Another interesting little factoid is that Microsoft took out a $5 billion dollar bond recently. The reason is that all of their available cash reserves are overseas so they have very little cash on hand in the US, so the bond is to finance the US arm of the company. And the bond is cheaper than bringing money into the US with that tax hit.
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500 largest U.S. companies hold $2.1tn offshore. They would owe $620bn in taxes in US
- Thread starter Khalifa Jayy
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But none of this means anything. Corporations aren't people, they don't consume, they're legal entities. What does the word "benefit" mean here? If the money sits in an overseas account doing nothing then who is enriched? The whole point of these monies is they *aren't* being used by anyone. In real terms we're talking about numbers on a ledger somewhere. The "benefit" to shareholders those dollars represent is purely theoretical until such time as the dollars are dispersed (through buybacks or dividends or whatever) at which point they'll be taxed (twice, in fact: once on repatriation and again as income tax or capital gains).
Taxing corporate activity at all is silly. Abolish corporate tax entirely and institute higher tax on the actual humans who benefit from corporate profits.
CharlieDigital
Banned
That is already the case based on the type of designation of the corporate entity. For example, LLCs are pass through entities where the tax burden is passed through directly to the shareholders and no tax is levied on the business entity.
They refers to business entities that choose to be designated as C-Corps for the purposes of taxation.
The most common corporate entity for large corporation is a C-Corp (other being S-Corp and LLC). The differences between C-Corp, S-Corp, and LLC are largely in:
- Requirements for shareholder citizenship
- Limits for maximum number of shareholders
- Tax structure
- Income distribution
- Liability limits
- Other details that you can look up on your own
Corporate structure is, in large part, a designation to the IRS on how a business entity will choose to pay taxes.
C-Corps ("Inc") allow dividends to be paid to shareholders, which are taxed at a lower tax rate when the shareholder receives the dividend. In return, the corporation itself is subject to taxation. C-Corp designation has other benefits as well including increased liability protection for shareholders, broader ownership criteria, and so on.
So the idea of passing through taxes to the shareholders is already in the US tax code so long as the business chooses to be structured as an LLC or S-Corp. If a business chooses to structure as a C-Corp and gain the benefits that are associated with that designation, then they must pay a tax against the entity itself.
Seems fair to me.
Angelus Errare
Banned
Give it a few more years and it'll trickle down to you plebs. Reagan didn't say it'd happen over night. Give it time!
rokkerkory
Member
Give these companies an option to bring it back with reduced taxes and instead have them hire american workers or invest in american resources.
milanbaros
Member?
I don't really see what is so 'evil' about this. I'm also not really sure why we are taxing company profits anyway. We tax dividends already, so why tax the profit twice?
All those benefits are available to foreign companies, which aren't subject to worldwide taxation.
For instance, Nokia has won several billion dollar IP lawsuits in the US. Sony does have the US government help regarding hacking. Alibaba and Baidu benefit from US securities laws that allow them to list on the NASDAQ. Companies that invert and re-headquarter to the UK or Canada will still be able to use their US entities to take advantage of any treaties (but actually, I would say the UK has a better tax treaty network today).
To multinationals based in the US, international taxation is simply a competitive disadvantage compared to their foreign competitors.
Most modern nations have figured it out (UK, Japan, Australia, Canada, Germany, etc.) and do not tax foreign profits of their companies, while still offering much stronger federal social services (e.g. national single payer health care). Just tax the individuals at a much higher rate and use a broad-based VAT (which taxes businesses as much as consumers) to fund the government. The companies will avoid international taxation if you try it anyway.
One dumb problem with eliminating tax on corporations is the inexcusable latitude corporations have to perform lobbying and campaign-related activities. If you kill corporate taxation without addressing that issue you're effectively implementing a subsidy for corporate influence on the political system.
I think nimble presents the clear next-stage regime we'd like but we have a real problem when it comes to finding a path from here to there.
I think nimble presents the clear next-stage regime we'd like but we have a real problem when it comes to finding a path from here to there.
So much nonsense in this thread. Maybe try to understand the issue instead of just blaming Republicans?
