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.
Posted by fCh