An Easy Way to Squeeze a Lot of Taxes from Corporations That Try to Hide Their Profits Offshore

[xchrom]

http://www.alternet.org/economy/easy-way-squeeze-lot-taxes-corporations-try-hide-their-profits-offshore



Here is one thing Congress could do that would create more jobs, boost the economy and reduce both the budget deficit and the trade deficit. This one thing would not only provide a big boost now, but would provide an ongoing boost from now on. Congress should modify the “deferral” tax loophole that lets companies dodge their taxes by moving and keeping profits “out of the country.”

The top corporate tax rate is currently 35%. But corporations are allowed to “defer” paying taxes on profits earned outside of the country until they “repatriate” those profits, which means bringing the money back into the country. (Any taxes paid elsewhere are deducted from the amount owed.) There are solid reasons to allow corporations to do this. Simply put, they might need to put that money to good use, which will benefit the company, which in theory will later benefit our country.

But this tax deferral has turned into a huge loophole that is draining our country of jobs, tax revenue, investment, manufacturing infrastructure and other good things We the People are supposed to receive in return for allowing these corporations to operate. Companies not only are keeping profits out of the country, the loophole gives them an incentive to engage in schemes that shift more and more jobs, production and profit centers out of the country. (One well-known example: Apple transferred ownership of it’s “crown jewels” — “intellectual property” — to Ireland.)

A Ton Of Cash That We The People Could Really Put To Use

The amount now being held outside of the country is astounding. Some estimates say that it is as much as $1.5 to 2 trillion, or even more. If the full amount were brought back and the tax rate applied that would bring a $525-700 billion windfall that the government could use to hire people to get things done that really, really need to get done like modernizing our infrastructure, hiring teachers, building high-speed rail, retrofitting homes and buildings to be energy-efficient … so manythings… (Of course it would be less because of taxes paid elsewhere, etc., but we’re still talking hundreds of billions.)

[Scuba]

1. K&R

[hobbit709]

2. Of course the congresscritters' corporate owners would never let them pass this.

[Royal777]

20. Too Far

I believe we have already let the corporations go too far and it is to late to try and get power over them. It will take a very strong movement to change things and I don't think we can do it.

[dkf]

3. Or they could use the money for unending war and to spy on citizens.

When you see how the Governmemt actually uses our tax dollars why are you so confident it will go towards making things better and not worse?

So many drug users to jail and prisons to build!

[eShirl]

4. or on tax cuts for working families

[Celebration]

5. we badly need corporate tax reform in this country

Lower the rate of corporate taxes so the rate is more in line with other countries, yes, LOWER IT, and simultaneously get rid of ALL those subsidies for industries like the oil industry. Revenue neutral, jobs will return, problem solved!

[socialist_n_TN]

15. And two years later the owners buy MORE tax breaks from Congress.........

and then have a lower tax RATE AND the tax breaks too. That's the way it works in the dictatorship of capital.

[FreeJoe]

6. How would you stop...

How would you stop companies from just transferring corporate ownership to an offshore legal entity? If I had a big US corporation and you wanted to tax me on my overseas earnings in the US, why wouldn't I just transfer ownership of the company to a company set up in Ireland?

[Half-Century Man]

10. That is an easy one.

Any company which moves ownership out of the country for reasons of tax evasion, is declared a rouge company. It loses the privilege to do business in any fashion in the United States and has all properties within the United States borders seized. The United States will no longer offer, in any form, protections and/or prosecute those who commit crimes against rouge companies.

[FreeJoe]

16. It's not nearly that easy.

Take the hypothetical example of American Mining Company. They have operations in the US and abroad. Their overseas operations have generated $1 billion dollars in profits that they have retained but kept overseas. If we decide to tax it, that $1 billion dollars is worth $650 million dollars after taxes. On the other hand, if Australian Mining Company were to buy them, that $1 billion would still be $1 billion dollars. Australian Mining Company has probably been watching American Mining Company for years, watching to see if it makes sense to buy them. With this new tax plan, it certainly does. They aren't buying them for tax evasion reasons. They are just buying them because American Mining Company is now worth more to them than it is to US owners.

The United States is virtually the only country that tries to tax corporations on their overseas profits when they bring that money into the US. It was a nice idea, but it hasn't worked very well. Trying to tax them on their profits while those profits remain overseas just won't work. That's why no one is seriously putting forward the idea.

