How would you expect the IP transfers to affect net investment income in the two economies?

s tax avoidance strategy are not as important as the impa Show more For study purposes the details of Googles tax avoidance strategy are not as important as the impact of tax avoidance on the measurement of economic activity. To make things simpler lets lump Bermuda Ireland and the Netherlands in to a single unit called the Tax Haven economy. Lets consider some of the measurement issues raised by Googles tax avoidance. (a) Firstly there is the transfer of intellectual property between Google US and its foreign affiliate in the Tax Haven economy. (i) How is this transaction recorded in the US current account? What about the US financial account? (ii) How is this transaction recorded in the Tax Haven economys current account? What about its financial account? (iii) In the years following the sale would you expect to see valuation effects? Explain. (b) Now lets consider the impact of transfers of IP assets on the trade balance and net investment income balance. To do this suppose that the US and the tax haven economy are the only economies in the world. Both economies maintain a current account balance equal to zero in all years. The US economy transfers IP to the tax haven economy and the value of this IP tends to appreciate subsequent to these transfers. (i) How would you expect the IP transfers to affect net investment income in the two economies? Explain. (ii) How would you expect the IP transfers to affect the balance of trade between the two economies? Explain. (iii) How would you expect the IP transfers to affect the NIIP of the two economies? Explain. Show less

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