There is something giant stirring in the corporate world.
The company that makes Viagra has just got into bed with the company that makes fake boobs and Botox, coming together in one of the biggest corporate deals ever. Dublin will be its headquarters. Not only does this tell you something about the enormous value of sex, it also tells you a lot about the value of Ireland’s tax rate.
While the lawyers and tax advisers might be celebrating, the truth is that although this deal may well be the biggest of its type, it could also be the last. Because it is only being done for tax reasons, and the country that lost the tax, America, isn’t too happy.
Pfizer and Allergan have merged and relocated the headquarters in Ireland to avoid tax, nothing else. The new firm will now pay 12.5 per cent Irish corporation tax rather than the US notional rate of 35 per cent.
The figures are enormous. The merger values the new company at roughly $160 billion (€150 billion). This dwarfs the Anheuser-Busch Inbev’s $117 billion purchase of SABMiller earlier this year.
In fact, the new Irish company is the second biggest deal of all time, just shy of Vodafone’s takeover of Germany’s Mannesmann in 2000.
With figures like this and tax avoidance the only ‘business reason’ for the deal, is it any wonder US politicians are not impressed?
This game of financial jiggery-pokery is called ‘inversion’. Allergan was already headquartered here, so Pfizer backed itself into Allergan, saving huge amounts of tax in the process. But the company is still, in reality, American.
President Obama labelled US companies that relocate in a low-tax country such as Ireland to avoid US taxes as “corporate deserters”.
So there can be no ambiguity as to what the White House thinks of these deals and, one must assume, the countries that facilitate them.
Change is coming.
But rather than seeing any changes to the way the world governs multinational profits as a threat, why don’t we look at this moment as an opportunity to reinvent our relationship with the multinationals? Why not be inventive and embed the multinationals more fundamentally in Ireland?
One of the ways to become real partners with the multinationals is to become shareholders rather than simply a production location with favourable taxes.
Normally when you want to get something done, you solve the other person’s problem, and if solving their problem is an opportunity for you, then the deal will be done.
Remember, Ireland would be nothing without multinationals. They are our capital base. Multinationals account for over 80 per cent of our exports, and no country on Earth is more vested in multinational corporations than Ireland.
Looking out, how do we become more attractive to them as a location without putting us on a collision course with their host countries?
If the problem is taking tax from them, don’t take tax – take shares instead. By taking shares in multinationals we could create an Irish sovereign wealth fund that is linked to the share performances of some of the best-governed companies in the world, plugged into the world economy like no other and providing huge wealth for future generations.
So how would something like this work and why would it be attractive to the multinationals? Well, they always say the first way to persuade someone to do something for you is to speak their language. Most quoted multinationals already reward their employees with share options and shares, so why not simply extend this to our total relationship with these companies – outfits such as Microsoft, Apple, Facebook, Google and the like?
Consider the fact that in 2012, American multinationals made $100 billion profit here on which they are supposed to pay 12.5 per cent tax, or $12.5 billion.
But in fact they only paid $4 billion. So they ought to pay $8.5 billion more than they do.
This is the type of money any tax equalization will come after – and in fact it would wipe out the annual Irish budget deficit a few times over.
But, of course, the multinationals may react to any tightening in the tax take as the signal to move. After all, most multinationals here are service businesses and service businesses are easier to move than manufacturing businesses.
Why not encourage the multinationals to pay the difference between what they actually pay ($4 billion) and what they “ought” to pay ($12.5 billion) in shares?
We could pledge these shares for future generations of Irish people in that sovereign wealth fund. The figures are significant – $8.5 billion is a lot of money, and it grows.
Shares are permanent wealth whereas taxes are more transitory income, like wages. In recent years, financial wealth has grown much quicker than income.
Look at the chart to see the difference between those people who depend on shares for their incomes and those people who depend on wages for their income.
Here I have taken a basket of the share prices of the top 20 quoted multinational companies that operate here.
You can see from the chart that in the period since the crash, 2008, wages have flatlined, whereas in contrast the share prices of the top 20 companies have gone up by close to 500 per cent.
Imagine an Irish sovereign wealth fund comprised of the shares of these companies, compounding at these rates.
This is the prize.
And why would the multinationals go for it? Because giving shares or share options is much cheaper for the company than giving cash. It always is.
And they are used to operating this way. What multinational treasurer would not look at this option?
Internationally, moving to a sovereign wealth fund would fundamentally change the relationship between the national state and the corporate world.
Ireland would have first-mover advantage and for years we would be the only country to do something like this because we are so dependent on the multinationals and have the dexterity to do something imaginative.
All countries need a story to sell. At the moment, our story is not only going stale but it is turning us into a target for countries that lose out tax-wise.
This way we could change the discussion by solving the multinationals’ problem, helping them be globally tax compliant and reducing the risk that they head off to another jurisdiction.
Furthermore, by investing in a sovereign wealth fund that can’t be touched for a generation, we reduce the risk that any tax windfall will be blown in the next electoral cycle. That can’t be a bad thing, can it?
