Respectfully submitted by Lawrence E. Rafferty (rafflaw)- Weekend Contributor
We have read in recent weeks and months about the continued movement of corporate profits by US corporations to their overseas subsidiaries in order to avoid paying taxes here on those profits. Walgreens almost went that route recently but they decided to not do what is called an “inversion” to avoid taxes. At least for now.
You may be wondering what the picture is all about. The building in the attached photo is one of the main buildings on the Microsoft campus in Redmond, Washington. And Microsoft has also been busy working on their taxes.
Microsoft, made news recently, by admitting that they have stashed $92 Billion dollars overseas in an attempt to avoid paying $29 Billions in taxes! While Microsoft has not officially “inverted” its profits, they have done the next best thing.
Many large US corporations have complained that they have to move profits overseas because they cannot be competitive in the world market without a lower tax base. Just how true is that claim?
“At the New York Times’ Dealbook Andrew Ross Sorkin looks at this issue in “Tax Burden in U.S. Not as Heavy as It Looks, Report Says.” Sorkin looks at a paper, “‘Competitiveness’ Has Nothing To Do With it,” by Edward D. Kleinbard. Kleinbard is a professor at the University of Southern California and used to be chief of staff to the Congressional Joint Committee on Taxation. Sorkin quotes Kleinbard:
“Despite the claims of corporate apologists, international business ‘competitiveness’ has nothing to do with the reasons for these deals,” he [Kleinbard] writes. “Whether one measures effective marginal or overall tax rates, sophisticated U.S. multinational firms are burdened by tax rates that are the envy of their international peers.”
Our tax rates are “the envy of their international peers?” Sorkin explains:
Professor Kleinbard contends that most United States multinational companies don’t pay anywhere near 35 percent. Companies paid, on average, 12.6 percent, according to the Government Accountability Office, which last measured it in 2010, by deliberately stashing piles of cash abroad.” Crooks and Liars
If the large corporations are really only paying, on the average, 12.6% on their profits, why would they be claiming that can’t be competitive? The only reason I can come up with is good old-fashioned Greed. Of course, it can be argued that these corporations only answer to what their shareholders demand, better performance on their stock earnings. Do you believe that argument?
Just how does a large multinational corporation like Microsoft go about moving their profits overseas?
“Because Microsoft has not declared itself a subsidiary of a foreign company, the firm has not technically engaged in an inversion. However, according to a 2012 U.S. Senate investigation, the company has in recent years used its offshore subsidiaries to substantially reduce its tax bills.
That probe uncovered details of how those subsidiaries are used. In its report, the Senate’s Permanent Subcommittee on Investigations described what it called Microsoft’s “complex web of interrelated foreign entities to facilitate international sales and reduce U.S. and foreign tax.” The panel’s report noted that “despite the [company’s] research largely occurring in the United States and generating U.S. tax credits, profit rights to the intellectual property are largely located in foreign tax havens.” The report discovered that through those tax havens, “Microsoft was able to shift offshore nearly $21 billion (in a 3-year period), or almost half of its U.S. retail sales net revenue, saving up to $4.5 billion in taxes on goods sold in the United States, or just over $4 million in U.S. taxes each day.”
U.S. Sen. Carl Levin, D-Mich., said at the time: “Microsoft U.S. avoids U.S. taxes on 47 cents of each dollar of sales revenue it receives from selling its own products right here in this country. The product is developed here. It is sold here, to customers here. And yet Microsoft pays no taxes here on nearly half the income.” ‘ Reader Supported News
Whether you are talking about an inversion which requires the US corporation to claim that its base of operations is actually no longer in the United States, or deferral tactics like the ones used by Microsoft, the bottom line is that many large US multinational corporations have avoided paying billions in taxes. While Microsoft has stashed $92 billion overseas, they are not the worst offender.
“Apple and General Electric, which also employ offshore subsidiaries, are the only U.S.-based companies that have more money offshore than Microsoft, according to data compiled by Citizens for Tax Justice. In all, a May report by CTJ found that “American Fortune 500 corporations are likely saving about $550 billion by holding nearly $2 trillion of ‘permanently reinvested’ profits offshore.” The report also found that “28 these corporations reveal that they have paid an income tax rate of 10 percent or less to the governments of the countries where these profits are officially held, indicating that most of these profits are likely in offshore tax havens.” Reader Supported News
It seems that it is fair game for US corporations to hide from their duty as “citizens” of the United States by using legal tactics that actually harm the Treasury of the United States, while at the same time taking advantage of the infrastructure created by the state and Federal entities. I wonder if non-corporate citizens can use the same inversion tactic to avoid paying income taxes?
Maybe we should all incorporate and sell out to a foreign “corporation” and invert our income to the home country of that foreign “owner’. Sounds crazy, but maybe that is the next step. Maybe we can start a whole new cottage industry of foreign “corporations” designed to house individual Americans income to elude the taxman here in the United States. On second thought, maybe not! However, just how much do these corporate inversions and deferrals cost the rest of us taxpayers?
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