corporate IP, and it was rumoured to be Apple.<ref>Template:Cite news</ref> It might have been due to the fact that the Central Statistics Office (Ireland) openly delayed and limited its normal data release to protect the confidentiality of the source of the growth.<ref name="cso"/> It was only in early 2018, almost three years after Apple's Q1 2015 $300 billion quasi-tax inversion to Ireland (the largest tax inversion in history), that enough Central Statistics Office (Ireland) data was released to prove it definitively was Apple.<ref name="brads">Template:Cite web</ref><ref name="cofr"/><ref name="cffy">Template:Cite web</ref>
Financial commentators estimate Apple onshored circa $300 billion in IP to Ireland, effectively representing the balance sheet of Apple's non-U.S. business.<ref name="cofr"/> Thus, Apple completed a quasi-inversion of its non-U.S. business, to itself, in Ireland, which was almost twice the scale of Pfizer-Allergan's $160 billion blocked inversion.
Apple's IP–based BEPS inversion
[edit]Apple used Ireland's new BEPS tool, and "double Irish" replacement, the "capital allowances for intangible assets" scheme.<ref name="cffy"/> This BEPS tool enables corporates to write-off the "arm's length" (to be OECD-compliant), intergroup acquisition of offshored IP, against all Irish corporate taxes. The "arm's length" criteria are achieved by getting a major accounting firm in Ireland's International Financial Services Centre to conduct a valuation, and Irish GAAP audit, of the IP. The range of IP acceptable by the Irish Revenue Commissioners is very broad. This BEPS tool can be continually replenished by acquiring new offshore IP with each new "product cycle".<ref name="maples">Template:Cite web</ref>
In addition, Ireland's 2015 Finance Act removed the 80% cap on this tool (which forced a minimum 2.5% effective tax rate), thus giving Apple a 0% effective tax rate on the "onshored" IP. Ireland then restored the 80% cap in 2016 (and a return to a minimum 2.5% effective tax rate), but only for new schemes.<ref name="app2">Template:Cite web</ref><ref name="app1">Template:Cite news</ref>
Thus, Apple was able to achieve what Pfizer-Allergan could not, by making use of Ireland's advanced IP-based BEPS tools. Apple avoided any U.S regulatory scrutiny/blocking of its actions, as well as any wider U.S. public outcry, as Pfizer-Allergan incurred. Apple structured an Irish corporate effective tax rate of close to zero on its non-U.S. business, at twice the scale of the Pfizer-Allergan inversion.
Debt–based BEPS toolsTemplate:Anchor
[edit]Dutch "Double Dip"
[edit]
While the focus of corporate tax havens continues to be on developing new IP-based BEPS tools (such as OECD-compliant knowledge/patent boxes), Ireland has developed new BEPS tools leveraging traditional securitisation SPVs, called Section 110 SPVs. Use of intercompany loans and loan interest was one of the original BEPS tools and was used in many of the early U.S. corporate tax inversions (was known as "earnings-stripping").<ref>Template:Cite news</ref>
The Netherlands has been a leader in this area, using specifically worded legislation to enable IP-light companies further amplify "earnings-stripping". This is used by mining and resource extraction companies, who have little or no IP, but who use high levels of leverage and asset financing.<ref name="neth">Template:Cite web</ref><ref name="dut2"/> Dutch tax law enables IP-light companies to "overcharge" their subsidiaries for asset financing (i.e. reroute all untaxed profits back to the Netherlands), which is treated as tax-free in the Netherlands. The technique of getting full tax-relief for an artificially high-interest rate in a foreign subsidiary, while getting additional tax relief on this income back home in the Netherlands, became known by the term, "double dipping".<ref name="dut10"/><ref>Template:Cite web</ref> As with the Dutch sandwich, ex. Dutch Minister Joop Wijn is credited as its creator.
Irish Section 110 SPV
[edit]
The Irish Section 110 SPV uses complex securitisation loan structuring (including "orphaning" which adds confidentiality), to enable the profit shifting. This tool is so powerful, it inadvertently enabled US distressed debt funds avoid billions in Irish taxes on circa €80 billion of Irish investments they made in 2012-2016 (see Section 110 abuse).<ref name="l1">Template:Cite news</ref><ref name="l2">Template:Cite news</ref><ref name="nnn">Template:Cite news</ref><ref name="nna">Template:Cite news</ref> This was despite the fact that the seller of the circa €80 billion was mostly the Irish State's own National Asset Management Agency.
