Havens and sources

The Hindu : Business / Economy : Havens and sources

• Technology multinational corporations should either share their gross profits between the tax havens and the relevant resident or source country, or ensure that at least 10 per cent of the gross profit is paid to the relevant resident or source country.
• suggests Cynthia Obiri, Doctorate of Finance Student in the Swiss Management Centre.
• An example cited in Obiri's recent pape
• about how Google Ireland Ltd's 2009 gross profit of Euro 5.5 billion was subjected to an "administrative expense" of Euro 5.467 billion paid to its Bermuda headquarters for the right to operate, which reduced its operating profit to a measly Euro 45 million.
• the global Internet giant simply uses national tax differences to its advantage in the global tax system
• when technology companies sell their intellectual property to a tax haven-resident controlled foreign holding (CFH) company, the result is serious economic impairment suffered by countries such as Ireland.
• the cost of using the IP, i.e., the amount charged by its Bermuda CFH must be half of its gross profits."

Corruption transition

The Hindu : Business / Economy : Corruption transition

• 'A Journey from a Corruption Port to a Tax Haven' – a paper by
• Shafik Hebous and Vilen Lipatov, Faculty of Economics and Business Administration in the Goethe University Frankfurt
• speaks of sketching a model according to which tax havens attract corporate income generated in corrupted countries.
• In our framework, tax havens have two opposite effects on welfare
• First, tax havens' services have a positive effect on welfare through encouraging investment by firms fearing expropriation and bribes in corrupt countries. Second, by supporting corruption and the concealment of officials' bribes, tax havens discourage the provision of public goods and hence have also a negative effect on welfare,
• Based on firm-level data on outbound FDI, they find empirical support for one hypothesis implied by their model – that firms' investment in highly corrupt countries is associated with a high probability of having affiliates in tax havens.
• Hence, a policy recommendation in the paper is that eliminating tax havens' operations must be considered from a global perspective.
• The authors add that a dynamic approach may reveal further welfare effects of shutting down tax havens by modelling the transition from a corrupt country to a non-corrupt country.
• "While a tax haven can support investment (and corruption) in corrupt countries in view of their weak institutional setup, eradicating corruption can substantially enhance foreign direct investment.

Dawn over Libya

Dawn over Libya

• The political transition in Libya, even if messy, offers a wonderful opportunity for Libya to leverage its tremendous oil reserves for the benefit of its people after over four decades of mismanagement.
• Libya, Africa's biggest holder of oil reserves (and the world's eighth largest), has very little to show for this endowment.
• The transition, if it succeeds smoothly, can set things right. Libya's current oil production of 1.7 million barrels a day can easily be ramped up to 3 million barrels a day with $30 billion of investment, according to the French Trade Commission.
• While investment from global majors would be readily forthcoming, the new National Transition Council (NTC) needs to unequivocally signal its intent to be open to serious business.
• Libya will need to move beyond simply being an oil producer and invest in downstream capabilities such as refining and marketing of petroleum products, which currently falls well short of potential.
• The operations of the national oil monopoly, the National Oil Corporation of Libya, will also need serious review.
• the pattern of holdings is unclear and appears to be vested in companies or trusts controlled by the former leader and his family.
• This is a pattern commonly found in resource-rich developing countries. If the ruling families in Saudi Arabia and the United Arab Emirates have been successful in keeping the lid on social and political protests, it is largely because a significant portion of oil and gas revenues (albeit much larger than that of Libya) has been ploughed back into their respective countries
• The first challenge for Libya's new government would be to restore the money to where it rightfully belongs.
• To give credit where it is due, the former government did invest in raising the stock of social capital.
• Expenditures on health are about 7 per cent of GDP, while the overall literacy rate is around 83 per cent.
• However, 30 per cent of Libya's work force is unemployed, which combined with extreme political repression provided the tinder for the revolt that deposed Qaddafi.
• The need for rapid transformation becomes even more evident when one considers Libya's demographics: 33 per cent of the population is less than 14 years of age, while 64 per cent is between 15 and 64.
• It is clear that Libya's impressive reserves of human capital have not been effectively utilised.
• This is both an opportunity and a challenge for the new government.
• t is still not entirely clear what the political and religious leanings of the new government will be.
• The new leadership's assurances that it would be "progressive and inclusive" will be borne out in time.
• Hopefully, the new momentum and revival of hope in Libya will be channelled to utilising Libya's vast hydrocarbon inheritance fruitfully rather than being frittered away on vain projects as in the past.