It would make much more sense to reform corporate taxes (trading fewer deductions in favor of rates more in line with other developed countries) and to try to crack down on bogus transfers of intellectual property.

[radiclib]

7. Yes they could. But they won't.

Next.

[alc]

8. it's not that easy

Foreign profits are made by entities much closer to independent franchises than to divisions of a US company. They pay license fees to the US company for the name/formulas/patents and have restrictions on what they can do, but are legal corporations under a non-US government.

For example, we see "Coca-cola Company". But it's actually 100s of corporations such as (I'm making up the entities but it's how most global corporations are organized)

* Coca-cola US, Inc
* Coca-cola Japan, Inc
* Coca-cola Tokyo Bottling Company, Inc

The first owns most of the stock in the 2nd which owns most of the stock in the 3rd. There doesn't even have to be a stock ownership relation just naming agreements. The second two pay licensing fees to the first for names and patents. The second one makes no profit. The third one can keep all of it's profit.

Japan insists that the last incorporation exists if coke is to be bottled in Tokyo (a legal local entity for law suits and to tax). Japan would be pretty pissed if the US started trying to tax Japanese companies.

The Tokyo company has a few options with it's profits.
* Leave them in a Japanese bank
* Loan them to another company. Any company could get the funds but it will likely be a sister company (i.e. Coca-cola Istanbul, Inc) or a company that can facility Coke's business (e.g. an independent "Beverage Distribution Services Turkey, Inc&quot . This helps the Coke brand grow in another country as Coke competes with non-US country in the international market.
* Give the profits to the Japan company which may give them to the US company if it wants.


For the US government to collect taxes, it would need to collect it based on stock ownership, not corporate profit. That's a HUGE change, not a simple change and the affects go way beyond this 3 corp example above. Corporations can respond by reducing/modifying sock ownership - in some countries the US company can't legally be the majority stock holder any how.

The other place this comes into play is on mergers which will be happening as many regional companies start competing in new markets with 2 billion+ consumers. First, if coke pays US taxes on it's global profits, it will have less global money to invest in emerging markets. Second, all of the major soda companies are probably going to combine until 2 or 3 are left (it happens in most markets that many brands die or merge until a few are left). Profits and taxes will be a huge factor in deciding which legal entity remains as headquarters after the merge.

[mbperrin]

12. Easiest thing would be to prohibit the corporation as a business organization.

Adam Smith didn't think corporations should be allowed to exist. Neither do I. They're a dodge to avoid personal liability for economic crimes.

Anytime you have a chance to lose everything you own, pauperize your family, and/or go to jail, you get a bit more responsible, a little more law abiding, and somewhat more interested in customer service.

The corporate form of business is at the root of all economic problems in the world today by creating a way for business to make money other than their actual business - stock manipulation.

So kill corporations and enjoy the benefits.

[oldhippie]

17. Yeah, that'll work ......

Just look at all the successful countries in the world that operate without corporations!

[AnotherMcIntosh]

21. Yes. Let business owners operate as partners in the same manner as Lloyd's of London.

[mbperrin]

23. Yes, in their pre-1994 mode, where "Names" faced unlimited personal liability for their decisions.

Since then, corporations have been allowed in with limited or no personality liability.

Our Betters in many cases want US to take responsibility, but not themselves. Not very sporting.

[Dustlawyer]

9. Until we push (hard) and achieve campaign finance reform and publicly funded elections,

"congress critters" (love that) will never pass it. Hell, what I proposed here would take a sea change to achieve and that is what be done 1st before great ideas like this could come to fruition! We have to throw off the yoke of servitude that most of our politicians wear in exchange for campaign cash!

[7962]

11. Where's the "idea"? The article just says to tax money held offshore

The fact is, the US and UK are the only 2 countries who tax foreign profits. And the UK is seriously considering whether to continue it or not. The tax "credit" is only on compulsory taxes paid and not all taxes that may have been paid. Couple this with the highest corp tax rate in the world, and you get foreign profits staying foreign. Of course, few companies PAY the 35% because of deductions, loopholes etc.
Do two things. 1- stop trying to tax foreign profits over and above whats already been paid. 2- do away with deductions and lower the corp tax rate. This would get rid of the armies of lawyers corps use to reduce their rates. No need to work to get out of a lower tax rate. Foreign money would then return to the US as there would be no financial need to keep it overseas.
The desire to stick it to corporations never does any good. They ALWAYS find a way around it

[mbperrin]

13. How would you figure we have the highest corporate tax in the world?

In Saudi Arabia and many other oil countries, the government is a 50% owner of the businesses by law. That's a 50% tax rate just based on earnings distributions to shareholders. But it's not LABELED a tax, so they are these super "progressive countries"?