Taxing overseas profits is either dumb or makes sense, that's up to you.
However, expecting big corporations to pay tax in the first country and again to bring it home isn't greed, it's just bad business. It's silly to yell and scream about this when there are obvious reasons to not do it.
Taxing overseas profits is either dumb or makes sense, that's up to you.
However, expecting big corporations to pay tax in the first country and again to bring it home isn't greed, it's just bad business. It's silly to yell and scream about this when there are obvious reasons to not do it.
I agree with this sentiment but there's one wrinkle you're missing. In some cases these overseas accounts contain monies from sales actually performed in the US. For example, see Microsoft Puerto Rico http://www.businessinsider.com/apple-microsoft-avoids-taxes-loopholes-irs-2013-1.
The fundamental issues stand: you can't blame someone for minimizing their tax exposure and America's tax system does a poor job of handling international business activity.
Oh yeah? That explains why corporations like Google pay next to nothing in taxes in the UK by billing everything through places like Ireland right? These bastards will do everything they can to avoid paying any taxes.
Marty Chinn
Member
Am I the only one who thinks eh, that's it? It's not going to be a recurring source of revenue. It's a one time payment. The government collects over 3.5 trillion a year. While that amount would be nice to have, it wouldn't go far or long.
Trojita
Rapid Response Threadmaker
It's enough that divided between 320 Million people would give every man, woman, and child around $1937.
That's huge.
Marty Chinn
Member
One time. The leak in revenue didn't sounds that massive when this is the sum over time and not just for one year. It's a drop in the bucket if you were to calculate revenue lost per year. Sure it's be nice to have but it doesn't sound like a ton of money in the long run.
Makes sense, this is what Bernie says about them stashing money in places like the cayman islands without real oversight
Corporate corruption is even worse when it has its defenders out in full force.
"Why dont we disallow corps from gaming the rules? Its bad for business!" Well no shit, its not supposed to be good for them. Some things arent about their bottom line.
Corporate corruption is even worse when it has its defenders out in full force.
"Why dont we disallow corps from gaming the rules? Its bad for business!" Well no shit, its not supposed to be good for them. Some things arent about their bottom line.
astroturfing
Member
trillions of profits eh?
meanwhile a country like Finland is ready to rip its society apart because taking care of refugees might cost a billion or two in the short run.
meanwhile a country like Finland is ready to rip its society apart because taking care of refugees might cost a billion or two in the short run.
30yearsofhurt
Member
Usually not.
Look at Jersey, Bermuda and the Cayman Islands.
Lots of massive Multi-national companies there. But you'll only find them if you look in a locked draw at an attorneys office for a piece of paper with the articles of incorporation for a $2 holding company.
FullMetalx117
Member
These corporations are doing the smart thing. They'll probably be wiser with that money anyways.
How is this corruption in anyway whatsoever? Again, this is not greed. There is no incentive for the companies to bring home the money and pay taxes for a second time.
Nothing about this is illegal.
CharlieDigital
Banned
Once again, this is already part of the tax code for companies that elect S-Corp or LLC designation; tax liabilities are passed through directly to shareholders and not to the corporation. C-Corp election confers additional benefits to the company itself such as issuing multiple classes of stock and having less restrictions on shareholders (thus the ability to raise more capital).
With regards to raising individual taxes, please show me a single plan from any viable presidential candidate or any proposal by a Congressional committee in the last decade that has proposed raising individual tax rates. Look at the battle that was waged when Obama wanted to let the Bush tax cuts expire. Now tell me how you propose to sell an individual tax rate increase to the American public who barely understands progressive tax brackets. How will you sell a marginal tax rate increase to 45% for the top brackets when ~45% of American voters favor fewer tax brackets and/or a flat tax? Additionally, it would have to be a comprehensive raise to individual tax rates that also covered income such as dividends which are taxed at a lower rate to capture this revenue since we all know that in many cases, these earnings are not being categorized as earned income by the recipients.
Hey, single-payer would also be a great way to lower healthcare costs and/or more dramatically decelerate its growth.
