Wednesday, February 26, 2014

US Tax Avoidance

Eighteen American multinationals — companies such as Nike, Microsoft and Apple — have used tax havens abroad to avoid what Citizens for Tax Justice estimates as $92 billion in federal taxes. CTJ also found 235 companies reported last year over $1.3 trillion stashed abroad to avoid paying the taxes that domestic companies must pay. This  is not illegal. It is known as “deferral,” the tax laws allow companies to forego paying taxes on money earned (or reported as earned abroad) until the company brings the money back to the United States.

Through transfer pricing, multinationals can easily game the system to report their profits in low tax countries abroad, even while the bulk of their sales are in the U.S. This, in part, is how General Electric can make millions in profits and pay nothing in taxes. A Senate hearing showed how Apple used Ireland as its favorite tax haven, developing what Sen. Carl Levin called “the Holy Grail of tax avoidance,” creating “offshore tax entities … while claiming to be a tax resident nowhere.”

As companies park more and more cash abroad, they then pay lobbying and campaign contributions to persuade Congress to give them a tax break if they bring the money home in what they call “a tax repatriation holiday.” The companies argue that they’ll invest in jobs here in the U.S., but can’t afford to pay the taxes due (the same taxes that domestic small businesses can’t avoid). So let them bring the dough back at a nominal tax rate and they’ll reinvest millions in America.  Each time the Congress provides this kind of tax holiday or amnesty, it gives the corporations an even greater incentive to stash their cash abroad. And more and more corporations hire accountants to figure out how to report their profits abroad, even if earned in the U.S.

The last time the Congress did  this, even the jobs argument turned out to be false, as General Electric’s CEO Jeff Immelt admits. The companies bringing the dough back actually laid off workers in the ensuing years. They used the money to buy back stock (raising the value of their stock options), or to buy other companies, often merging and purging workers or just to pay down debt.

With the trillions of dollars sitting abroad, the game is afoot again. “Bipartisan” bills have been introduced in the House and the Senate to let corporations bring bucks back home at a zero percent tax rate, if they agree to use some of the money to purchase bonds issued by a newly created federal infrastructure bank. They get to bring $6 back tax-free for every $1 they invest in infrastructure bonds. Instead of taxing multinationals as it does small businesses, the federal government will borrow money from them and pay them interest on it.
From here 

Meantime a Senate subcommittee investigation accused Swiss banking giant Credit Suisse of using elaborate “cloak-and-dagger” methods to hide the accounts of 22,000 wealthy American citizens with a total of up to $12 billion in assets from U.S. authorities so they could avoid paying taxes. The bipartisan probe also sharply criticized the Justice Department for being lax in using subpoenas and other legal tools to pressure the bank to reveal most of the names of account holders, which have been withheld as part of a long Swiss tradition of bank secrecy.

“Yet after years of investigations, negotiations and jawboning, the United States has names for just 238 of those 22,000 Credit Suisse customers,” said Sen. Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations.

Credit Suisse employees took dozens of trips to the U.S. to meet customers and personally recruit new ones at golf tournaments and other bank-sponsored events, avoiding paper trails while telling U.S. officials the visits were simply for tourism. The Justice Department said  it is investigating 14 Swiss financial institutions for activities related to offshore tax evasion.


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