I'm not a tax expert, but as far as I know there are no loopholes - you can't pay less than 12.5%
I'll take your for it, but in any case the 12.5% issue is just a red herring. The insufficiently acknowledged issue is this:
Morning business news - May 2
Accounts for Microsoft Ireland Research, an Irish subsidiary of the global software giant, show that the company paid just €460,000 in tax, on profits of more than €1.2 billion last year, by using provisions in Irish tax law to take its corporation tax bill down from €158m. Much of Microsoft's international profits are channelled through Ireland, but because the main company for Microsoft's activities has unlimited liability, it does not have to file detailed accounts.
That is an effect tax rate of <0.0004%. I am in no doubt that Microsoft would quite happily pay a corporate tax rate of 100% (EUR 3.68m) as long as it could continue to avail of the other attractive "provisions". Ireland accepts pittance; other countries get shafted.
and the missing word is ... "word".
The larger point, also made by Humbug and BruceMcF below, is that "transfer pricing" allows companies to declare profits where they will be taxed least. Thus the Irish Microsoft Research unit could charge other parts of Microsoft huge fees for research done in Ireland - thus reducing tax exposure in high tax environments, and increasing it in low tax environments.
I have do doubt that, long term, a global system of corporate taxation must evolve - to avoid creating tax shelters like the Cayman's and to avoid providing incentives to distort revenues as above. The first step must be to create common accountancy standards for the taxable base to be calculated, and the next step would then be to gradually harmonise the tax rates.
Provided peripheral/underdeveloped countries are provided some means of playing catchup or creating a more level playing field, I have to problem with this being done. However it would require a huge Brettoon Woods like global agreement, with the threat of exclusion from the global trading system for all countries which fail to comply.
This was unthinkable under Bush, and probably under Obama - because it will be presented as socialism on a world scale. Global Capitalism will fight it tooth and nail. I don't expect to see it in my lifetime, but you never know. Obama may surprise us all. notes from no w here
Long ago, there were rules against this moving around of profits; evidently, our glorious government has conveniently found a way to forget them.
Now at last we understand why the customs need to search us for euros we could want to smuggle. When will they come for our golden teeth?
Even with a return to regulating international wealth flows, with half or more of "world trade" as transactions between branches of the same multinational corporation, there's ample opportunity to set transaction prices that make sure the profits appear where it is most beneficial for them to appear. Utsukushikereba sore de ii
And anyway, in a regulatory environment where anti-trust laws were actually taken seriously, most of those transnats would very quickly end up with a severe case of being dead.
- Jake 640 kiloton should be enough for anybody
[W]ith half or more of "world trade" as transactions between branches of the same multinational corporation, there's ample opportunity to set transaction prices that make sure the profits appear where it is most beneficial for them to appear.
