Ah - to be in the land of Tir na nOg!

When I see reports that the President is considering raising corporate tax rates, I can’t help but ask - what in the world is she thinking? This isn’t going to raise funds for the government; it may work in the short run, but certainly not in the long run. Big Business today - her real target - has no loyalty to the Philippines and can easily repatriate their profits and reorganize to minimize their tax liabilities.

Two years ago, if you picked up some Colgate toothpaste in your local supermarket, you would see a curious declaration (that went something like this):

Manufactured in Indonesia, by Colgate-Palmolive Indonesia
For Colgate Palmolive Headquarters in Hong Kong
Distributed by Colgate PalmOlive Philippines.

That’s strange. I thought to myself - why are they saying this? It seems to me like a declaration Colgate-Palmolive was making for the benefit of the tax authoritites. Here’s my analysis:

Hong Kong is the ideal place to set up a Global HQ. Corporate tax rates are only 17%, and most importantly - businesses are only taxed on local profits, and not on profits earned outside HK! What was happening here was that CP HQ was buying the toothpaste from CP Indonesia for a very cheap price, then selling it to CP Philippines for a very expensive price. The net result is that CP Philippines & Indonesia would declare a very modest profit (where tax rates are high) whereas CP Hong Kong would keep the profits in HK and thus pay no taxes on foreigh-sourced income! Brilliant!

Lastly, because Indonesia and the Philippines are part of the ASEAN, Colgate toothpaste manufactured in Indonesia is able to enter the Philippines tax free. What a great idea! Who loses - why the Philippines, of course! One - because the manufacturing jobs will move to ASEAN countries where the cost of labour & electricity is cheapest. And Two - because all the white collar jobs at CP HQ will go to someone in HK. (Even if our English is better, even if our rents are cheaper, and e even if our labour market is as competitive).

Proctor and Gamble, which had its Asian HQ in the Philippines dating from the time of the American occupation, moved its HQ out a long time ago, I am told, precisely to avoid our uncompetitive absurd tax structure.

Recently, we at DotPH have been studying the viability of setting up a presence in Europe, and I was mildly surprised to see how aggressive the corporate tax rates are in Ireland. 12.5% on Net Profits! Even more stunning is the declaration (if you look very carefully at the linked document) that there is no stamp tax assessed on Domain Name Sales! (Ah - now I know why Afilias is headquartered in Ireland!) One wonders if the Irish are actually attempting to attract more Domain Name companies to set up shop in the land of Tir Na N Og?

The only catch seems to be that Ireland will tax companies on global income (not just EU income, or Irish income). So Ireland looks good for an EU branch, but not as a global HQ.

But the point is - why are we raising corporate taxes?