Too many of the Fortune 500 here pay NO tax at all, perfectly legally. That must change. In the 50s, we had a 92% top tax rate. The incentive to not pay it was to invest, create jobs, build branches, and deduct those expenses to get the tax down. Now, taxes are so LOW that there is no penalty for holding cash, which stagnates the economy, kills purchasing power, ends job growth.

Need taxes to be MUCH MUCH higher than they are now - then things will get rolling.

[7962]

14. If the government owns half the company, you cant compare the two.

Compare "normal" countries. Ours is the highest, hence all the work to get around it. Raising rates simply gets you more work being done to get out of paying and even less revenue.
You mention the old 92% rate; nobody actually paid that rate. You can make the rate whatever you want, its what actually gets paid that matters. You cant penalize a company for holding cash thats already been taxed. The next step would be to do it to the rest of us. There are already enough in washington who want to start taxing our 401Ks early.

[mbperrin]

18. Well, you're on the verge of understanding something.

We don't want the revenue, we want the job creating behaviors. You need the rate to do that.

MOST industrialized countries take a piece of the industries there. China, Britain, France, Russia, and many more. WE'RE the abnormal people, who build infrastructure and let the richest companies use it for free.

No one is penalizing anyone for money already taxed - they avoid taxation by parking it overseas, large profits, and owe no tax here EVER if they don't bring it back here.

Nice straw man on the 401k. But retirees are not entrepreneurs, companies are supposed to be. Just like having police doesn't mean that if we make them enforce the law, that next, we'll draft YOU to be a cop. Naturally, a fiscal conservative like me would never have anything to do with banks and my retirement, anyway, but that's your business - you do what you like.

[7962]

19. Well, I cant put my 401 anywhere but where my company SAYS I can

So unfortunately I'm stuck there. And my comment is hardly a "straw man", its easy to find stories on some who want to take away the exempt status or hit 401s with a "one time" tax.
China is a terrible comparison. They do whatever they want with no consideration to people. Want a road through that town? Too bad folks, move or we'll move you. Environmental concerns? ha!
I'm tired of all the convoluted tax ideas. People and corps will ALWAYS figure out a way around a tax. I support a consumption tax. You cant avoid a tax at the point of purchase. Then we'd get a lot of revenue from the wall st goofs when they buy their ferraris. Not enough people pull the wagon.

[mbperrin]

22. Consumption tax is the worst ever.

The richest spend a fraction of their income, and so pay on a fraction.

Poor people spend all theirs, and so are taxed on every dime. Bad idea.

The people who want to tax your 401k aren't using high corporate tax rates as a reason. They just don't want you to retire, ever. They prefer you die working and before you incur great medical expense. Screw them.

Since you've abandoned your retirement planning to your company, I very sincerely hope that works out for you. Often, it doesn't.

China has no consideration? Hmm. I guess the coming missile strike on Syria is a humanitarian gesture? And a million more examples of USA simply killing people routinely as part of business for the MIC. Check out the Keystone Pipeline and their hired thugs running property owners off their own land, including a 74 year old woman in Texas now in jail.

Nothing convoluted about 92% tax rate. Invest or pay. That's the way around it. Worked in the 50s, very well indeed.

[7962]

24. Havent TOTALLY abandoned the 401!

Just my work contributions must go to their selected company, which does seem to do a pretty good job (T Rowe Price)
I have outside investments that I've done on my own as well, because its foolish to count on some company. Especially the one I work for; its a business thats slowly going away and run by a few idiots who spend money on technology we dont need. I've tried to put myself into a position where if I DID get canned, I could ramp up something on my own pretty fast.

[mbperrin]

25. Good.

nt

[valerief]

26. But isn't Congress being paid by the very wealthy to NOT do this? nt