The arrest of Meng Wanzhou, the chief finance officer and the daughter of the founder of Huawei, one of China's richest men, by Canadian authorities on spying charges could be a game-changer for the global multilateral trading system. The Canadians are acting on behalf of the Americans here. Washington is pulling the strings.
Huawei is the world's largest telecom manufacturer, and the second largest smartphone maker after Apple. America accuses it of stealing American technology; most likely Apple's technology.
This move is a serious upping of the ante in the on/off trade war between the two superpowers. If you were an American multinational executive sitting in your hotel room in Shanghai you’d be right to worry about an unexpected knock on the door from Chinese internal security.
Such an obviously mercantile move in Canada, dressed up as a political act, focuses attention again on large multinational companies, international trade and the potential for a breakdown in global commerce.
David McWilliams: Sanders is building a new political movement and could run again
David McWilliams: Why stock in Facebook, Apple and Google has fallen
David McWilliams: Brexit provides Ireland with a commercial opportunity
David McWilliams: Want to find the cause of the housing crisis? Look in the mirror
Stock markets have plunged around the world. When stocks are falling, you might find it a little odd that the column is returning to the issue of what best to do with the profits of multinationals based here.
I believe, despite recent volatility, that Ireland should seek to get paid by multinationals not just in tax revenue but in a split between tax revenue and company stock options. The reason is very simple: history proves that stocks constitute wealth that is permanent, while tax revenue is income which is transitory.
Above target
Ireland collected €8.2 billion in corporation tax in 2017 (2.7 per cent of GDP and 11.6 per cent of total tax receipts). This is an increase of €849 million (11.5 per cent) on 2016. In the last quarter the expected tax take jumped nearly €500 million above target for November.
The number of companies paying corporation tax in Ireland rose to more than 50,000 – with manufacturing the largest sector, accounting for 27 per cent of receipts. However, the top 10 largest corporation tax contributors accounted for 39 per cent of total receipts, and foreign-owned multinationals accounted for 80 per cent of corporation tax receipts in 2017.
Yet the US Bureau of Economic Analysis shows that majority-owned foreign affiliates of US multinational enterprises operating in Ireland generated $149 billion in net profit in 2016. So, allowing for exchange rates, US firms made around €130 billion profit last year here. On this they are supposed to pay 12.5 per cent tax or €16.25 billion. But they paid only €8.2 billion.
So around €8 billion is missing. This is the €8 billion that the EU wants us to collect. And so does Washington, but for itself, not for us.
The multinationals are well aware that both the EU and the US want more revenue from them, so what are they to do?
Maybe we give them an exit strategy and tell them that, using our own sovereign tax regime, we will take the difference between what they actually pay us (€8.2 billion) and what they ought to pay us (€16.25 billion) in stock options to be exercised sometime in the future.
These options go into the start-up fund and, given the way share prices have been going historically despite crashes, very soon this fund would be worth serious money.
Oil find
We could treat the wealth from the multinationals as a one-off source of wealth in the same way the Norwegians treat their oil find, they use it to bolster a national wealth fund. But whereas the Norwegians pledge the wealth to pay future pensions, what about using the wealth as a kick-starter fund – not a winding down fund?
Why not use the Apple money to do something socially beneficial?
Imagine each citizen would have small bit of this wealth fund so long as it is pledged as liquid collateral to a bank in order to fund a start-up? We could transform society into an entrepreneurial trading entrepôt, open to the world, with easy available finance for people to innovate and create businesses.
Setting up trading companies is what makes societies rich. Lack of start-up financing is a regular impediment to new companies. A national kick-starter fund would eliminate the initial financing problem that bedevils many new businesses.
From the multinationals’ perspective, any corporate chief financial officer faced with the prospect of having to pay hard cash today in extra taxes or an IOU tomorrow in stock options would always vouch for options.
Obviously, there are many technicalities to figure out, but the idea of using multinational windfalls as wealth not income to kick-start companies could redefine the whole relationship between the nation state and the global corporation at precisely the time it is under threat and needs to be redefined.
Socially beneficial
Speaking of current revenue, while we are at it why not also use the Apple money, the €14 billion which is lying idle in an account to (a) do something socially beneficial and (b) make more legitimate Apple’s business here? Why not use it all to build houses? (€14 billion could build close to 50,000 units). This would be corporate social responsibility on a monumental scale!
In short, Ireland is in a very strong position even if there are clouds on the global trade front. We have the scope to use our tax system intelligently. Using tax-owed as a medium-term wealth gives us much-needed kick-starter cash for young entrepreneurs who will make the place tick.
This could be totally transformative for the country. Imagine post-Brexit a country with full access to all markets, and kick-starter funds available to every citizen to have a go?
In addition, if we used the Apple money on housing we could go a long way to solving the housing crisis, building State-owned homes, bringing down the cost of accommodation and the overall cost of doing business in Ireland for a generation. This has to be a national prize worth considering.