OECD data published earlier this year showed show that corporate income tax remains a significant source of tax revenues for governments across the globe. In 2016, corporate tax revenues accounted for 13.3% of total tax revenues on average across the 88 jurisdictions for which data are available. This figure has increased from 12% in 2000. Corporate taxation is even more important in developing countries, comprising on average 15.3% of all tax revenues in Africa and 15.4% in Latin America & the Caribbean, compared to 9% in the OECD.
The Irish Government had hoped that global corporate tax reform was on a “slow boat to China” but the winds of change are accelerating and on Thursday this week, Pascal Donohoe, finance minister, told a conference in Dublin that he wished for “modest” reform.
“It must ensure that the bulk of profits remain taxable in exporting countries under the existing corporate tax framework. This can help to ensure that such countries are not disproportionately impacted,” Donohoe said. “It must also not disproportionately benefit large countries at the expense of smaller ones,” he added.
In his speech, the minister did acknowledge that the BEPS (see below) "recommendations seek to bring an end to the days of locating paper intangible assets in one country and the substantive activity that creates value — that develops, manages, enhances, protects and exploits those assets — in another."
The problem for Ireland is that it will have little influence or none on the final set of rules as it will be in the same boat as small island tax havens that will be pleading for exemptions.
For example in 2017-18, Mauritius, an island of 1.3m people off East Africa that in dollar terms was the 124th biggest economy in the world, was the leading source of investment into India — the 6th biggest economy — with $13.4bn or 36% of the total according to Indian central bank data. According to the Financial Times, this capital accumulates in shell companies in Mauritius that are used by Indian companies to receive payments for exports tax-free.
A provision in 2017 US tax legislation provides for a minimum overseas tax (see below) and a minimum tax rate has the support of countries such as China and France.
Irish Corporation Tax receipts have risen by 126% since 2014 to €10.4bn in 2018 thanks mainly to the tax shenanigans of US multinational firms. The chief economist of the Department of Finance said on Jan 3, 2019, that about 7% of the State's total tax receipts — €4bn — now come from just 10 firms.
Ibec, the employer lobby group, has estimated corporation tax windfalls at €14bn in the period 2015-2018. See here for more details.
The G20 members covered 60.8 % of the world’s land area, generated 85.2 % of global gross domestic product (GDP), and were home to 64.3 % of the world’s population in 2013. The country members include four EU Member States: Germany, France, Italy, the United Kingdom. 15 countries from the rest of the world: Argentina, Australia, Brazil, Canada, China, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United States.
In September 2013, the Group of Twenty (G20) which brings together the world’s major advanced and emerging economies, comprising the European Union (EU) and 19 country members, endorsed a BEPS (Base erosion and profit shifting) Action Plan, developed with the Organisation of Economic Cooperation and Development (OECD) which comprises mainly rich country members.
Advanced economies have traditionally set international corporate tax rules while it is developing countries that are particularly exposed to profit shifting and tax competition with limited alternatives for raising revenue.
IMF analysis shows that non-OECD countries collectively lose about $200bn in revenue a year, or about 1.3% of gross domestic product, due to companies shifting profits to low-tax locations. German research published last year estimated the impact of BEPS on corporate tax losses for the EU amounts to €36bn annually or 7.7% of total corporate tax revenues. The USA and Japan also appear to lose tax revenues respectively of €101bn and €24bn per year or 10.7% of corporate tax revenues in both cases.
The OECD’s “Inclusive Framework” — has more than 125 country members and last January it issued a Policy Note to provide an update on their work on addressing the tax challenges of the digitalisation of the economy.
According to the French government, European small and medium-sized enterprises pay on average, a tax rate 14 percentage points higher than large digital companies.
The OECD said it would look at 2 issues ("pillars") in parallel to work towards reaching a new consensus-based long-term solution in 2020:
Pillar 1: Allocation of taxing rights between countries, looking at both nexus and profit allocation rules and, in particular, reward for market/user countries.
