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How is this even possible?

A:

Many Multinational Enterprises (MNEs) can get their effective tax rate lower than domestic competitors. MNEs use their subsidiaries in tax haven countries as a means to move their money around.

If the corporation’s ships used to transport bananas from Brazil to the United States are registered as based in the Bahamas subsidiary, the Bahamas subsidiary can charge a little more per banana. They can’t charge too much as they are subject to some rules. But they can charge more from multiple subsidiaries. One subsidiary for accounting in Luxembourg, another for logistics in Jersey, one subsidiary in Ireland holds the official branding. Anything that can officially be based in overseas offices can charge a bit more per banana too. By the time this is all done, officially the profit per banana in the U.S. could be 1 cent for the MNE. Meanwhile, the Domestic company has to report the 10 cents of actual profit in The U.S. The Domestic company has no subsidiaries where they can move their profits.


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