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US Companies Parking Profits Offshore Indefinitely

bmoneydeac said:
Big difference between tax rate and effective tax rate. One of the reasons the effective rate was lower was because they were employing these strategies.
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Well aware of that, but you can't claim you're paying a certain rate to justify moving overseas, when in reality you're paying a substantially lower rate.
 
ONW said:
Well aware of that, but you can't claim you're paying a certain rate to justify moving overseas, when in reality you're paying a substantially lower rate.
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The point though is that the rates they are actually paying are lowered by keeping profits overseas, etc all in an effort to avoid the large rates we have in the US. No one would be leaving profits overseas or moving their headquarters if it was costing them more money. It's not as if they are doing it just to do it. Calculate things however you want to support a position, but obviously many large companies are finding they can do better tax-wise elsewhere.
 
Are they declaring their profits remaining offshore to their shareholders and the markets to justify a valuation then not paying taxes on it and keeping it offshore?
 
ONW said:
Are they declaring their profits remaining offshore to their shareholders and the markets to justify a valuation then not paying taxes on it and keeping it offshore?
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Sure. It's a profit the company made. They are paying taxes on it...just not US taxes. They keep it stashed out of the US so that it's not subject to US Tax rates. I mean, Microsoft claims they saved nearly $30 billion in taxes last year by keeping $90 billion of profits offshore. That's $90 billion that can't be reinvested into the company here in the US, not to mention we don't make any tax revenue on that $90 billion either. It's a double loss for us.
 
during the 00s we granted companies a tax hoiliday to bring money back to the US after they promised to use some of the funds to hire new employees and expand their US businesses. Eight of the Top 10 beneficiaries of this government largess cut employees during the next year.
 
RJKarl said:
during the 00s we granted companies a tax hoiliday to bring money back to the US after they promised to use some of the funds to hire new employees and expand their US businesses. Eight of the Top 10 beneficiaries of this government largess cut employees during the next year.
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So
 
I am no expert on international taxation. However my understanding is that a lot of this is a result of the US tax system being different from almost every other Western country, in that US companies are taxed on their worldwide profits based on the location of their headquarters ("corporate domicile"). If HQ is in the US, you are taxed on all worldwide profits, and the only way to avoid/defer the tax is to keep the profits in those countries. In Europe it's what I believe is called a "territorial" tax system. In that system, a corporation headquartered in Germany with operations in France is taxed by each country only on its revenues arising from within that country, without regard to the HQ. This enables the German company to pay tax in France on its French profits, but then easily repatriate the money to Germany to spend on its German operations or disburse to its German shareholders if it wants to (which of course can then be taxed as income to the shareholders and subjected to VAT when the shareholders spend it). This facilitates movement of capital and is much less complicated overall, as I understand it.

In other words, as in so many other things, if we would get our heads out of our collective 'Murica loving butts and look at how all the other civilized countries do things, we could do things better.
 
You don't make tax decisions based on your overall effective tax rate. You base it off of the marginal impact of making that decision.

Company A could have NOLs and take bonus depreciation that lowers its federal effective tax rate to 15%.

Still the marginal impact of repatriating overseas profits is that the company will have to pay 35 cents on the dollar less any creditable foreign taxes from those foreign profits.
 
Very interesting 923. Thanks
 
RJKarl said:
during the 00s we granted companies a tax hoiliday to bring money back to the US after they promised to use some of the funds to hire new employees and expand their US businesses. Eight of the Top 10 beneficiaries of this government largess cut employees during the next year.
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And yet they still brought $362 billion back into our economy that probably wouldn't have been there otherwise. Methinks that the slowed growth in Q2 and economic nosedive at the end of 2005 probably contributed to the companies backing out on their "promises" for more jobs, expansion, etc.

The fact that Apple, Microsoft, Google, etc all pushed hard for another holiday in 2011 tells me that companies would rather bring their profits back home if it wasn't so damn expensive to do so. A tax holiday is not the same as tax policy. It can't be relied on. It's a one-time deal. You can't dictate what your company does and plan for the future on the hope that Congress will decide to pass another tax holiday. A lower rate and better policy would allow companies to plan for bringing those profits and investments back to the US. You can't project what would happen from improving the tax policy long term based on a single case of what happened in 2004 during a one-time tax holiday.
 
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Often those territorial countries will still get a little piece of the pie. A 5% or 10% exclusion of deemed expenses related to the dividends.
 
ChrisL68 said:
Often those territorial countries will still get a little piece of the pie. A 5% or 10% exclusion of deemed expenses related to the dividends.
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So the taxes they pay are almost a cost of doing business?
 
RJKarl said:
during the 00s we granted companies a tax hoiliday to bring money back to the US after they promised to use some of the funds to hire new employees and expand their US businesses.
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Wrong. You could also bring back money to pay down debt which is what a lot of corporations did.
 
Deacon923 said:
...the US tax system being different from almost every other Western country, in that US companies are taxed on their worldwide profits.
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Sort of. The deferral mechanism which is almost unique to the US makes it a hybrid system. What's allowed OECD countries--including Canada--to keep territorial systems and lower corporate income tax rates is VAT and social contributions taxes. These taxes broaden the base to pick up more foreign companies participating in the market. And the rates for these taxes have generally increased as the corporate rate has decreased.
 
Deacon Dog said:
Sort of. The deferral mechanism which is almost unique to the US makes it a hybrid system. What's allowed OECD countries--including Canada--to keep territorial systems and lower corporate income tax rates is VAT and social contributions taxes. These taxes broaden the base to pick up more foreign companies participating in the market. And the rates for these taxes have generally increased as the corporate rate has decreased.
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Thanks. That's a good clarification.
 
Our taxation system is incredibly favorable to foreign companies selling in the US market and unfavorable to US domiciled companies. It's really messed up. We would either need to completely restructure our corporate tax system, or lower rates and institute a VAT.

I don't think there is currently any such thing as a true worldwide system with no foreign deferral or exclusion mechanism.
 
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The whole US tax system, corporate and otherwise, is really messed up. Needs to be scrapped and rethought, and it ought to include a VAT in my opinion.
 
countries with lower tax rates and VATS put their domiciled companies on much more even footing with foreign companies either selling into the country or with operations in that country.
 
Deacon Dog said:
Wrong. You could also bring back money to pay down debt which is what a lot of corporations did.
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That's not what they did. It was overwhelmingly a windfall and especially for the top brass. They played W and the Congress like $3 whores.
 
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