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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A corporation has a LEGAL responsibility to maximize profits LEGALLY. Burger King, buying Tim Horton and moving to Ontario lowers their corporate tax rate by 10%. That is billions of dollars. Lower the draconian tax rates here. That is the logical move. Oh wait, never mind.
Lee:
Fiscal conservatives do not want people starving in the hedgerows, or to remove the safety net. They just want to prevent the able-bodied from taking advantage. For instance, in Canada, until they closed this loophole, people would work a few weeks out of the year, and then go on unemployment. It became a whole culture of the young taking year-long vacations.
When fiscal conservatives added a work requirement to Welfare, those on Welfare dropped by 50%, and employment soared. Child poverty significantly decreased (an issue close to my heart.)
This gives one pause when people claim that Welfare is ONLY composed of those who cannot find work. Clearly, when they are required to work, many do. When work requirements are removed, the Welfare roles significantly increase.
We want our money to go where it’s needed most – those who try hard but haven’t found a job yet, the sick, the elderly, etc. NOT the Octomoms of this world. The economy is tough, and our virtually open borders keep pouring in unsustainable levels of people competing for entry level jobs.
If you look at the table in the link before, Liberals, Libertarians, Democrats, and Republicans all agree unanimously with the statement that able-bodied people on assistance should either work or prepare for work as a condition of receiving those benefits. That, in a nutshell, is the work requirement.
http://www.heritage.org/research/reports/2012/09/obamas-end-run-on-welfare-reform-part-one-understanding-workfare
The article discusses Microsoft’s transfer pricing which is a genuine issue of evasion and in essence merely an enforcement issue. Burger King is a different issue, but at the end of the day, Burger King will continue to pay tax on its earnings earned in the US. The only tax it won’t be paying is on earnings from its foreign subsidiaries, the tax which apparently creates sufficient disincentive to compel many corporations to leave trillions overseas rather than repatriate and to subject those monies to taxation in the US.
Real fake brit,
The article did not say what they were doing was illegal. Let me guess who this simplified tax code will benefit the most? If the corporations have purchased Congress in order to obtain and maintain their corporate entitlements, what makes you think simplifying the code will make it any better? If the money isn’t taken out of politics, you will still have the same abuses by corporations and the wealthy.
RealFakeBrit:
I agree. It reminds me of when people slam the rich for using every legal deduction possible, and then they themselves go to a CPA and ask how they can save money.
It’s not fair to call it unpatriotic or treasonous or anything else when everyone tries their best to “not pay more than they owe.”
You’re right – simplify the tax code.
Very weird and disturbing to read peoples views on govt. stealing our property. Until the phrase, “The govt. lets you keep” is replaced with “We allow the govt. to only steal this” we will always have over spending. Remove corporate taxes and all this goes away. Go to a flat tax so we can all stop subsidizing peoples personal choices and get the govt. out of social engineering.
Also, I love when people pick on the word greed. Greed is good. It’s why you bother to get up in the morning. It’s why we left the cave.
re on the dole and ppl who need help, just saw this link:http://www.lifebuzz.com/rethink/ (I don’t know how to put the video itself on here. called rethink homelessness. People were asked to write down something about themselves people wouldn’t expect because these folks are homeless.)
Burger King is looking to buy the ubiquitous Tim Horton chain in Canada to escape this US tax hell.
interesting guy here
http://en.wikipedia.org/wiki/Smedley_Butler
What I don’t see in this author’s blog post is where these Corporations are doing anything illegal. While many may disagree with how these Corporations are running their business, there is nothing illegal in their actions. The argument may even be made that these corporations create millions (perhaps billions) in revenue by employing those people very savvy in US tax code.
I want to make it clear that I’m not defending or advocating for the actions made by these Corporations. However, if they are doing this all under the legal provisions set forth by US Tax Code, then we can’t object simply because we emotionally feel “it’s wrong”. To reference a popular sports term, “Don’t hate the player, hate the game.”
A lot of these arguments could be made moot if we simplified the tax code. I’m an advocate to creating a tax code that is no longer than 5 pages. We can create a tax code that treats everyone fairly and also gives our gov’t the revenue they need to run the country. I know that my want is merely a pipe dream, but until this (or something similar) becomes a reality, we cannot rightfully persecute these Corporations for merely following the letter of the law.
RFB
Nick:
“Do folks realize any tax paid by a corporation is passed on to the client/customer? Econ 101.”
And then, a miracle happens, and a magic money tree springs up overnight, so that a company can suddenly pay for doubling minimum wage.