The global securitisation market is circa $10 trillion in size,<ref name="jpm">Template:Cite web</ref> and involves an array of complex financial loan instruments, structured on assets all over the world, using established securitization vehicles that are accepted globally (and whitelisted by the OECD). This is also helpful for concealing corporate BEPS activities, as demonstrated by sanctioned Russian banks using Irish Section 110 SPVs.<ref name="rus2"/><ref name="rus3"/>
This area is therefore an important new BEPS tool for EU corporate tax havens, Ireland and Luxembourg,<ref>Template:Cite news</ref> who are also the EU's leading securitisation hubs. Particularly so, given the new anti-IP-based BEPS tool taxes of the U.S. Tax Cuts and Jobs Act of 2017 (TCJA), (i.e. the new GILTI tax regime and BEAT tax regime), and proposed EU Digital Services Tax (DST) regimes.<ref name="carrot">Template:Cite web</ref><ref name="Irish Times">Template:Cite news</ref><ref name="gnx2">Template:Cite news</ref>
The U.S. TCJA anticipates a return to debt-based BEPS tools, as it limits interest deductibility to 30% of EBITDA (moving to 30% of EBIT post 2021).<ref name="lexology">Template:Cite web</ref><ref>Template:Cite web</ref>
While securitisation SPVs are important new BEPS tools, and acceptable under global tax-treaties, they suffer from "substance" tests (i.e. challenges by tax authorities that the loans are artificial). Irish Section 110 SPV's use of "Profit Participation Notes" (i.e. artificial internal intergroup loans), is an impediment to corporates using these structures versus established IP-based BEPS tools.<ref>Template:Cite web</ref><ref>Template:Cite web</ref> Solutions such as the Orphaned Super-QIAIF have been created in the Irish tax code to resolve this.
However, while Debt-based BEPS tools may not feature with U.S. multinational technology companies, they have become attractive to global financial institutions (who do not need to meet the same "substance" tests on their financial transactions).<ref>Template:Cite news</ref><ref>Template:Cite news</ref>
In February 2018, the Central Bank of Ireland upgraded the little-used Irish L-QIAIF regime to offer the same tax benefits as Section 110 SPVs but without the need for Profit Participation Notes and without the need to file public accounts with the Irish CRO (which had exposed the scale of Irish domestic taxes Section 110 SPVs had been used to avoid, see abuses).
Ranking corporate tax havens
[edit]Proxy tests
[edit]The study and identification of modern corporate tax havens are still developing. Traditional qualitative-driven IMF-OCED-Financial Secrecy Index type tax haven screens, which focus on assessing legal and tax structures, are less effective given the high levels of transparency and OECD-compliance in modern corporate tax havens (i.e. most of their BEPS tools are OECD-whitelisted). Template:Ordered list
Quantitative measures
[edit]More scientific, are the quantitative-driven studies (focused on empirical outcomes), such as the work by the University of Amsterdam's CORPNET in Conduit and Sink OFCs,<ref name="xxxx">Template:Cite journal</ref> and by University of Berkley's Gabriel Zucman.<ref name="zuc"/> They highlight the following modern corporate tax havens, also called Conduit OFCs, and also highlight their "partnerships" with key traditional tax havens, called Sink OFCs: Template:Ordered list
The only jurisdiction from the above list of major global corporate tax havens that makes an occasional appearance in OECD-IMF tax haven lists is Switzerland. These jurisdictions are the leaders in IP-based BEPS tools and use of intergroup IP charging and have the most sophisticated IP legislation. They have the largest tax treaty networks and all follow the Template:Slink approach.