But crucially, it is all about changing the Irish story internationally.
By matching our interests with the stakeholders and shareholders of the companies that we have operating here, we revolutionize the game.
We would be jumping together and both have skin in the game.
We could have a new story to tell, and there are no better people to go out and tell it to everyone.
Back in Ireland lads, lovely weather! Morning and subscribe.
Off topic but, topical. Check out this Wikipedia reference for Turkish Prime Minister Ahmet Davutoglu.
https://www.dropbox.com/s/2yhh33i8wqnztke/Ahmet.docx?dl=0
Peter
“coming together” I presume the pun was intended? “You can see from the chart that in the period since the crash, 2008, wages have flatlined, whereas in contrast the share prices of the top 20 companies have gone up by close to 500 per cent” This is an example of not being able to see the wood for the trees. let me explain; What you have identified is evidence of Hyperinflation in stock prices but lets examine a bit deeper to understand how the punter is being screwed every which way pun intended. When prices rise at this rate it… Read more »
Excellent idea David. However it would have to be structured to show an 12.5% effective tax rate in the P&L to satisfy OECD and EU types. Could be a bit tricky? Nothing, I’m sure, some of our creative accountants couldn’t figure out for a reasonable fee.
Wait for the screams of foul play from Labour, Sinn Fein et al who want the cash to spread around their voters.
I can’t see this working. Over a period the stock ( and ownership?) of a company would get massively diluted by government ownership, and eventually Government ownership would dominate — particularly if other governments were to do this.
Lift & Stick with Síle na Gig The Liffey needs more stickler demands and nothing has changed since the arrival of ancient primitive man to the shores of Dublin Bay up to 50,000 years ago .What excitement they saw when they first set eyes on the breath of this fine bay up on arrival from their sea wooden boats . To their primal eyes it was a bed of roses not needing any viagra , fake books or botox . Their pure homo sapiens spirit held it all then and unblemished and untainted . they coined / clicked the word… Read more »
David,
Great idea- a fund run like Temasek out of Singapore. Look how they are doing!
http://www.temasekreview.com.sg/overview/from-our-chairman.html
They take shareholdings in some of the top corporates and is growing year on year (currently S$266b).
Only concern is that the skills necessary to invest wisely is not in this country…given the performance of some of the other government bodies.
Idea is definitely worth exploring further
Any foreign corporate executive reading this in yesterday’s Sunday Business Post would be reassured that the Irish have long since given up any idea of demanding the full 12.5% in cash. David’s article reassured them that they will continue to get a free tax ride in Ireland until their home government puts a stop to it. Vote Fine Gael: “The best small country in the world to do business in”. We can all become (multinational) businessmen. You have just proposed the ultimate public-private partnership. There is only business. Who needs government. In America we have acquired a deep understanding of… Read more »
A corporation giving shares is inflationary. In the same way a bank produces money from nothing a corporation can issue shares from nothing and thus dilute the existing value of the money/shares in existence. If a corporation donates shares rather than paying a cash tax in order to prefer one location for corporate HQ over another then the US will still complain about the tax loss in the way it currently does. A tax is a tax no matter how it is obtained. The US will still lose what they think should be theirs. There is no explanation for why… Read more »
It’s certainly thinking outside the box David. If it was structured into a sovereign wealth fund like Norway it could be a flier. If Government got access to it to fund current account spending it would be dead in the water. Think of the National lottery funding that magically finds its way to ministerial constituencies at the moment. Mayo would have 6 lane autobahns and international airports in every town. We already have widespread unchecked corruption in the higher echelons of our society. From beef tribunals to the present issues winding their way through our courts. Look at the situation… Read more »
Advocating the investment in shares is a contrarian sign that the stock market is in decline. It is a sure bet that the stock market will be down 50% in a few months from now.
The stock markets around the world are popped up by central bank buying. Trade is thin and the real world economy does not warrant current prices of the equities.
There are a nice selection of viewpoints here to evaluate.
http://campaign.r20.constantcontact.com/render?ca=1556acad-1f89-45de-8ff7-5bc7d6cb28ab&c=877a32b0-427b-11e3-ad08-d4ae52a45a09&ch=8905dbc0-427b-11e3-ad3c-d4ae52a45a09
Yes, at first glance it seems like a nice enough idea. Had we done this 30 years ago we’d just as likely be proud owners of millions of Lotus, Novell, WordPerfect and Compaq shares.
Yes, on the face of it, it does sound like a good idea and it should be explored but, wouldn’t advise putting so much “stock” in risky shares. Wouldn’t it be simpler if we could persuade the MNCs to pay the 12.5% they are supposed to? There are moral issues here as well. Encouraging MNCs to headquarter here to avoid tax means that someone loses out elsewhere – in most cases the US citizen. Tax is a cost to the MNCs but revenue to the US Government and it’s citizens. This looks like another case of companies “externalising their costs”… Read more »
SO THE EU HAS A BORDER PROBLEM?