Pillar 2: Addressing remaining BEPS issues including the consideration of rules to strengthen countries’ ability to tax profits where income is subject to a low effective rate of tax.. But while it has made significant progress, pressures from tax competition remain largely unaddressed.
The US Tax Foundation notes with respect to a consultation document that was published last February
"The second pillar is a global anti-base erosion proposal that would set a minimum effective tax rate in response to a policy concern that profits from intangible assets are often subject to no or very low rates of taxation. The proposal follows the approach of the US Global Intangible Low Tax Income (GILTI) policy that was part of the US tax reform of 2017. Additionally, the proposal would include a tax on base-eroding payments. Together these would set a minimum tax on income of multinationals. Though the consultation document discusses the mechanics and some ramifications of these proposals, the actual minimum rate is not mentioned."
More than half of Irish exports value fake
The value of Irish goods + services exports in 2018 was €383bn (€208bn goods + €175bn services) and there was a trade surplus of €100bn.
The value of indigenous goods and services tradeable exports in 2018 was about €25bn.
Goods/Merchandise: Custom-tracked exports were valued at €140bn and the net trade balance was €53bn.
Chemicals and Related Products (pharma + medical devices) had a surplus of €66bn (exports of €86bn and imports of €20bn). Irish government data show that this sector purchases low levels of materials in Ireland — suggesting massive profits shifting.
If we assume profit shifting in this sector at €30bn at least + €70bn in respect of booking manufacturing in sister plants in other European countries as Irish exports, we get an estimate of €100bn in fake merchandise exports.
Services: There was a net trade balance of -€10bn in 2018 (€175bn exports; €185bn imports).
Google, Facebook and Microsoft accounted for booking of €72bn in sales in Ireland in 2017. Google booked 32% of its 2017 global revenues in Ireland; Facebook booked 50% and Microsoft 22%.
In 2018 the value of Computer Services and Business Services (including aviation leasing) exports was €122bn while Royalties and Business Services imports were valued at €144bn.
Besides the Big 3 ICT companies, there are others including aviation lessors. Computer Services exports rose by 24% to €86bn in 2018 while Business Services exports fell 4% to €36bn.
An estimate of €100bn in fake services exports seems reasonable.
Excess total exports value at €200bn.
Income and wealth inequality
Corporate tax avoidance/evasion mainly benefits the wealthy.
The New York Times reported this week, "Four in 10 American adults wouldn’t be able to cover an unexpected $400 expense with cash, savings or a credit-card charge that could be quickly paid off, a new Federal Reserve survey finds."
Daan Struyven, senior economist at Goldman Sachs, said in a research note last January, “The wealthiest 0.1% and 1% of (US) households now own about 17% and 50% of total household equities, respectively, up significantly from 13% and 39% in the late 1980s.”
S&P 500 Earnings Per Share. 12-month real earnings per share — inflation-adjusted, constant April, 2019 dollars. The average EPS more than trebled since 1990.
The US Congressional Budget Office (CBO) said last year that in 2015, average US household income before accounting for means-tested transfers and federal taxes was $20,000 for the lowest quintile and $292,000 for the highest quintile. After transfers and taxes, those averages were $33,000 and $215,000.
The New York Times latest annual list of top executive pay shows that compensation for top bosses grew at double the pace of ordinary workers’ wages, according to the annual analysis. Topping the list: Elon Musk, with a $2.3bn package.
"In describing the compensation package, the Tesla board said it wanted to 'motivate Mr Musk to continue to not only lead Tesla over the long term, but particularly in light of his other business interests, to devote his time and energy in doing so.'”
The Financial Times reported last month that Elon Musk was paid 40,668 times more than the median Tesla worker, according to corporate filings. "The median chief executive pay ratio for 2018 was 254:1, according to an analysis released last week by Equilar, a compensation consultancy, up from 235:1 in 2017 when only two-thirds of the companies it tracks disclosed such figures."