Help Starry out here, on the offshore corporate tax question

[Starry Messenger]

I just ran into a discussion elsewhere that suggested that the funds that Apple, Google, etc. are hoarding overseas were earned overseas and therefore there should be no expectation that we can bring that money back here.

I don't claim to know a damn thing about international finance, but this article suggested to me that the money does originate in the US. Could someone help me out and put things in layman's terms? I'm not being snotty, I would really like the help! Thank you!

http://www.law.com/corporatecounsel/PubArticleCC.jsp?id=1362909707349&slreturn=20130419165611

<snip>

The companies Levin singled out at the hearing do indeed use intricate strategies that enable them to lower their tax obligations. These same strategies are frequently used by global corporations based in Silicon Valley and other high-tech hubs. Some are huge companies with household brands: Google, Apple, Amazon. Others—start-ups and smaller tech companies—are also availing themselves of these complex tax strategies, which involve shifting ownership of intangible assets—primarily intellectual property—to overseas subsidiaries. "Every U.S. multinational and high-tech company of any significant size now has these international structures in place," says Eric Ryan, a tax lawyer at DLA Piper in Palo Alto. "It's routine at this point."

<snip>

The scrutiny is largely focused on a common corporate practice called "transfer pricing"—a term that describes how a multinational corporation allocates income and expenses among its worldwide affiliates for tax purposes. The practice, long-accepted under the U.S. tax code, has been used by companies for all types of goods and services for years, and more than 60 countries have adopted rules governing transfer pricing transactions.

But now companies are shifting their intangible assets—namely their intellectual property—to low-tax jurisdictions offshore and attributing expenses to countries with a higher tax rate. Critics say the companies are doing this strictly to lower their tax bills. And many, they attest, are a bit too creative with their accounting, so the valuations placed on their assets will work to the company's tax advantage. These types of profit-shifting arrangements cost the U.S. government as much as $60 billion in annual revenue, according to a study by Kimberly Clausing, an economics professor at Reed College in Portland, Oregon.

<snip>

In one of the more popular and complex schemes used, a company will route profits through subsidiaries in Ireland, the Netherlands, and the Caribbean—all of which are low- or no-tax jurisdictions. A parent company will transfer some of its IP to an Irish incorporated subsidiary—a holding company "tax-resident" in a no-tax jurisdiction, such as Bermuda. The Irish company will then sublicense the IP to another subsidiary, which is tax-resident in the Netherlands. Both of these companies may have few, if any, employees and may even operate from a post office box. The Dutch company will in turn sublicense the IP to a second Irish subsidiary that is wholly owned by the first Irish company. That second Irish subsidiary, which is an operating company with an office and employees, will sublicense the IP to other corporate subsidiaries outside the U.S.

<snip>

[Scuba]

1. This'll help ...

http://www.democraticunderground.com/10022877255

[Starry Messenger]

2. I did see that earlier and will read over it again.

I was surprised to run into pushback in the discussion elsewhere, and thought I'd missed something in my earlier understanding. It's easy for me to doubt myself on this stuff.

[Scuba]

3. There's a very good graphic running around here too, but I don't have a link to it. Sorry.

[Starry Messenger]

5. I'll keep an eye out Scuba, thank you.

[lastlib]

4. short answer--it's a shell game.

they attribute expenses to operations in high-tax countries (expenses offset income, so their income in HTC is minimized, thus lower taxes). They attribute income to operations in the lower-tax countries, so they don't owe as much tax on that. Hence, lowest tax possible. Our idiotic tax laws don't penalize them for this, so they wind up screwing our government out of billions.

[Starry Messenger]

6. It's ridiculous that it is legal.

I live in Silicon Valley where many of these companies are based, and it makes me sick when we all have to talk about tightening our belts and these guys are sitting on shitpiles of cash and grinning.

[Octafish]

7. Seeing how We the People pick up tab for the Pentagon Protection Agency...

...that works on behalf of the American multinationals, they should do the patriotic thing and pony up their fair share of profits in taxes.

Where the Money Lives

For all Mitt Romney’s touting of his business record, when it comes to his own money the Republican nominee is remarkably shy about disclosing numbers and investments. Nicholas Shaxson delves into the murky world of offshore finance, revealing loopholes that allow the very wealthy to skirt tax laws, and investigating just how much of Romney’s fortune (with $30 million in Bain Capital funds in the Cayman Islands alone?) looks pretty strange for a presidential candidate.

