4 ms·

If there is a 35% tax on profits in the US and a 0% tax in Europe and the cost of customer acquisition is similar, the obvious conclusion is to invest in your E

If there is a 35% tax on profits in the US and a 0% tax in Europe and the cost of customer acquisition is similar, the obvious conclusion is to invest in your European branches until cost of acquisition becomes so high that it makes sense to invest in the US again. So yes, you cannot immediately trade out American customers for customer abroad, but it makes foreign investments more profitable than domestic ones. Leading the firm to invest more of their earnings abroad rather than domestically, which I believe is the opposite of what you wanted.

malandrew 9y ago
If this was actually a real concern and not a strawman argument, these businesses wouldn't even bother with having any business in the US at all. From a purely theoretical position, your argument may not make sense, but the already have all this money earned abroad and staying abroad paying low taxes there. Basically all companies that are in this position are those that are so large that they are looking for returns on investment wherever they can find them, domestically and abroad. A smaller company with less profits to reinvest would likely perform the calculation you made, but then again they'd be small enough that this wouldn't even matter. These companies want to bring these profits back to the US. What is worth barring is the ability to pay them back out as dividends in exchange for the tax break. Basically, just structure the tax break to make sure that they only get it if the money is funneled into investments in the US only.