A month or so ago, we saw in the media as Catalan pharmaceutical Grifols transferred part of its business to Ireland. The reason for the move is obvious, seeking a lower tax burden that Ireland offers uninhibited to those who want to enjoy it.
We’ve seen that this this policy was branded unpatriotic, yesterday, another pharmaceutical such as Pfizer has also announced his transfer to Irish lands.
Regardless of the legal complexity of the transaction, where we read about mergers, inversions, even the Double Irish and Dutch Sandwich or Tax Deals in Luxembourg, we should analyse in depth and with some distance what is going wrong in this globalised economy and what solutions can be found to do what common sense tells us to do: companies should be paying tax where they should do.
We have to first identify the problem and forget about focusing on the effect.
Large multinational companies that move to areas where, within the law, they can pay less tax is something legitimate and even a duty for business.
Companies are due to shareholders who are their owners (no matter if the shareholder is Amancio Ortega or an old retired lady who invest 500 euros in the stock exchange). Companies seek to maximize its profits by creating value for its shareholders and if they can save the 35-39% tax they would pay in the United States and move to pay the 12.5% in Ireland, perfect. If they can pay them less, the better.
Pfizer, like many other companies, will transfer their management and IP to Dublin for tax reasons. In fact I recommend you to do some ‘tax tourism’. If you go to Ireland and walk around by the so-called ‘Financial District’ of the city you see a lot of companies that have established there and you will understand the magnitude of the effect (not the problem).
I’m saying it because basically, the fact of having companies that move to Ireland is not a problem but its effects.
Let’s be honest with ourselves. If we had the chance to pay less tax legally, would we do so? I will.
We can fill your mouth with gestures of solidarity, ethics but try to optimize taxation within the law is lawful.
Which of you have a pension plan? which put your savings in mutual or investment funds? which of you are deducting the mortgage of your house? All this helps to pay less taxes, I guess you know it, and we do it because it is legal.
On another scale, the same as companies do.
So what is the problem?
I think the problem is the main concept, taxation itself.
Let me explain. Tax system as we now it nowadays in developed countries is a system based on the economy of the late nineteenth and twentieth century essentially. An economy based on physical transactions where goods were transported from one place to another and were stopped at the border where they were made to pay tariffs. This global tax system was complemented with the conssumption taxes (such as our VAT) and profit tax on businesses (income tax on corporations) and individuals (Personal Income Tax).
The world has changed since then, and has done so much. The problem comes with the development of so-called digital economy and new technologies. Today a company can control its business from a single seat. We don’t need to have offices around the world with vendors, clerks, accountants, administrative personnel, warehouse managers …. everything that our grandparents would have considered essential to sell to another country can be done comfortably seated in an office in a single location, for example, in Ireland.
A nice website, emails, Skype, PDF’s and many other digital tools are what have caused the change, as twist that countries and taxation laws have not adapted to.
It seems that the OECD has began to notice it and created the BEPS project (a translation could be to prevent the relocation of profits more or less) and disseminated a video where more than proposing real solutions to the real problem is posting the effects of it. You can watch them here and here.
Has the problem a solution? I think so.
I think the solution is to understand that this obsolete tax system applied by developed countries does not work any more and has to be rebuilt. We have to understand where actually profits are being generated, and reshape the foundations of international taxation that may enable each territory to receive what they have to. All countries should act at the same time, It won’t work with individual actions. In a globalized economy, the solution must be global.
While the solution arrives, Viagra changes its color and turns green.
Now we just need to put a shamrock over their pills, this will probably increase its benefits.
albert. (Sorry all English readers for my english 😉
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