The analysis highlights the difference between "suspected" onshore tax havens (i.e. major Sink OFCs Luxembourg and Hong Kong), which because of their suspicion, have limited/restricted bilateral tax treaties (as countries are wary of them), and the Conduit OFCs, which have less "suspicion" and therefore the most extensive bilateral tax treaties.<ref name="ukx"/><ref name="dut2"/> Corporates need the broadest tax treaties for their BEPS tools, and therefore prefer to base themselves in Conduit OFCs (Ireland and Singapore), which can then route the corporate's funds to the Sink OFCs (Luxembourg and Hong Kong).<ref name="fordam"/>
Of the major Sink OFCs, they span a range between traditional tax havens (with very limited tax treaty networks) and near-corporate tax havens: Template:Ordered list
The above five corporate tax haven Conduit OFCs, plus the three general tax haven Sink OFCs (counting the Caribbean "triad" as one major Sink OFC), are replicated at the top 8-10 corporate tax havens of many independent lists, including the Oxfam list,<ref name="oxf1">Template:Cite web</ref><ref name="oxf2">Template:Cite web</ref> and the ITEP list.<ref name="ITEP">Template:Cite web</ref> (see Template:Slink).
Ireland as global leader
[edit]Gabriel Zucman's analysis differs from most other works in that it focuses on the total quantum of taxes shielded. He shows that many of Ireland's U.S. multinationals, like Facebook, do not appear on Orbis (the source for quantitative studies, including CORPNET's) or have a small fraction of their data on Orbis (Google and Apple).
Analysed using a "quantum of funds" method (not an "Orbis corporate connections" method), Zucman shows Ireland as the largest EU-28 corporate tax haven, and the major route for Zucman's estimated annual loss of 20% in EU-28 corporate tax revenues.<ref name="zuc">Template:Cite web</ref><ref name="zucc"/> Ireland exceeds the Netherlands in terms of "quantum" of taxes shielded, which would arguably make Ireland the largest global corporate tax haven (it even matches the combined Caribbean triad of Bermuda-British Virgin Islands-the Cayman Islands).<ref name="irishtimes.com">Template:Cite news</ref><ref name="zuc10"/> See Template:Slink.
Failure of OECD BEPS Project
[edit]Reasons for the failure
[edit]Template:Quote box The rise of modern corporate tax havens, like the United Kingdom, the Netherlands, Ireland and Singapore, contrasts with the failure of OECD initiatives to combat global corporate tax avoidance and BEPS activities. There are many reasons advocated for the OECD's failure, the most common being:<ref name="un1">Template:Cite web</ref>
It has been noted in the OECD's defence, that G8 economies like the U.S. were strong supporters of the OECD's IP work, as they saw it as a tool for their domestic corporates (especially IP-heavy technology and life sciences firms), to charge-out US-based IP to international markets and thus, under U.S. bilateral tax treaties, remit untaxed profits back to the U.S. However, when U.S. multinationals perfected these IP-based BEPS tools and worked out how to relocate them to zero-tax places such as the Caribbean or Ireland, the U.S. became less supportive (i.e. U.S. 2013 Senate investigation into Apple in Bermuda).<ref name="un1"/>
However, the U.S. lost further control when corporate havens such as Ireland, developed "closed-loop" IP-based BEPS systems, like the capital allowances for intangibles tool, which by-pass U.S. anti-Corporate tax inversion controls, to enable any U.S. firm (even IP-light firms) create a synthetic corporate tax inversion (and achieve 0-3% Irish effective tax rates), without ever leaving the U.S.<ref name="kpmg"/><ref name="acox"/><ref>Template:Cite web</ref> Apple's successful $300 Q1 2015 billion IP-based Irish tax inversion (which came to be known as leprechaun economics), compares with the blocked $160 billion Pfizer-Allergan Irish tax inversion.
