I'm looking to know what the effects of taxing offshore companies are. Say you have a country A that has a good number of offshore companies. These offshore companies are not taxed, however, they bring activity and hard currency to the local economy and banks. Now let's assume country A suddenly decides to tax these offshore companies 10% or 20%. What will be the effect of such taxes? Will the companies relocate to another offshore jurisdiction.Is there any countries that have done this and is there any data on the effects?

Here is what usually happens. Suppose a company decides to invest some money where they can take advantage of an educated or cheap workforce, production for local markets, favorable regulations, whatever. This is going to create a lot of profits for greedy rich people in another country, basically. So suppose we decide to tax some of these profits. Suppose a company is making $100 million in profits, so we decide to tax them at 50%. The greedy people in another country will now only get $50 million, and local tax revenues will increase by $50 million. This will be spent to improve prosperity in the host country, by paying police to monitor the blood-alcohol content of pregnant mothers, providing clean needles for heroin addicts, and buying "greenspace" to make sure housing is not built in high-demand areas. It is really a goddamn free lunch, where taxes are an obvious choice, and a win for everyone.

Of course companies will relocate to reduce costs (including new taxes). Moreover, the kinds of companies that use offshoring in the first place are exactly the kinds of companies that would abandon their first offshore location if it gets too expensive. To a first approximation, it's a matter of the ROI on relocation. Will the cost of relocating be repaid from savings on taxes net any differentials on labour or logistics costs in the new location?But, of course, it's more complicated than that if all the suppliers of the offshore company are in the country, the company has lots of customers in the country, or the company can play games with transfer pricing to minimize taxes. And any company that operates in multiple off-shore countries will be more readily able to shift production.

QuoteOriginally posted by: farmerHere is what usually happens. Suppose a company decides to invest some money where they can take advantage of an educated or cheap workforce, production for local markets, favorable regulations, whatever. This is going to create a lot of profits for greedy rich people in another country, basically. So suppose we decide to tax some of these profits. Suppose a company is making $100 million in profits, so we decide to tax them at 50%. The greedy people in another country will now only get $50 million, and local tax revenues will increase by $50 million. This will be spent to improve prosperity in the host country, by paying police to monitor the blood-alcohol content of pregnant mothers, providing clean needles for heroin addicts, and buying "greenspace" to make sure housing is not built in high-demand areas. It is really a goddamn free lunch, where taxes are an obvious choice, and a win for everyone.I know it's a win for the country in question. I don't think the greedy investors will consider it a win though. And that's my question: will they move? Had it happened before with any country?