-> IT HAS NONE!
.
.
A SOLUTION -> BRIBE NON MEMBER TURKEY
=> WITH BILLIONS AND MEMBERSHIP TALKS
HA.
-> MORE ASSET STRIPPING FOR MEMBER GREECE
WHAT KIND OF UNION IS THIS?
In a way a highly public emotive deal, like this merger is a threat to the entire business model of Ireland Inc. Yes, that is right. Because it attracts unwanted publcity. If you are going to be a low cost tax based business model, where other legislators might feel compelled to counteract, then you need to keep under the radar. In fact this move is a disaster in many ways. It theatens the entire system. I would not worry about Obama. Everything that Obama has to say is for show. He is left wing version of Ronnie Reagan. The media… Read more »
David, I read your article in the woodforf link. Bang on the money. I was on the Chinese intercity train. It effectively links a country that has vast distanes between key locations like Beijing, Shanghai, and Shenzen. It is actually deflationary on the cost of living for Chinese people. The TGV is the same. Even linking to Milan in Italy, and London. This is useful infrastructure. The train line along between Boston and Washington is retarding economic performance in the US. Even more concerning, it is driving up oil consumption, and the importation of motor cars. It really is strategic… Read more »
I am surprised at the milktoast reaction to David’s “corporate creep” suggestion. It is similar to his oft repeated mortgage debt for home equity swap suggestion. I wonder if this ready acceptance of his pro-corporate philosophy betrays a lack of commitment to the supremacy of the individual in Irish thinking. It is a very dangerous philosophy.
Perhaps the post-colonial psychological void is so great that what remains of a separate people has no self awareness left. Ever heard of the Brehon Laws? That was our civilization. All gone.
In a nutshell then the article suggests; ‘Support big business, there is no alternative’.
“Shares are permanent wealth whereas taxes are more transitory income, like wages. In recent years, financial wealth has grown much quicker than income.” – Thats good corporate propaganda right there.
I think it’s a decent enough basic idea by David. Obviously needs fleshing out. I also like the idea of getting the multinationals to plough money into education for future generations and employment etc. Some combination of the two ideas (and other aspects) might work, devil would be in the details. But one question – how will/would this actually happen? What’s the first step? Who’s going to do it? It’s a nice theoretical thought experiment – but will it ever happen in reality? Doubt it. Too many immovable vested interests as Deco alluded to – and they are going to… Read more »
Perhaps there is hope for us yet. Mark Zuckerberg has just pledged to give away 99% of his Facebook shares (although not yet; shades of St. Augustine?). He believes (as I do) in the power of the individual rather than in the artificial creations we call corporations. Maybe Mark Zuckerberg’s social media is returning us to a world of individuals rather than of inhuman corporate “persons”. If so, my hat is off to him.
http://www.plata.com.mx/Mplata/articulos/articlesFilt.asp?fiidarticulo=278 “What we are witnessing these days is a mighty contraction in economic activity around the world, that reinforces itself. International Reserves are being sold off in a desperate search for liquidity. The contraction was originally seeded by a slow-down in the economies of the Reserve-issuing countries, i.e., USA, Britain, Europe and Japan.” China will then say to the world: “We sell cheap. Very cheap. But, we sell for gold, for very little gold; and we pay with gold for what we buy – for very little gold, but we pay gold. You want our stuff, you find a way… Read more »
As we select a new Commander in Chief, I hope voters will seek out a leader who will not pursue a reckless policy that traps us under a mountain of debt and beguiles us into perpetual war.
I hope I can count on you to stand with me today.
In Liberty,
Rand Paul
Sounds like the looniest idea David has come up with in a long time.
a) In what way will asking multinationals to cough up more encourage them to stay here?
b) How will it appease Obama, when he still would not be getting “his” share?
c) Worst of all, it sounds like a major contribution to another property-boom-type wheeze, doomed for a massive downturn at some time in the not so distant future.
Do we really need to be so masochistic? And you of all people should surely not be talking up another bubble, of whatever ilk.
Of course, many of those companies don’t make a profit. In that scenario, it might make sense. And the Irish state could sell the shares before they go into meltdown.
http://www.peakprosperity.com/insider/95544/murder-and-mayhem-middle-east
This is a good account of why there is an immigrant problem. Basically caused by lawless aggression and illegal destruction of legitimate countries and governments, and assassination of their rulers.
Wherever we live in the West it is aided and abetted by our support of our government policies.
http://www.jsmineset.com/ The market will overcome the manipulation. It is a matter of time. “”The last topic today is the upcoming Fed meeting. Will they or won’t they raise rates? As you know, I can’t see any way they will do this, “data dependent” or not. Many say the rate hike depends on the unemployment number out this coming Friday. Really? The unemployment report has been shown by John Williams and others to be a bad joke in totally poor taste and virtually a complete fabrication. Zerohedge has come out with article after article showing the real situation in many reports… Read more »
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