The end to the war on drugs would be a great way to reduce mass incarceration and save the US taxpayers billions of dollars and even earn tax revenue for the American public.
Modeling our gun ownership policies to match those of countries that have successfully limited gun violence through policy would be great.
All of the above are simply not feasible in the US political environment.
It's nice to want things, but it's fruitless if it's not possible. Proposing that we raise individual taxes would face huge backlash in the US; it would be contorted by the media and would go nowhere.
30yearsofhurt
Member
The issue is that they're not paying taxes a first time.
Take Apple.
You buy a computer from them.
You don't just actually buy it from Apple in your country.
You buy it from Apple in Ireland.
Why?
Because Irish tax rules say income earned overseas is not subject to tax.
It goes like this:
Apple China has Foxxconn manufacture your iGadget for $100.
Apple China sells it to Apple Ireland for $105.
Apple Ireland sells it to Apple in your country for $1000.
Apple in your country sells it to you for $1100.
80% of the profit stays with Apple Ireland. No tax.
Do a Google search on IMF CDIS. These are the Direct investment statistics for all countries in the OECD and IMF who report on International Investment.
Find out who the biggest investors are in your country...
If it's not USA, UK, Japan or China (the biggest sources of investment funds) then it's dodgy. It's probably on the G20 list of tax havens and conduits.
Netherlands, Jersey. Cayman Islands. Luxembourg. Switzerland (CHF). Bermuda.
These countries are all relatively small and in no way rich yet they punch so far above their weight in investments in big countries. Why?
Because of shelf companies avoiding tax. They have no physical presence in these havens. They don't have any operations there. They just funnel their profits through there.
Yes it's legal. But it's unethical and it's a major reason why so many western nations are so far in debt. Companies not pulling their weight in the tax burden.
Probably one.. but it'd still be worth it.
They simply can't elect LLC designation. It is untrue that they elected to be subject to worldwide taxation, I would say that most of these companies were formed before Subpart F rules focused on worldwide taxation. They are corporations because that allows them to be publicly listed, but that does not mean that choosing to be a corporation means choosing worldwide taxation by the IRS. As I said previously, Baidu and Alibaba are corporations listed on the NASDAQ with diverse share classes and tons of capital (Alibaba was one of the largest IPOs in the history of the US stock market), but their classification as corporations do not subject them to global taxation in the US. The same with Canadian, UK and Japanese corporations listed in the US.
As to the political possibilities, you may as well agree that the US should give up trying to tax on a global basis, as the political realities are that the Republicans propose getting rid of it or reducing corporate taxes such that it is a non-issue, Obama has proposed reducing the corporate tax on foreign profits, companies have continued to invert to Canada and the U.K. to avoid taxation of foreign profits, and the real legal challenges of trying to exert jurisdiction on a foreign entity.
You have not addressed my other points: to US multinationals, their foreign competitors are seen as benefiting just as much from US law and infrastructure (including raising capital in US stock markets, suing in US courts, or even getting help for hacking), but have a competitive advantage because their home countries do not tax foreign profits.
CharlieDigital
Banned
That's not the point being addressed. The point being addressed is that we should pass through tax liabilities to individuals. That is already possible if a business chooses to elect S-Corp or LLC designation. Yet we don't see an increase in personal tax rate based on this fact; that income is still taxed at normal earned income tax rates.
Trying to sell a simultaneous increase in personal tax rates (good luck with the Right) and a zeroing of corporate tax rates (good luck with the Left) is a fool's errand.
As far as foreign companies doing business in the US, they are able to gain the protections and services provided by the US government, but they are also subject to US corporate taxes on their US earnings in most cases so long as their revenue is bound to US sources except in certain cases where there may be exemptions or other treaties in place.
Whether or not they are taxed again in their home countries is a different story and will vary by country so it's pointless to comment on that since every country will have a different set of laws. Until there are global treaties governing the taxation of foreign earned income, there will always be holes in the system to exploit.
First off, that's a transfer pricing issue not really related to taxation of foreign profits in the US, as it's more about avoiding tax in foreign countries. And technically, if you "solve" this issue, that should mean that less tax on foreign profits should be paid in the US.