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The "closed-loop" element refers to the fact that the creation of the artificial internal intangible asset (which is critical to the BEPS tool), can be done within the confines of the Irish-office of a global accounting firm, and an Irish law firm, as well as the Irish Revenue Commissioners.<ref>Template:Cite web</ref> No outside consent is needed to execute the BEPS tool (and use via Ireland's global tax-treaties), save for two situations: Template:Ordered list
Departure of U.S. and EU
[edit]The 2017-18 U.S. and EU Commission taxation initiatives, deliberately depart from the OECD BEPS Project, and have their own explicit anti-IP BEPS tax regimes (as opposed to waiting for the OECD). The U.S. GILTI and BEAT tax regimes are targeted at U.S. multinationals in Ireland,<ref name="carrot"/><ref>Template:Cite news</ref><ref name="Irish Times"/> while the EU's Digital Services Tax is also directed at perceived abuses by Ireland of the EU's transfer pricing systems (particularly in regard to IP-based royalty payment charges).<ref name="gnx2"/><ref>Template:Cite news</ref><ref>Template:Cite news</ref>
For example, the new U.S. GILTI regime forces U.S. multinationals in Ireland to pay an effective corporate tax rate of over 12%, even with a full Irish IP BEPS tool (i.e. "single malt", whose effective Irish tax rate is circa 0%). If they pay full Irish "headline" 12.5% corporate tax rate, the effective corporate tax rate rises to over 14%. This is compared to a new U.S. FDII tax regime of 13.125% for U.S.-based IP, which reduces to circa 12% after the higher U.S. tax relief.<ref name="example">Template:Cite web</ref>
U.S. multinationals like Pfizer announced in Q1 2018, a post-TCJA global tax rate for 2019 of circa 17%, which is very similar to the circa 16% expected by past U.S. multinational Irish tax inversions, Eaton, Allergan, and Medtronic. This is the effect of Pfizer being able to use the new U.S. 13.125% FDII regime, as well as the new U.S. BEAT regime penalising non-U.S. multinationals (and past tax inversions) by taxing income leaving the U.S. to go to low-tax corporate tax havens like Ireland.<ref name="example2">Template:Cite web</ref>
Other jurisdictions, such as Japan, are also realising the extent to which IP-based BEPS tools are being used to manage global corporate taxes.<ref name="tokyo">Template:Cite web</ref>
U.S. as BEPS winner
[edit]While the IRS has traditionally been seen as the main loser to global corporate tax havens,<ref name="zucc"/> the 15.5% repatriation rate of the Trump administration Tax Cuts and Jobs Act of 2017 changes this calculus.Template:Cn
IP-heavy American corporations are the main users of BEPS tools. Studies show that as most other major economies run "territorial" tax systems, their corporates did not need to profit shift. They could just sell their IP to foreign markets from their home jurisdiction at low tax rates (e.g. 5% in Germany for German corporations).<ref>Template:Cite web</ref> For example, there are no non-U.S./non-U.K. foreign corporates in Ireland's top 50 firms by revenues, and only one by employees, German retailer Lidl (whereas 14 of Ireland's top 20 firms are American multinationals).<ref name="itb"/> The British firms are mainly pre Template:Slink. (discussed here).
Had American multinationals not used IP-based BEPS tools in corporate tax havens, and paid the circa 25% corporation tax (average OECD rate)<ref>Template:Cite web</ref> abroad, the IRS would have only received an additional 10% in tax, to bring the total effective American worldwide tax rate to 35%. However, after the TCJA, the IRS is now getting more tax, at the higher 15.5% rate, and American corporations have avoided the 25% foreign taxes and therefore will have brought more capital back to America as result.
This is at the expense of higher-tax Europe and Asian countries, who received no taxes from American corporations, as the corporations used IP-based BEPS tools from bases in corporate tax havens, while German corporations are charged 5% tax by their regulator.
