Ireland is new tax-haven to dump US MNC's profits says research report

Last Updated: Tue, Sep 11, 2018 15:05 hrs
US Dollars

According to a new economic study released on Monday, US multinational companies may be booking at least half of their foreign profits in tax havens.

And, Surprisingly, Ireland is becoming the new destination of US's ill-gotten wealth.

Researcher scholars Thomas Wright and Gabriel Zucman said in an AFP post that although effective tax rates were as low as 7%, the use of tax-havens was popular among US companies.

The reason being the Irish tax rate of 5.7%.

Zucman shared in a Twitter post, "Ireland solidifies its position as the #1 tax haven. US firms book more profits in Ireland than in China, Japan, Germany, France & Mexico combined. Irish tax rate: 5.7%."

The research was made possible by the US tax cut in December 2017 that contained a mandatory repatriation of profits, which allowed researchers to calculate the final tax bill for the companies.

Because the 2017 law "allows these firms to repatriate their foreign earnings at a low rate...we now know that US multinationals have really had a high after-tax profitability on their foreign operations over the last decades."

This is phenomenon referred to as the "exorbitant tax privilege," and as a result "it has redistributed income to the benefit of their shareholders (some of which are foreigners)." No other developed economy -- except tax havens -- has as high a share of foreign profits booked in tax havens as the United States, most prominently in Ireland (18%), Switzerland, and Bermuda plus Caribbean tax havens (8-9% each).

Describing non-oil multinationals, the report says, "have seen their tax rates on foreign earnings fall from about 35% in the first half of the 1990s (close to the statutory US federal corporate tax rate) to about 20% in recent years."

The tax reform dropped the top US corporate rate to 21% from 35%, taxing only profits earned on US territory.

Businesses have to make a one-time payment of eight per cent or 15.5%, on repatriated foreign profits, depending on whether the assets are cash or investments.

With Agency Inputs

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