Today’s blog output is really quite remarkable.
Here’s one blog:
More important is a new paper by Tidiane Kinda for the IMF, the abstract of which says:
Using manufacturing and services firm-level data for 30 sub-Saharan African (SSA) countries, this paper shows that taxation is not a significant driver for the location of foreign firms in SSA, while other investment climate factors, such as infrastructure, human capital, and institutions, are. By analyzing disaggregate FDI data, the paper establishes that, while there is considerable contrast in behavior between vertical FDI (foreign firms producing for export) and horizontal FDI (foreign firms producing for local markets), taxation is not a key determinant for either type of FDI. Horizontal FDI is attracted to areas with higher trade regulations, highlighting interest in protected markets. Furthermore, horizontal FDI is affected more by financing and human capital constraints, and less by infrastructure and institutional constraints, than is vertical FDI.
In other words, tax competition does not work.
OK, excellent. The bald statement that tax competition simply does not work. Firms do not locate for tax reasons.
A second blog. And recall, this is on exactly the same day, culled from the same day’s newspapers:
Reuters has reported that:
Fiat said on Wednesday it would register the holding of its newly created Fiat Chrysler Automobiles group in the Netherlands and set its tax domicile in Britain, cementing a politically sensitive shift away from its home base in Italy.
The combination of Fiat and Chrysler through a Dutch holding company tax resident in the UK has all the appearance of being a massive tax planning exercise. The UK is quite explicitly playing the role of a tax haven in this set up, combined with the use of the Netherlands in a similar capacity.
How is that? Firstly, the UK only charges UK resident companies to tax on their UK earned profits now and not on any profit earned anywhere else in the world or on profits remitted here. I have a strong suspicion Fiat makes very little money in the UK (barring on car distribution, which will already be taxable here anyway). This makes the UK a perfect headquarters location for a group that has absolutely no real ties with the UK and which wishes to avoid sending its profits back to its real centre of control – Italy, in this case. Combining this with the Netherlands generous tax haven treaty structure which allows income and gains to flow through Europe to an HQ location (like the UK) with little or no withholding tax on the way and the ultimate ‘no tax’ set up can now be created in london based on the argument ‘nothing happens here’ because it’s all been taxed ‘elsewhere’ whether that in fact is true or not.
That is, a complaint that a company has based its location decision purely upon tax motives.
It is really most wondrous that a man who has actually held a professional job at some time can manage such cognitive dissonance.