PDA

View Full Version : The biggest corporate tax scam: 'ofshoring' intellectual property



Norman Bernstein
02-08-2016, 12:44 PM
I've posted about this before. Finally, there's an excellent article explaining it:

http://www.huffingtonpost.com/jeffrey-sachs/how-the-us-congress-hands_b_9185988.html

A significant excerpt, explaining how it works:


The American Congress is so incompetent that it is arbitrarily handing billions of dollars of U.S. tax revenues to Europe. The issue involves tax manipulation by America's top IT and pharmaceutical companies, including Google, Apple, Amazon, Microsoft, Gilead and others. These companies should be paying U.S. taxes that instead are increasingly being collected by European countries thanks to Congressional (and IRS) gross negligence.

The issue is simple and yet hopelessly muddled in U.S. tax policy. Tech companies engage in R&D. When successful, they sell products at prices far above marginal cost. Indeed, sometimes the marginal cost of their products is zero. Their profits are a kind of rent or return on intellectual property (IP).

When Google or Apple or Amazon or Gilead earns international profits, the profits are the returns to prior R&D. That R&D was undertaken in the United States, or almost all of it was. The stream of earnings, therefore, is properly viewed to be the return to intellectual property that should reside in, and be taxed in, the United States.

Yet here is the absurdity of the present-day U.S. corporate tax system. The Congress and IRS have allowed the U.S. companies to relocate their intellectual property abroad through arcane and non-transparent accounting maneuvers, typically to some combination of Ireland, Caribbean tax havens such as Bermuda and the Cayman Islands, the Netherlands, Luxembourg, and other tax and secrecy havens. It is only by this absurd accounting fiction that Google's IP (initially funded by the National Science Foundation, no less) is actually claimed by the company to reside in Bermuda, out of the reach of the IRS.

The deal works like this. With the IP artificially relocated to an offshore tax haven, for example Ireland, profits booked in a foreign country (say, Google sales in Sweden) are easily shifted back to Ireland, where they might face a sweetheart-deal secret tax rate as low as 1 percent or even zero. Indeed the Irish profits might be shifted further onward to Bermuda, for example, where tax rates are zero.

The way the shifting works is that the international branch of Google that books, say, $100 million in profits in Sweden pays an "IP royalty" back to an Irish-based subsidiary of Google. There are, then, no profits in Sweden (since the gross revenues in Sweden are offset by the royalty payments) and the $100 million in royalty payments are booked in Ireland. In some cases, the ultimate IP is located in Caribbean tax havens, so the Irish branch or subsidiary in turn pays a royalty to the Google subsidiary in Bermuda, or for other tech companies, in the Cayman Islands and other Caribbean tax havens.

If all of Google's overseas subsidiaries and branches were consolidated into one corporate account, and all the company's profits worldwide earned on U.S. intellectual property were consolidated into one bottom line for the purpose of calculating U.S. taxes, the shuffling of profits wouldn't matter. Google's $100 million in earnings in Sweden would hit the US bottom line anyway, where it belongs. But in fact, the opposite is the case: the un-repatriated "foreign earnings" of U.S. companies are tax deferred under the U.S. tax code, so the $100 million in profits is untaxed by the IRS as long as the profits are not returned to the U.S. American companies are reportedly sitting on more than $2 trillion of accumulated profits that they've booked abroad in this manner to avoid U.S. corporate taxes.

Of course, the so-called "foreign earnings" of Google or Gilead or other tech companies are not really foreign earnings at all in a true economic sense. They are the profits on U.S. exports of U.S.-developed intellectual property. To the extent that the profits result from factories and employees abroad, that would be another matter, but that accounts for little of the actual foreign sales.

The right wingers just don't get it... they call for 'tax free 'repatriation of overseas profits, thinking (very stupidly) that this would be an incentive for corporations to invest more in the US....

....when it would do EXACTLY the opposite; it would encourage companies to do more and more offshoring, where they would pay little tax in foreign countries, and get to bring it all back, tax free.

There's more, in the article itself.

slug
02-08-2016, 12:49 PM
Just waite until Sanders hits top earners with 65 percent capital gains.

i hear that great sucking sound.............

Rum_Pirate
02-08-2016, 01:32 PM
Is what they are doing illegal?


If it is not then it is up to whatever country to 'rewrite' it's 'tax code'.




An aside:
I do recall someplace the refused to pay taxes without representation.

Should the 'Corporations' have representation in Government?

Norman Bernstein
02-08-2016, 01:33 PM
Just waite until Sanders hits top earners with 65 percent capital gains.


If you don't hear that great sucking sound already, you must have a hearing loss problem... because of the stuff detailed above, massive amounts of money have been sucked out of the United States, and with it, the tax revenues necessary to make government run.... and you right wingers think it's really cool to leave it to just ordinary middle class people to bear more and more of the burden.

