International Economics: IB Economics

John Naughton's piece in the Observer offers a nice economic history lesson about the rise of the Celtic Tiger, the embrace of free trade and the tax system that encouraged FDI by large MNCs, particularly in the tech sector.

He brings it up to speed, post-Brexit, but wonders about the extent to which the arrival of big tech, with a new wave of Chinese tech companies seemingly the newest kids on the block, will prove to be a good thing, and, the degree to which this money has been used to disguise a divided economy, with high levels of income inequality and serious structural problems, not least as regards the housing market and the provision of public services. For those people who think that the Republic of Ireland has it cracked - this article might prompt you to think again. 

The Tax Justice Network highlights tax avoidance on a grand scale, arguing that MNCs are cheating governments out of billions of dollars of tax revenue via the use of tax havens. Are we happy with this sort of arrangement? 

The OECD global minimum corporate tax rate has been agreed; 136 countries will now have a minimum rate of 15%, including one or two who at first resisted - notably Ireland, Hungary and Estonia.

Ostensibly a good thing, but the devil is in the detail. What will happen to global tax revenues from MNCs? And what are the implications for individual economies? I will reserve judgment for now.

It looks like the OECD's proposals for a global minimum corporation tax rate of 15% is getting closer, and may even be announced this week. 

It will be interesting to see the reaction of MNCs to this:will they front up and start paying higher rates of tax? Or will they scuttle away to the remaining tax havens? Or have they already evolved new tax avoidance schemes? 

The Guardian is quietly confident that there's going to be agreement about a minimum level of global corporate taxation - with a number of major players signalling that they are ready to end tax avoidance by MNCs. 

It seems that if the UK suuports President Biden's attempts to enforce a global minimum level of corporation tax, there could be a sizeable fiscal dividend for both the EU and the UK, with large companies seeing a substantial rise in their tax liabilities. 

What's not to like? Unless, of course, multinationals increasingly headquarter in Ulan Bator, or similarly far-flung places...

This article shines a light on the scale of global tax avoidance, with Nicholas Shaxson claiming that the effective rate of tax paid by the big five tech firms is around 3% of their profit, whereas those SMEs they compewte with are, on average, paying 14% more in tax, according to the French authorities.

However, he's also worried that the OECD isn't best placed to tackle the issue, and argues that there needs to be a unitary tax approach, which seeks to tax these companies fairly.

And linked to that last 'scoop', this Project Syndicate piece by Joseph Stiglitz highlights the fact that tax avoidance by multinationals has lessened the ability of national governments to tackle pressing issues such as climate change and rising inequality.

This is a ToK-style article looking at the fact that Ireland is seemingly the most productive country in the world, and yet people wonder whether this is actually 'true' or not. 

In drilling down into the data, it is clear that Ireland's figures, both for productivity and Gross Value Added are highly skewed by the presence of many large MNCs in and around Dublin. These companies are eight times more productive than domestic firms and contribute nearly 60% of the Gross Value Added. 

So is its high productivity 'artificial'? Some would argue that if we measure GNI rather than GVA, this gives more accurate figures, and equally, the fact that the Irish tax regime is so favourable has also attracted MNCs. However, others would point out the advantages the economy has: English-speaking, well-educated and with a large number of STEM graduates. 

It's been a while since we heard about this - but despite widespread acclaim for the notion of a minimum global corporate tax rate, it's been postponed until 2024 and there are some who doubt whether it will ever get implemented. 

In the event that it doesn't get introduced, I have to say that it would be one of the great 'smoke and mirrors' bits of policymaking; I suspect most people think that it's already in operation.

And yet, is everything what it seems? The head of Tax Watch argues that the headlines about the global minimum tax rate are designed to disguise the fact that tech firms are still going to be able to repatriate their profits. 

Why on earth do you think that the US is backing the current scheme? He argues that in return for agreement on this, the UK and other EU countries that have proposed digital sales taxes are, effectively, being bought off. How cynical of him.

But here's the kicker - exactly as I suggested when the issue was first raised. Game theory suggests that it will be difficult to get universal agreement on a minimum global corporate tax rates because it's in the self-interest of an economy to have the lowest rate, safe in the knowledge that it will attract inward investment. 

Hence, Cyprus has suggested that it could block the adoption of a minimum global corporate tax rate within the EU, and I note that Luxembourg and Ireland have remained silent on the issue. All of these economies have done well out of having low corporate tax rates. Cyprus, though, is the only one that has currently seized the moral low ground. 

It seems that the EU has had enough of having tax loopholes exploited by MNCs, and is going to require all countries with revenues above 750 million euros to publish a country by country breakdown of where they pay tax. Expect Luxembourg and Ireland to feature heavily.

Tax avoidance is legal, I accept, But moral. It really is the worst sort of business practice. 

One of my hobby horses, I'm afraid. The Tax Justice Network reports that tax avoidance costs the global economy $427bn a year, with half of that amount coming from situations where multinationals have repatriated profits from where they've been generated to tax havens. 

The Guardian with another interesting insight into the proposed tech tax, suggesting that such a tax is desirable for a number of reasons, not least bringing them into line, and sharpening the focus of multinational corporations as regards tax avoidance. 

Joseph Stiglitz writes on the thorny question of tax avoidance by multinationals, such as Apple, and concludes that for all their talk, the notion of corporate social responsibility is largely hot air, but that constructing an appropriate tax system is going to be a tricky business.