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American Corporation: Profit Income in Foreign Bank for Tax Shelters
Debadip Bandyopadhyay
Golden Gate University
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Offshore Cash Hoard Expand by $183 Billion at Companies
Richard Rubin
US based companies are keeping their profits in bank accounts in other countries. Around
$183 billion of stocks are piled in those countries. There was an increase of 14.4% from the
previous year in the accumulation of the funds. Bloomberg studied that total of 83 companies in
the USA has kept their profit earning in different low taxed countries across the globe. A total of
$1.7 trillion has been outside the USA for the purpose of tax exception. Top companies like GE,
Microsoft, Johnson & Johnson, and IBM are the top companies who are keeping the money
outside the country so that the USA tax revenue department could not get hold of these incomes.
Some of the companies are owned by foreign companies which helped them to park their profit
margin companies’ bank account. The rise of the cash flow from the low taxed countries is due
to the increased number of the customer from these areas. Google has kept $31 billion in annual
filling in taxes but of which 65.3% are in the liquid holding outside the USA. This is hampering
the USA taxes and resulting in rise of different problems due to this. US based companies
receive tax credits in their income from the outside country, but still they are deferring the taxes
by not bring those money back to USA. Regulatory filling asked the USA Corporation to report
the foreign profit but they can defer taxes on those income. The income is not kept in the form of
cash in other countries. They are using that fund to invest in the physical infrastructure and bond
of that low taxed country. Intangible assets are among one of the areas where companies are
selling their patents and getting cash out of it. The low tax jurisdiction allows them to pay low
taxes. Among these, Microsoft has sold many patents to offshore countries and reported $60.8
billion in offshore holdings, whereas they paid only 3.1% in the foreign tax for this. The USA
government tax system is outdated and is not compatible with other countries’ tax system has
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been claimed by many senior executives of USA based companies. They mentioned that for
competing in the foreign land they have to keep the money in those countries for the future need.
Citi Group has reported that foreign tax is as low as 8% which is far below that USA tax system
rates. The USA tax is 35% which is the high compare to any other country corporate tax rates.
This not only creates the obstacle for USA government to get ahold of the income of the
companies in foreign lands. Moreover, they are lagging behind among other countries in tax
system due to the low tax rate of those countries.
How to Bring Back Our Companies Foreign Profits Back Home
Robert C. Pozen
The USA government should take some action in the tax system of the country. Currently
the corporate taxes are up to 35% which is too high for any company to pay. The USA Congress
have started some ways to bring back the money which is outside country. The Tax holidays
allowed the corporation to transfer the foreign profit to American banks accounts at a tax rate
under 6% for one year. It has been implemented in the last few years but the circumstances has
not changed. Those tax breaks rose almost $19 Billion and also did not increase jobs in the
country. Many companies stated that the fix is not a permanent solution as it is only for first year
and from the second year tax rates are rising towards 35%. There are several ways for US
Congress modify tax system. To start with Congress should allowed the corporation’s to bring
back profit money from the low corporate tax country. Countries included England, Frances and
Japan have less than 20% corporate tax. The exemption will yield into two parts: first the passive
income will come to the USA and second, profit will be transferred to the countries where the
USA taxes are exempted. The other thing Congress should start doing is the deferral system in
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taxes which will not allow the companies to defer taxes under any circumstances. This will force
the big corporation houses to fulfill the taxes for any profit earned in a foreign land. But this
should allow a system which would help the corporation. For example, if any company has paid
taxes in any international country, suppose 14 % they have to pay to Ireland as tax, then they
have to pay only the balance of 8% to the USA as a tax. This will attack the corporation for
bringing home the large part of the profit revenue from the international operation. Last,
Congress could allow the US corporations to transfer profits earned before the 2012 would bring
back to the USA under a low interest rate of 10% and not repeat the tax holiday. These proposals
would not be the perfect model for the IRS for tax revenue collection from the large corporation
but some modification of these will allow them to bring back the money from other countries
hand to the USA. This also allow the companies to build factories, recompense the shareholders
and creates jobs on the American soil.
Want A Tax Shelters? Just Do It
David Brunori
The tax shelters for Nike is not illegal. The companies are not breaking any rules by
putting the money in offshore companies. These are earned money in international operations.
