Intel's Otellini strikes at the US tax regime





Recently, Paul Otellini, Intel's to be CEO, has expressed his considerations about building a $3 Bn chip factory abroad due to higher taxes in the US relative to Europe and Asia. Mr. Otellini considers the 35% corporate tax his company would pay to the federal government too high in comparison to:

a) Israel, which offers a 20 percent capital grant, a 10 percent tax rate and a two-year tax deferral;
b) Malaysia offers a 10-year tax deferral;
c) Ireland offers a 12.5 percent tax rate.

When comparing operating costs in the US with the 3 alternatives above, Mr. Otellini stated: "The problem that we have and which the industry has is that it costs us $1 Bn more to operate inside the U.S. than outside of the country." It's not wages and capital; it's almost all attributed to tax benefits - or the lack thereof - in the United States compared to what is offered elsewhere." It is not easy to accurately calculate the TCO's/ROI's associated with each alternative since the raw numbers in the overseas alternatives present cost savings exceeding $1Bn, while having a factory built in the US, in close proximity to the most other Intel operations, would increase the ROI.

However, difficult a calculation this may be, Mr. Otellini may be onto something more than jettisoning the costs of the leader in a battered industry. Indeed, by looking at the Israeli alternative, one can gauge the real willingness of a country to become a premiere hi-tech place since Israel is offering to pay a premium while it experiences its own budget difficulties and quasi-war situation.

2 comments:

fCh said...

You may also want to check out New York Times for "It's a Flat World, After All," by THOMAS L. FRIEDMAN

Published: April 3, 2005

http://www.nytimes.com/2005/04/03/magazine/03DOMINANCE.html

fCh said...

It seems that, after all, the plant will be built in Israel.