Since the 1980’s global supply systems have moved from relatively higher wage countries to low wage countries where there are millions of people willing to work for less money. This was the number one reason why the shift of manufacturing from the US to China. This shift took place for the goods, but what about the profits to be made? For many years countries known as tax havens have existed and will continue to exist. The corporate world uses the tax havens until the country where their headquarters is lowers their corporate taxes to manageable. In addition, other countries are not directly tax havens but corporate tax havens and Ireland is the prime example. However, with President Trump’s tariffs that might be a concern.

In an article by Rebecca Robbins of the New York Times News Service, one of the tariffs the President is imposing is 15% tariff on medicines from Europe. Ireland sends the US billions of dollars worth of cancer medications, weight loss drug ingredients and other pharmaceutical products each year, no other country is close.

For the past few decades, Ireland has been the beneficiary of American drug manufacturers shifting patents and profits to the country to avoid billions of dollars of US tax bills. The free flow of medicine has been the biggest factor towards a shift to Ireland. The problem of US drug companies is if they leave the facilities in Ireland, they face a larger tax bill; if they bring manufacturing to the US, they face increased costs.

Most executives and other employees of multinational drug companies are in the US. So are a majority of their labs, clinical trial sites and sales.

According to Martin Sullivan a tax economist who writes for Tax News, the largest drugmakers booked 91% of their profits overseas up from 76% in the mid 2010s.

Ireland is where the multinationals produce expensive brand-name medicines.

Where a company holds its intellectual property is more important for its tax bill than the locations of its manufacturing, tax experts said.

At present, a vast majority of Ireland’s corporate tax revenue comes from multinational drug companies and tech companies. In a typical arrangement, the Irish subsidiary and its parent company enters into a licensing deal: the subsidiary get to exploit a drug’s intellectual property, for example funding research. The subsidiary pays the parent company royalties but keeps most of the profits. The profits move from Ireland to tax havens such as Bermuda or Cayman Islands (if you go you will see the names of American financial firms on office buildings).

One solution is change the tax code rather than using tariffs.

Linking to dividend paying stocks, all companies pay taxes but how much is too much and what are good tax strategies that are legal to avoid paying taxes? All companies do them, there is a reason why the tax department at legal firms and accounting firms are large and expansive.

There are more questions than answers, till the next time – to raising questions.