Nike is a sports company which manufactures sports goods and their primary product is sports
shoes. They also endorse many sports persons like Tiger, Michael & Kobe. The success rate is
great for Nike in terms of sales of sports products. For example, sometime Nike is associated
with the synonyms for success in athletics. In other words, success for any sports man is coined
with Nike. Moreover, Nike has played a vital role in the tax sheltering process for their income
outside the US operations. They have opened various subsidiaries across the globe for the
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purpose of the tax saving. For instance, in Bermuda Nike has open twelve subsidiaries. The
official report of CJT stated that Nike has kept millions of dollar in those companies’ accounts.
The $7 billion of profit have been there in the bank account of these companies. Many of the
government officials told that Nike is not doing legal things. In the present legal system, CJT
stated that Nike is not breaking any laws and orders of the country. They opened the foreign
subsidiaries for lowering the tax burden in America is legal. The Nike procedure for saving tax is
very similar to an individual tax saving method. For example, an individual goes to give money
to charity and other tax-exempt processes for getting the benefit in tax. Just in this case, Nike tax
amount is huge, so the taxable income is also high. The more interesting part of this Nike process
is that they have named the companies in Bermuda for tax saving purposes after their different
sports shoe. For example, the companies name are Air Max Limited, Nike Cortez, Nike Flight,
Nike Force, Nike Jump Ltd, and Nike Pegasus after the products name of Nike. Thus, according
to the author that what Nike is doing is appropriate as far as taxes are concerned. Nike is not
breaking any laws in the USA, so why to blame corporate companies for Tax sheltering.
G.E.’s Strategies Let It Avoid Taxes Altogether
David Kocieniewski
GE’s worldwide profit became $14.2 billion and only $5.1 billion came from the USA
operation during last few years. This may be very astonishing to anyone in the USA who is
preparing for his/her tax return. But, GE is lowering the income percentage of the American
profit margin, which would be taxed by Internal Revenue Service for years. GE has been
successful in getting the tax break and research based tax exemption in past few years. They
showed their research and development cost and on which US Government has granted them
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some tax break. Before the Japanese disaster, GE has reported that around 7.4% has been
imposed by the IRS to the American profit margin for them. Such action has helped the
corporation to rethink about their taxes and push down the IRS collection of 30% in 1950’s to
6.6 % collection in 2009. GE has also lobbied Congress for getting a tax exemption. Due to
global economy GE has to face the competition from competitors of other countries for which
they are doing such things as stated by the executive of the company. The current tax rate of the
USA is around 35%, which is highest in the world. So many companies are worried for this and
also stopped them from bringing back the money to American soil. They always keep much of
the profit percentage that they are earning in the foreign bank accounts under the head of
different non-functional companies. Over last decades, GE has pushed tens of millions dollars
for bringing changes in the tax law of the country. But the law system has not changed for which
they are forced to decease the profit margin in USA operation. The tax break and annual filing
shows that when GE faced the financial crisis in 2009, the amount was $26 billion for the
America profit and they got only $4.1 billion as net tax benefit from IRS. There are critics on
this, stating that so many tax break and shelters caused the significant decrease in the tax
collection. But in reality if GE does not wanted avoid paying taxes. Otherwise they will have to
face a heavy tax on their income on money from International operation. Thus, officials of the
Treasury stated that they will make sure companies are following the law and paying the right
amount of tax. Tax shelters are so important to GE that when Congress told to bottom line the
shelters in 2008, GE tried to lobby with the help of many financial companies writing the letters
to the Congress for renewing the Tax shelters.
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References
Brunori, D. (2013, September 9). Want a tax shelter? just do it. The Forbes. Retrieved from
http://www.forbes.com/sites/taxanalysts/2013/09/16/want-a-tax-shelter-just-do-it/
Kocieniewski, D. (2011, March 24). G.E.’s strategies let It avoid taxes altogether. The New York
Times. Retrieved from
http://www.nytimes.com/2011/03/25/business/economy/25tax.html
Pozen, R. C. (2011, September 19). How to bring our companies’ foreign profits back home. The
New York Times. Retrieved from http://www.nytimes.com/2011/09/19/opinion/bringamerican-companies-foreign-profits-back-home.htm
Rubin, R. (2013, March 8). Offshore cash hoard expands by $183 billion at companies. The
Bloomberg. Retrieved from http://www.bloomberg.com/news/2013-03-08/offshore-cashhoard-expands-by-183-billion-at-companies.html