I recall an interview in which they were discussing that the average franchise owner makes $90,000/year take home. After minimum wage increases to $15/hour, he would now be losing $180,000/year. It’s sad that voters don’t seem to realize this might have an effect on jobs.
Companies typically do pass on increased costs to customers.
It would be nice if they just simplified the tax code to a flat tax, with no more loopholes. Increase public assistance so that the take home for the poor would equal what it was before, so a net zero effect. But there would be no more voting higher taxes for “other people.” There’d be a feeling that we were all in it together. People who make more would pay more but the % would be the same. And they would pay more in sales tax because they would buy more.
I realize some would disagree with me, and still want a tiered tax system. Even then, simplify it.
Squeeky:
Great article. It sounds like they’re not doing systems analysis, and it sure would be nice for some corporate culture and values to be about more than the bottom line.
I hate when companies outsource production and customer service. Quality always suffers.
Even when I don’t agree with some big businesses’ decisions, I am painfully aware that I, along with everyone else who pays taxes, want to save as much as I can on taxes. What is it H&R Block says in their commercials, “Don’t pay more than you owe?” Obviously businesses are going to exploit every deduction and legal option available to save money. That’s also why the high taxed French seek tax shelters in countries like Portugal.
That’s why I like a flat tax, or even a very basic tiered tax. Make it simple, and no more deductions or loopholes. The simple, low tax means that more companies will actually pay the full amount, rather than exploit every loophole or tax haven. All businesses pay the same, which is fair, and no more special treatment or buying political favors.
Of course, when Ireland lowered its corporate tax rate to 12.5%, and has now attracted a flock of new businesses. Ireland used to be a country bleeding its young people, who had to move away for economic opportunities.
http://www.savejobs.org/content/Americans-for-Job-Security-White-Paper_d2.pdf
I call it economic freedom !!
https://www.opensecrets.org/orgs/summary.php?id=D000000115
“However [political parties] may now and then answer popular ends, they are likely, in the course of time and things, to become potent engines, by which cunning, ambitious, and unprincipled men will be enabled to subvert the power of the people and to usurp for themselves the reins of government, destroying afterwards the very engines which have lifted them to unjust dominion.” George Washington
“Of all the enemies to public liberty war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes; and armies, and debts, and taxes are the known instruments for bringing the many under the domination of the few. In war, too, the discretionary power of the Executive is extended; its influence in dealing out offices, honors, and emoluments is multiplied; and all the means of seducing the minds, are added to those of subduing the force, of the people. The same malignant aspect in republicanism may be traced in the inequality of fortunes, and the opportunities of fraud, growing out of a state of war, and in the degeneracy of manners and of morals engendered by both. No nation could preserve its freedom in the midst of continual warfare.”- James Madison
Thanks for the link SMH.
a must read if you want to know how, when and where the elites changed the tax codes to include individuals when it was originally formed for the merchants and rich to help the working poor and middle class obtain their vision of the dream
http://dollarvigilante.com/blog/2012/2/6/proof-that-paying-federal-income-tax-is-voluntary.html
If you think if this is unfair, consider Toyota. One naturally doesn’t think of Toyota as a ‘US’ corporation and nobody would suggest any equity in the proposition that Toyota Japan, as distinct from Toyota USA should pay tax to the US.
In this case the culprit is the ‘dividend received deduction’ which in the United States is often not complete. Consider a Corporation in the US that earns $100. We’ll presume a flat 35% tax and no accounting tricks and its easy to see that the corporation will pay $35 and have $65 left over. Now, the shareholders can take a dividend and pay tax on it, or they don’t have to. That’s up to them. If they take the dividend, naturally they have to pay the tax on the dividend (the double taxation regime). Now consider if Corporation A owns Corporation B and Corporation A earns $100 and Corporation B earns $100. Without the dividend received deduction, dividends paid from Corporation B to Corporation A and then to the shareholders of Corporation A would be in the triple taxation regime.
The tax has created an easy shunpike and at the end of the day the C-Corporation is simply the single worst tax structure to be in in the United States and internationally, as inversion suggests, its not particularly competitive. The results will be predictable, US C-Corporations will be less likely to be the hubs of multinational corporations.
With respect to inversion and the taxation of US based C-Corporations who own shares in their foreign subsidiaries. What you are witnessing is the single worst tax ever imposed on the United States. Its literally having a ‘trillions’ impact as corporations simply don’t bother to repatriate their profits. They don’t have to because at the end of the day its lawful to avoid the taxes on dividends by not paying dividends and leaving the money in the corporate form, in this case in the foreign subsidiary.