By Nicholas Shaxson
Vanity Fair
August 2012

A person who worked for Mitt Romney at the consulting firm Bain and Co. in 1977 remembers him with mixed feelings. “Mitt was … a really wonderful boss,” the former employee says. “He was nice, he was fair, he was logical, he said what he wanted … he was really encouraging.” But Bain and Co., the person recalls, pushed employees to find out secret revenue and sales data on its clients’ competitors. Romney, the person says, suggested “falsifying” who they were to get such information, by pretending to be a graduate student working on a proj­ect at Harvard. (The person, in fact, was a Harvard student, at Bain for the summer, but not working on any such proj­ects.) “Mitt said to me something like ‘We won’t ask you to lie. I am not going to tell you to do this, but a really good way to get the information.’ … I would not have had anything in my analysis if I had not pretended.

“It was a strange atmosphere. It did leave a bad taste in your mouth,” the former employee recalls.

This unsettling account suggests the young Romney—at that point only two years out of Harvard Business School—was willing to push into gray areas when it came to business. More than three dec­ades later, as he tried to nail down the Republican nomination for president of the United States, Romney’s gray areas were again an issue when he repeatedly resisted calls to release more details of his net worth, his tax returns, and the large investments and assets held by him and his wife, Ann. Finally the other Republican candidates forced him to do so, but only highly selective disclosures were forthcoming.

Even so, these provided a lavish smorgasbord for Romney’s critics. Particularly jarring were the Romneys’ many offshore accounts. As Newt Gingrich put it during the primary season, “I don’t know of any American president who has had a Swiss bank account.” But Romney has, as well as other interests in such tax havens as Bermuda and the Cayman Islands.

CONTINUED...

http://www.vanityfair.com/politics/2012/08/investigating-mitt-romney-offshore-accounts

Not only did he make it socially acceptable to be a racist again, Ronald Pruneface the Red Ink Reagan was the guy who made it seem patriotic to dodge taxes.

Here's an excellent suggestion:

On My Mind

Tax Offshore Wealth Sitting In First World Banks

James S. Henry
07.01.10, 09:00 AM EDT
Forbes Magazine dated July 19, 2010

Let's tax offshore private wealth.

How can we get the world's wealthiest scoundrels--arms dealers, dictators, drug barons, tax evaders--to help us pay for the soaring costs of deficits, disaster relief, climate change and development? Simple: Levy a modest withholding tax on untaxed private offshore loot.

Many aboveground economies around the world are struggling, but the economic underground is booming. By my estimate, there is $15 trillion to $20 trillion in private wealth sitting offshore in bank accounts, brokerage accounts and hedge fund portfolios, completely untaxed.

SNIP...

This wealth is concentrated. Nearly half of it is owned by 91,000 people--0.001% of the world's population. Ninety-five percent is owned by the planet's wealthiest 10 million people.

SNIP...

Is it feasible? Yes. The majority of offshore wealth is managed by 50 banks. As of September 2009 these banks accounted for $10.8 trillion of offshore assets--72% of the industry's total. The busiest 10 of them manage 40%.

CONTINUED....

http://www.forbes.com/forbes/2010/0719/opinions-taxation-tax-havens-banking-on-my-mind.html

That'd be change I would believe in.

[unblock]

8. here's a simpler version of transfer pricing to dodge taxes:

let's say you're you're an American company that sells alcoholic beverages to americans. you're highly profitable but would like to avoid paying taxes.

one of the ingredients for your product is sugar, which you buy in the u.s. after someone else imported it from the carribean.

so you set up a company (wholly-owned subsidiary) in the carribean to buy the sugar directly, then that company turns around and sells it to you for you to turn it into booze. but instead of paying a reasonable, market price for that sugar, that wholly-owned subsidiary jacks the price sky-high, so that all the profits accumulate in the carribean subsidiary and the American company only breaks even.

now there's no taxes to be paid in the u.s., and low or no taxes to be paid in the carribean based on the profits there. the cash accumulates offshore, but the company has dodged a lot of taxes.


it's flagrant tax evasion, but if anyone complains, you just introduce some secret "process" to the sugar and claim that that's the real secret to your product's success, so the carribean subsidiary really did "earn" all those profits.

[Scuba]

9. Excellent explanation. Thanks.

[Starry Messenger]

10. Ooh, thank you.

That makes sense now.