But also, it's a bit more complicated than you think, and I think Apple is a bad example. Allow me to explain, if you're willing to indulge in extended discussion of tax issues.
The supply chain is probably more simple--take away Apple China--it's likely that Apple Ireland buys directly from Foxconn. The price Apple Ireland pays Foxconn will more or less determine the Chinese taxation on the manufacture of the iGadget. But Foxconn is a third party, competing with Flextronics and Pegatron, etc. to get the iGadget contract, so you can't really say that the price paid to Foxconn or Foxconn's profit is unfair.
Let's just assume your country is Germany to make it easier to discuss. Apple Ireland sells the iGadget to Apple Germany, but it also sells the iGadget to Amazon Germany, T-Mobile Germany and other carriers, and other German Apple resellers for around the same price that it sells to Apple Germany. They all are happy with a 10% profit margin, and many companies compete to try to get qualified as Apple resellers and get a low-risk 10% profit on their sales of iGadgets. Can you say that the price charged to Apple Germany, if it is the same price that third parties are willing to pay for it, is unfair or unethical? If you forced Apple Ireland to sell the iGadget at a lower price to Apple Germany, you might run into anti-competition laws--at the very least, you are making the arrangement "unfair" in the third parties' eyes. And if you forced Apple Germany to pay a lot more tax then the third party resellers do on the same sale of an iGadget, Apple may think they should just conduct their German sales through third party resellers, which will hurt investment and employment (Apple does choose to not put up retail stores and sell only through third party resellers in some places).
It's likely that Apple Germany already books slightly more profit than T-Mobile or Amazon Germany on the same sale of iGadget, to be on the safe side.
A better example of transfer pricing issues are with software companies like Microsoft and Google, because they deal much less with third parties and thus have less of a defense for the prices they charge between their legal entities.
This transfer pricing issue is being targeted with the BEPS project, but like I said, something like Apple's situation would continue to exist because they have plenty of third parties in the value chain to use as a defense for claims of unfair pricing.
This is an entirely unrelated issue to the transfer pricing issue above. Most countries, including UK and Japan, don't tax foreign profits, but it still may make sense to channel investments through a third country that may have more favorable treaties.
For instance, if the Japan-Germany tax treaty says dividends from Germany to Japan will be taxed at 10% in Germany, but the Switzerland-Germany tax treaty says that dividends from Germany to Switzerland will be taxed at 5% in Germany, it makes financial sense for the Japanese company to invest in Germany through a Swiss intermediate company.
The trend to target these planning activities is to require presence in those countries (which is why companies more and more invest through UK, Hong Kong, Singapore or Ireland, where they have setup operations), and also just make tax treaties more favorable in general--so now many of the UK, Hong Kong, Singapore and Ireland treaties have treaty benefits that are on par with the so-called "tax havens" of the world.
PanicFreak
Member
That money was not earned in the United States. I don't see a problem with this and I'm a pretty left leaning person.
That's not even remotely close to how it works.
Apple pays a third party manufacturer to manufacture a computer. Lets say that costs them $1,000. Now lets say that they sell that computer for $1,200 in the US and in Europe, for the sake of simplicity and further, both computers are sold within one of Apple's retail outlets, again for simplicity. How it really work is:
Apple's retail operations sell the computer for $1,200 and the entity that houses retail operations gets a small operating margin for that. If it's five percent, the retail entities are reimbursed for all their costs and they get 5 percent of the sales price as its profit.
For simplicity, let's say that takes $60 of the $200 profit. The remainder of the profit is then allocated to either the Irish entity or the US entity based on where the computer is sold and the agreed territorial split. I've often seen the US company being in charge of the US market, or the US and Canada market.
For Apple, because it is a US company, if a computer is sold in the US, the trail ends there. The Irish company however, probably performs strategic management services in Europe. They will keep profit associated with that function and the remaining portion is then shifted to a company housed in the Carribean. The Carribean company receives the excess profit and, through a cost sharing arrangement, has to send a portion of what it receives back to the US company.
