There has been a lot of debate about the motivations of multinational corporations for holding around $1.7 trillion in cash and liquid securities. This article reviews most of the ideas that are being discussed, and it offers a new idea. The greatest asset held by many corporations is its intellectual property. This consists of patents, copyrights, trademarks etc. It appears that corporations are transferring their intellectual property to tax havens. For example, if you order a download of Microsoft Word, and pay for it with your credit card, the funds will be sent to Luxembourg which is a well known tax haven.
Multinational corporations are becoming virtual corporations. The decisions that they make about where they locate their capital, and what functions they provide internally, or outsource to others, are very carefully made. Avoiding domestic taxes is chief among them. Nation states compete with each other by offering the most favorable treatment of taxes and other services to obtain jobs and tax revenues from them. It is a race to the bottom for the nation states. This has been going on within the US for some time. Most large firms incorporate in the state of Delaware because it offers the most favorable corporate legal structures. Other states compete for the location of physical facilities by offering tax advantages and a "business friendly" environment. They seldom get back in return what they give up to win the competition with other states. National and state governments are increasingly in the business of vending laws and services to large corporations.
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