President Trump did not sign the OECD's June 2017 Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, as it felt that it had low exposure to profit shifting. An American official said at a transfer pricing conference that they did not sign the tax treaty inked by 68 [later 70] countries in Paris 7 June 2017 "because the U.S. tax treaty network has a low degree of exposure to base erosion and profit shifting issues."<ref name=bmbbg>Template:Cite web</ref> This beneficial effect of global tax havens to the IRS was predicted by Hines and Rice in 1994 in which the authors said:<ref name="h3"/> "some American business operations are drawn offshore by the lure of low tax rates in tax havens; nevertheless, the policies of tax havens may, on net, enhance the U.S. Treasury's ability to collect tax revenue from American corporations."<ref name="h3"/>
Corporate tax haven lists
[edit]Types of corporate tax haven lists
[edit]Before 2015, many lists are of general tax havens (i.e. individual and corporate). Post 2015, quantitative studies (e.g. CORPNET and Gabriel Zucman), have highlighted the greater scale of corporate tax haven activity.<ref name="zuc10"/> The OECD, who only list one jurisdiction in the world as a tax haven, Trinidad and Tobago, note the scale of corporate tax haven activity.<ref name="BEPS Background"/> Note that the IMF list of offshore financial centres ("OFC") is often cited as the first list to include the main corporate tax havens and the term OFC and corporate tax haven are often used interchangeably.<ref name="x1">Template:Cite web</ref>
Ten major corporate tax havens
[edit]Regardless of method, most corporate tax haven lists consistently repeat ten jurisdictions (sometimes the Caribbean "triad" is one group), which comprise: Template:Cn Template:Ordered list
Note four of these ten jurisdictions have financial centres that appear in 2017 top 10 Global Financial Centres Index: London, Hong Kong, Singapore, and Zurich. Luxembourg was in the top 15.
Note also from Conduit and Sink OFCs, that the latter groups (ii ex. Switzerland, and iii), rely on the first group (i), to act as a conduit in rerouting corporate untaxed income. In this regard, Ireland, the Netherlands, Singapore and the U.K., are considered the most important corporate tax havens, and the "source" of most global corporate tax avoidance.<ref>Template:Cite web</ref>
Because of their larger size, it is not uncommon to see Switzerland and the United Kingdom dropped from more informal references to the main tax havens, for example:
Hines Corporate tax havens
[edit]James R. Hines Jr. is a founder of research into tax havens. His area of expertise is the U.S. corporate taxation system, and much of his research is on U.S. multinational use of tax havens. In 2010, Hines produced a table of U.S. multinational investment in havens, and produced the following ranking of the ten largest U.S. corporate tax havens:<ref>Template:Cite web</ref>
Zucman Corporate tax havens
[edit]Template:See also Tax haven academic Gabriel Zucman's (et alia) June 2018 list calculates the actual quantum of actual taxes shielded (versus counting legal Orbis database connections, or company subsidiaries) by profit shifting. Ireland now exceeds the aggregate Caribbean complex (ex. Bermuda), in terms of being the largest overall global corporate tax haven (see Template:Slink).<ref name="gabrielzucman"/> Ireland is also the largest EU-28 corporate tax haven. The study estimates Ireland's effective tax rate is really 4%. The U.K. is a notable absence. (slide 68).<ref name="zuc"/><ref name="irishtimes.com"/><ref name="zuc10">Template:Cite news</ref>
| Zucman (et al.) Tax Haven |
Rank by Profit Shifted |
Corporate Profits ($bn) |
Of Which: Local ($bn) |
Of Which: Foreign ($bn) |
Profits Shifted ($bn) |
Effective Tax Rate (%) |
Corp. Tax Gain/Loss (%) |
|---|---|---|---|---|---|---|---|
| Belgium | 10 | 80 | 48 | 32 | -13 | 19% | 16% |
| Ireland | 1 | 174 | 58 | 116 | -106 | 4% | 58% |
| Luxembourg | 6 | 91 | 40 | 51 | -47 | 3% | 50% |
| Malta | 11 | 14 | 1 | 13 | -12 | 5% | 90% |
| Netherlands | 5 | 195 | 106 | 89 | -57 | 10% | 32% |
| Caribbean | 2 | 102 | 4 | 98 | -97 | 2% | 100% |
| Bermuda | 9 | 25 | 1 | 25 | -24 | 0% | n.a |
| Singapore | 3 | 120 | 30 | 90 | -70 | 8% | 41% |
| Puerto Rico | 7 | 53 | 10 | 43 | -42 | 3% | 79% |
| Hong Kong | 8 | 95 | 45 | 50 | -39 | 18% | 33% |
| Switzerland | 4 | 95 | 35 | 60 | -58 | 21% | 20% |
| All Others | 12 | -51 |
CORPNET Corporate tax havens