A company would find themselves getting hung out to dry doing what you suggested because the profitability of entities are dictated by the functions the entities perform, risks they assume and the assets they own (including IP). The IRS would not allow Ireland to simply resell computers to the US at a 900 percent profit margin because the comparable companies would probably only earn a 2 or 3 percent return.
That's not even remotely close to how it works.
Apple pays a third party manufacturer to manufacture a computer. Lets say that costs them $1,000. Now lets say that they sell that computer for $1,200 in the US and in Europe, for the sake of simplicity and further, both computers are sold within one of Apple's retail outlets, again for simplicity. How it really work is:
Apple's retail operations sell the computer for $1,200 and the entity that houses retail operations gets a small operating margin for that. If it's five percent, the retail entities are reimbursed for all their costs and they get 5 percent of the sales price as its profit.
For simplicity, let's say that takes $60 of the $200 profit. The remainder of the profit is then allocated to either the Irish entity or the US entity based on where the computer is sold and the agreed territorial split. I've often seen the US company being in charge of the US market, or the US and Canada market.
For Apple, because it is a US company, if a computer is sold in the US, the trail ends there. The Irish company however, probably performs strategic management services in Europe. They will keep profit associated with that function and the remaining portion is then shifted to a company housed in the Carribean. The Carribean company receives the excess profit and, through a cost sharing arrangement, has to send a portion of what it receives back to the US company.
A company would find themselves getting hung out to dry doing what you suggested because the profitability of entities are dictated by the functions the entities perform, risks they assume and the assets they own (including IP). The IRS would not allow Ireland to simply resell computers to the US at a 900 percent profit margin because the comparable companies would probably only earn a 2 or 3 percent return.
By "passing" on the taxes to individuals like in foreign countries, the argument is not about LLC designations, but about where the tax collection base should be focused. This isn't what is going on in other countries (taxing corporations as LLCs), but the fact that they have lower corporate tax rates and higher individual income tax rates.
I didn't talk about a zeroing of corporate tax rates (though I mentioned that's what Republicans want), I'm speaking strictly about taxation of foreign profits. We can keep the 35% rate for all I care.
You have identified why US companies think taxation of foreign profits is unfair. The foreign companies get the protections of US laws, but are only taxed on US-sourced income (I want to note again that a lot of foreign companies are listed on US stock exchanges and get the benefit of US securities laws and capital, but generate zero or practically zero US profit--Baidu, for instance). The US companies are taxed on US and foreign-sourced income.
It really isn't pointless to talk about how companies are taxes in other countries. Do you think we should ignore the reasons for corporate inversions? We do know that Canada, Japan, UK, Germany, France, etc. do not tax foreign profits. It's not pointless to look at how other countries operate unless you want to conduct policy in a vacuum. This is why Obama references "other modern nations" when talking about gun control and why people reference other countries when talking about education, health and social security policies. It is not pointless to consider how other countries operate.
I have thought through this LLC point again and I think it really would not solve the issue you claim. Caveat is I am not an expert on US taxation of individuals' overseas investments, but technically, I think election as an LLC by these corporations would not mean that the profits held in the foreign subsidiaries are also passed through to the individual. If I, as an individual, setup an Irish corporation, the profits in that Irish corporation will not be considered my income unless they pay it to me in the form of salary or dividends. The same if I invest in the Irish corporation through a US LLC. If the Irish corporation pays a dividend to the LLC, that is considered my income, but not until the LLC is paid.
Therefore, I think this LLC discussion is misleading and doesn't address the issue of the taxation of foreign profits.
PanicFreak
Member
Thanks for the links but I'm very familiar with the concept. I put structures like these together for a living.
This was the real flaw with the "theory" trickle-down economics – it didn't account for globalization and foreign labor markets.
I mean "flaw" somewhat ironically, because it was an obvious problem even when it was in vogue. The theory was more popular among big business than economists for a reason; the big "plus" was lower taxes, not a more stable economy. The theory really just supplied them with an argument to justify that desire.
30yearsofhurt
Member
Your quaint idea that the IRS wouldn't allow transfer pricing scams is clearly false though.
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