Monday, January 28, 2013

the profit shift game

Are massive American multinational companies behaving like some System D merchants and cheating on their taxes?

Yes, according to a recent study by the Congressional Research Service that was posted online by the Federation of American Scientists. According to the report, which was based on 2008 data compiled by the Department of Commerce's Bureau of Economic Analysis, U.S.-based global firms bookkeep 43 percent of their foreign earnings in Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland, countries where they will pay low taxes, though those countries account for only 4 percent of their foreign employment and 7 percent of their foreign investment. According to the report, U.S.-based multinationals may be sheltering close to half a trillion dollars in income in these low-tax nations.

By contrast, Australia, Canada, Germany, Mexico and the United Kingdom--which do not offer low tax rates--accounted for 14% of US multinational corporations' overseas profits, but 40% of foreign hired labor and 34% of foreign investment.

The report suggests that this practice of moving the location of foreign income from high tax to low tax countries--commonly known as profit shifting--increased between 2002 and 2008. Unfortunately, it's impossible to tell if profit shifting has continued to increase since 2008.

It's clear, though, that pursuing small-scale System D entrepreneurs for not paying taxes is really unfair. The big boys cheat on their taxes with impunity.

Thursday, January 3, 2013

food blackouts in Kinshasa

The New York Times reports on a new and outrageous form of power outage: délestage, the way ordinary people balance money and meals in Congo (Kinshasa.)

"If today we eat, tomorrow we’ll drink tea," said Dieudonn√© Nsala, a father of five who earns $60 a month as an administrator at the Education Ministry. Rent is $120 a month; the numbers, Mr. Nsala pointed out, simply do not add up. Are there days when his children do not eat? "Of course!" Mr. Nsala answered, puzzled at the question. "It can be two days a week," he said.

It's not that the numbers don't add up. It's that they're impossible. Income of $60. Rent of $120. Unless there's a huge source of other income, not only will there be no food, but there'll be no home either.Which leads to the suspicion that coop -- the Kinois version of System D/informality -- is how most people cope, including administrators at government agencies.

Congo is rich in minerals -- but last on the global hunger list. Talk about an extractive economy.