A. Tax Havens Nike earned more than $10 billion in U.S. profits from 2008 to 2015 but only paid 18.6 percent in U.S. federal taxes during this time. One way Nike managed this low U.S. tax rate was by shifting large portions of its domestic profits into offshore tax haven subsidiaries that hold its trademarks, patents, and technology. The U.S. parent company then paid royalties to that subsidiary and subtracted those payments from its own parent U.S. tax bill as business expenses. Read article https://itep.org/tax-avoidance-nike-just-did-it-again-moving-1-5-billion-offshore-last-year/ .

Let's create a simple example of how the tax havens worked (this is very simplified assuming pre-2018 tax law, just so you understand the big picture of how tax havens work; but note, tax laws and rates change over time!). Assume Nike set up a Bermuda subsidiary to hold the Nike trademarks, patents, and technology, at a time when the U.S. corporate tax rate was 35% and the Bermuda corporate tax rate was 0%. In year 20XX, assume Nike earned $10 billion in U.S. profits (before licensing payment to subsidiary), and paid $6 billion to the Bermuda subsidiary for the right to license the Nike Trademarks, patents, and technology.

For questions 1 and 2, further assume that Nike does not repatriate any profit from the Bermuda subsidiary to the U.S. (again, we are keeping this really simple, no need to overthing, it's just to get the big picture point)

1. What was the total that Nike owed in U.S. income tax in year 20XX?

2. What was Nike's total tax savings in year 20XX due to setting up the Bermuda subsidiary?

3. How much would Nike owe in additional U.S. taxes if it repatriated the Bermuda profits back to the U.S. (when the U.S tax rate was 35%)?

B. Global Minimum Tax The imposition of a global minimum tax will have an impact on the use of tax havens. A country with a multinational company's headquarters would collect a tax on the profits of the company's subsidary to ensure that profits are taxed at an effective rate of at least 15%. For example, let's assume the U.S. now has a corporate tax rate of 21% and Ireland has a tax rate of 12.5%. The Irish subsidiary of a U.S. multinational would pay a tax rate of 12.5% in Ireland, and then the U.S. would collect a tax of 2.5% to arrive at the global minimum tax rate of 15%. If Bermuda continues to have as a corporate tax rate of 0%, the U.S. would collect 15% from the Bermuda subsidiary of a U.S. multinational. This global minimum tax could incentive countries such as Bermuda to raise their corporate tax rate to 15%. Of course, Bermuda may then provide other incentives to keep international subsidaries in country such as allowing for tax credits for local investment.

In three sentences and in your own words, describe the impact that you think a global minimum tax will have on multinational corporations. Provide a link to one article you used to research your position.