Norman Bernstein
02-08-2016, 01:35 PM
Is what they are doing illegal?

Not under current tax law.


If it is not then it is if to whatever country to 'rewrite' it's 'tax code'.

Not when those same companies, though their massive wealth, control Congress.


An aside:
I do recall someplace the refused to pay taxes without representation.

Should the 'Corporations' have representation in Government?

Corporations are not people. They don't vote. Incorporation is not a right, it's a privelege.

S.V. Airlie
02-08-2016, 02:05 PM
Is what they are doing illegal?


If it is not then it is up to whatever country to 'rewrite' it's 'tax code'.




An aside:
I do recall someplace the refused to pay taxes without representation.

Should the 'Corporations' have representation in Government?There is a BIG difference being "illegal" and moral. I guess RP, if it's not legal it's fine even if it immoral. NICE!

Rum_Pirate
02-08-2016, 02:19 PM
There is a BIG difference being "illegal" and moral. I guess RP, if it's not legal it's fine even if it immoral. NICE!


I suspect that you believe and support the contrary of the quote by Lord Clyde?
Note this bit "No man in the country is under the smallest obligation, moral or other, so to arrange".

Billings Learned Hand, US Appeals Court Justice described what you allude to as 'cant' : To demand more in the name of morals is mere cant."

Do you pay taxes if you don't have to do so?


Here are some interesting Quotes from around the World on the subject of Tax


"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue"
Lord Clyde: Ayrshire Pullman Motor Services v Inland Revenue (1929)


“They tax when you earn a dollar, they tax you when you save it, they tax you when you invest it. If you earn a dividend, they tax it again, and if you're stupid enough to die, they steal up to half.”
Grover Norquist president of Americans for Tax Reform


“Inheritance Tax is, broadly speaking, a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”
Roy Jenkins MP, Commons debate (1986)


"Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax."
Lord Tomlin: IRC v. Duke of Westminster(1936) 19 TC 490, (1936) AC


"Over and over again Courts have said there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich and poor, and all do right, for nobody owes any public duty to pay more than the law demands. Taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."
Billings Learned Hand, US Appeals Court Justice


“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
Winston Churchill


"The collection of taxes which are not absolutely required, which do not beyond reasonable doubt contribute to the public welfare, is only a species of legalized larceny. The wise and correct course to follow in taxation is not to destroy those who have already secured success, but to create conditions under which everyone will have a better chance to be successful."
Calvin Coolidge, President of the United States of America.


"To tax the community for the advantage of a class is not protection, it is plunder."
Benjamin Disraeli, Prime Minister


"It would be thought a hard government that should tax its people one tenth part."
Benjamin Franklin, United States President.

"The avoidance of taxes is the only intellectual pursuit that carries any reward."
John Maynard (Lord) Keynes, Economist.


"The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation."
Vladimir Ilyich Ulianov (Lenin)


" ....A heavy progressive or graduated income tax.....Abolition of all rights of inheritance."
Karl Marx, Communist Party Manifesto (1848)

"Are you entitled to the fruits of your labour or does government have some presumptive right to spend and spend and spend?"
Ronald Reagan, President of the United States of America

"In general, the art of government consists in taking as much money as possible from one party of the citizens to give to the other."
François-Marie Arouet (Voltaire)


"The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin."

Mark Twain

Norman Bernstein
02-08-2016, 02:31 PM
I suspect that you believe and support the contrary of the quote by Lord Clyde?

I wouldn't go as far as Jamie as to talk about taxation in terms of 'morality'... it would be more appropriate to talk about 'fairness' an 'equability'.

Neither is it an issue of tax avoidance (legal) or evasion (illegal).

It's an issue of policy; what is best for the country as a whole, and spreads the burden of taxes so that the load is not disproportional to the ability to bear the load.

Your list of quotations about taxes is mildly interesting.... but not particularly illuminating. The opinions of Karl Marx or Calvin Coolidge may be of interest to historians, but have no relevance in 2016.

S.V. Airlie
02-08-2016, 02:36 PM
I pay taxes what the IRS says I owe. It's kinda funny, one year after returning from the UK, the IRS told me I owed $700.00, I said okay, I paied it. A year later, the IRS said they owed me $100.00. Now, I sould have said nothing. Heck, the IRS said it did, why bother. I wrote them that it doesn't owe my $100.00. Fought them for a few months in fact. Finally I couldn't get it through to them so, quit telling them. Next taxes files, none owed but, they sent $100.00. My moral duty/obligation to pay my dues was done.