[edit]Template:Main From the 2017 investigation, published in Nature, into Conduit and Sink OFCs, comes CORPNET's top 5 Conduit OFCs (i.e. corporate tax haven proxy), and top 5 Sink OFCs (i.e. traditional tax haven proxy), as calculated by analysing over 71 million global corporate connections on the Orbis database (i.e. it is by number of connections, not specifically by quantum of taxes shielded). Even though the method is different, CORPNET captures all of Zucman's list but separated into Conduits and Sinks (and breaks out the Caribbean), however, Zucman's list has a different ranking:
Conduit OFCs (by the number of corporate connections), 2017: Template:Ordered list
Sink OFCs (by the number of corporate connections), 2017: Template:Ordered list
ITEP Corporate tax havens
[edit]The first Institute on Taxation and Economic Policy list (Figure 1, page 11), is based on the % of Fortune 500 companies with subsidiaries in the corporate tax haven in 2016. The drawback of the list is that it is a U.S. focused list, and focuses on the number of connections (i.e. or subsidiaries) rather than the scale of taxes shielded. Contains all of Zucman's list, but with Mauritius and Panama added as well.<ref name="ITEP"/>
Percentage of Fortune 500 companies with subsidiaries in the jurisdiction, 2016: Template:Ordered list
The second Institute on Taxation and Economic Policy list (Figure 4, page 16), is based on the reported profits of U.S. Fortune 500 controlled subsidiaries in 2013. It tries to capture the scale of taxes shielded by looking at reported profits as a proxy. Ireland now jumps to 2nd place, only just behind the Netherlands. The Netherlands-Ireland-Bermuda are usually the jurisdictions behind most "double Irish with a Dutch sandwich" BEPS schemes.<ref name="nyt"/> Identical list to Zucman's list but with the Caribbean broken out into individual jurisdictions (the Caymans, Bermuda, Bahamas and the BVI).<ref name="ITEP"/>
Size of profits routed by Fortune 500 companies via subsidiaries in the jurisdiction, 2016: Template:Ordered list
Bloomberg Corporate tax inversions
[edit]A simple but effective proxy are the destinations to where U.S. multinationals execute tax inversions (i.e. an important test of the attractiveness of a corporate tax haven). However, cases like inversions to Canada could reflect more of a "relative-tax" view (i.e. Canada offers lower taxes than the U.S. and it is close by and less controversial), than an "absolute-tax" view on the best global locations for a corporate tax haven. The list still captures much of Zucman's list, particularly for the EU and the Caribbean. It captures the popularity of Ireland and the rise of the U.K.
Destinations for the 85 U.S. corporate inversions, since the first inversion in 1982, to the most recent inversion in 2016:<ref name="bbb"/> Template:Ordered list
GDP-per-capita tax haven proxy
[edit]One of the simpler, but effective, methods proposed of identifying tax havens (both corporate and traditional) is by tracking the distortion that the tax-driven accounting flows make on national economic flows.<ref name="imfx"/> This is an effect that is particularly pronounced for corporate tax havens due to the larger scale of accounting flows from the larger Template:Slink and Template:Slink.<ref name="ber"/> The following tables of the world's top 15 GDP-per-capita jurisdictions are taken from the List of countries by GDP (PPP) per capita for 2017 (from the IMF) and 2016 (from the World Bank). Template:Ordered list
| International Monetary Fund (2017) | World Bank (2016)<ref>PPP (current international $)", World Development Indicators database Template:Webarchive, World Bank. Database updated on 1 July 2017. Accessed on 2 July 2017.</ref><ref>Template:Cite web</ref> | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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See also
[edit]- Corporate tax inversion
- Corporate tax in the Netherlands
- Corporation tax in the Republic of Ireland
- Double Irish IP-based BEPS tool
- Single Malt IP-based BEPS tool
- Capital Allowances for Intangible Assets IP-based BEPS tool
- Dutch sandwich IP-based BEPS tool
- Ireland as a tax haven
- Irish Section 110 Special Purpose Vehicle (SPV) Debt-based BEPS tool
- Offshore financial centre
- Qualifying investor alternative investment fund (QIAIF) Tax-free shelters
- Taxation in Switzerland
- United Kingdom corporation tax
- Matheson (law firm) Ireland's largest U.S. tax advisor
- Feargal O'Rourke architect of Ireland's BEPS tools