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Global Tax Competition in Action

2 min readBy: Andrew Chamberlain

Many non-economists are skeptical of the importance of taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. considerations when companies decide where to locate and expand. Ireland’s Sunday Business Post reports a telling anecdote from Kevin Rollins, CEO of Dell, that may change some minds:

The chief executive of computer giant Dell, Kevin Rollins, has warned that the company will “reassess” its investment in Ireland if the government increases corporation tax.

In an exclusive interview with The Sunday Business Post, Rollins said that although Ireland’s low rate of corporation tax made it an attractive destination, the company would review its position in Ireland if this changed.

“Any time a cost goes up, we will reassess our position, particularly with tax,” Rollins said.

“This applies to other areas such as fuel and labour, but tax is something we would look at very closely. We need to have a good workforce here, but we also need good taxes.” (Full piece here.)

So is Dell a corporate outlier who’s unusually sensitive to tax considerations? Not likely. A similar story in the SBP from weeks before reports on Microsoft’s tax-fueled Irish expansion:

Ireland’s low corporate tax regime has long been a key part of the tax planning of multinational companies.

However, the Wall Street Journal’s report that Microsoft has a Dublin subsidiary that controlled assets of $16 billion and had gross profits of $8.9 billion last year – mostly related to money made on software licences sold across Europe – shows the scale of money involved.

The subsidiary paid more than $324 million in tax here in the year to the end of June 2004, a not inconsiderable 5.5 per cent of total corporation tax revenue.

The sums of money involved illustrate the huge value that big multinationals accrue from intellectual property – and the advantages to those firms of locating these assets in low-tax jurisdictions. (Full piece here.)

Given that the U.S. now boasts the highest corporate tax rate in the OECD, let’s hope lawmakers on Capitol Hill are paying attention to these case studies on how actual companies are reacting to international tax climates.