Rum_Pirate
02-08-2016, 02:40 PM
I wouldn't go as far as Jamie as to talk about taxation in terms of 'morality'... it would be more appropriate to talk about 'fairness' an 'equability'.

Neither is it an issue of tax avoidance (legal) or evasion (illegal).

It's an issue of policy; what is best for the country as a whole, and spreads the burden of taxes so that the load is not disproportional to the ability to bear the load.

Your list of quotations about taxes is mildly interesting.... but not particularly illuminating. The opinions of Karl Marx or Calvin Coolidge may be of interest to historians, but have no relevance in 2016.


It is not going to change unless the legislation changes.


As the last sentence, that's your opinion, but don't follow why you appear to disagree with Calvin Coolidge's quote "The wise and correct course to follow in taxation is not to destroy those who have already secured success, but to create conditions under which everyone will have a better chance to be successful." and say it has not relevance in 2016 ?

Or do you want to destroy the '1%' (as many on here refer) ?

S.V. Airlie
02-08-2016, 02:46 PM
Correct Norman, I was responding specifically to Rum's post where he asked (you I think (the OP)) is the taxation illegal? The OP, says it was, most coments say it is, Rum asks if it's legal. Had to supply another reason why it is and shouldn't be..

Rum_Pirate
02-08-2016, 02:51 PM
I pay taxes what the IRS says I owe. It's kinda funny, one year after returning from the UK, the IRS told me I owed $700.00, I said okay, I paied it. A year later, the IRS said they owed me $100.00. Now, I sould have said nothing. Heck, the IRS said it did, why bother. I wrote them that it doesn't owe my $100.00. Fought them for a few months in fact. Finally I couldn't get it through to them so, quit telling them. Next taxes files, none owed but, they sent $100.00. My moral duty/obligation to pay my dues was done.

What the IRS says one owes and what one legally owes is not necessarily the same. There are miscalculations, oversights, etc etc.

ccmanuals
02-08-2016, 02:56 PM
It is not going to change unless the legislation changes.


As the last sentence, that's your opinion, but don't follow why you appear to disagree with Calvin Coolidge's quote "The wise and correct course to follow in taxation is not to destroy those who have already secured success, but to create conditions under which everyone will have a better chance to be successful." and say it has not relevance in 2016 ?

Or do you want to destroy the '1%' (as many on here refer) ?

That is exactly the entire point of this thread. Somehow we have to get away from tax attorneys and corporations dictating tax laws to serve their own self interest. I don't know how to do this but it's a man made problem so conceivably it can be solved by man.

S.V. Airlie
02-08-2016, 02:58 PM
Yes, and I sent several letters to them saying they miscalculated. They said the hadn't I then stopped paying it even when I pointed out the error they sent me on the computer by circling it in red. I figured they'd appreciate the red ink. So, when I pay my taxes, I do! I don't even deduct from it which is legal to do as well.I've answered your post. If you don't like it, return to the OP anyway!

Norman Bernstein
02-08-2016, 03:21 PM
As the last sentence, that's your opinion, but don't follow why you appear to disagree with Calvin Coolidge's quote "The wise and correct course to follow in taxation is not to destroy those who have already secured success, but to create conditions under which everyone will have a better chance to be successful." and say it has not relevance in 2016 ?It depends on whether the quote is used as a rationalization for supporting things like 'trickle down' or 'supply side' economic policies, which have been shown, and proven... over and over... to simply NOT work to the benefit of the country as a whole.

For 'everyone to be successful', it is necessary that we don't continue to transfer wealth and income, increasingly, to the upper echelons of society. It hs been the policy which has resulted in the largest income and wealth inequality since the Great Depression... and we all know what the result of THAT was, don't we?


Or do you want to destroy the '1%' (as many on here refer) ?

No one here wants to 'destroy the 1%'.... that's just the usual right wing hyperbole. What MANY people want to do is re-balance the way in which the economy benefits people. I have no interest in making a rich person poor... but I have a GREAT interest in compelling the rich person to pay his graduated share of taxes... after which, he will STILL be rich.

Just consider one small item: the elimination of the state tax. Right now, estates of under $11M (for a couple) completely escape taxation, even when those estates may consist largely of capital gains which have NEVER been taxed. I actually don't object to a reasonable exclusion for estate taxes.

HOWEVER, even THAT isn't enough, for the right wing; Donald Trump, for example, wants to completely eliminate the estate tax. His estate is arguably worth $8B... much of which has NEVER been taxed. Only a few thousand families in this country are in a similar situation....

...so, explain to me WHY those estates should completely escape taxation? Why do BILLIONAIRES deserve a huge, whopping tax break.. when millions of ordinary Americans struggle to pay THEIR taxes? How does this benefit the United States?