Dell's Dilemma: Overseas Cash http://t.co/4oj9CJgBAy US tax laws are destroying US corporations and #americansabroad – Wait till #FATCA
— U.S. Citizen Abroad (@USCitizenAbroad) July 2, 2013
This is just one more article which demonstrates how U.S. tax laws are destroying the United States. It is very clear that there is an “IRS discount” associated with any U.S. entity or citizen who conducts economic activity outside the United States.
This article caught my attention in part because of a quotation from one Villanova law professor by the name of Richard Harvey. He is quoted as saying:
If companies “can structure a deal where they can bring cash back and avoid even a cash tax charge, that is nirvana,” says Richard Harvey, a Villanova University law professor who worked as a tax accountant and formerly advised the IRS. “They either enter into some elaborate tax structure that they hope avoids IRS scrutiny, or they might just decide to borrow in the U.S. and keep the money offshore.”
Incredible. As has been noted in previous posts it can actually be less expensive for a company to borrow rather than pay the taxes to repatriate their earnings. Funny, last I heard, the U.S. thought it was good to invest in America. Guess Congress and the IRS don’t think so.
To make matters worse, money earned outside the US provides a permanent cash injection into the economies of other countries. It’s never coming home. How dumb is that?
How US tax laws provide a cash injection into #offshore economies http://t.co/L3nFCmzJq4 – Cash earned outside US can never come home!
— U.S. Citizen Abroad (@USCitizenAbroad) July 2, 2013
No, it only makes it difficult for them to use it without paying their due tax. Companies have long gotten away with shifting money around the world. There was a big stink in the UK recently about the fact that American companies operating over there hadn’t paid any UK tax for years on their earnings. If the tax laws had been written properly they wouldn’t be able to get away with this crap.
If these companies don’t want to pay US taxes and submit to US regulators, their execs are welcome to invert their corporate structure out of the US and join me here in Hong Kong both juridically and personally. But of course that’ll never happen — they’re just like the rest of the Homelanders who have no objection in principle to government run amok, as long as it keeps feeding them goodies and handing the bill to someone else so they can go on living in their Greatest Country on Earth.
These companies benefit greatly from the present US tax system, though they’ll never admit it: they can get an artificially higher ROIC than smaller competitors because they can bear the high fixed costs of setting up multi-jurisdiction corporate structures and employing teams of lawyers to manoeuvre through tax treaty loopholes. (And then the professional associations representing the lawyers & accountants who skim so much off the top of these schemes go on to donate part of their take to the political candidates who promise to pile on even more confusing tax laws with loopholes accessible only to the well-advised. In other words, this whole “starve-the-beast-through-tax-avoidance” thing doesn’t seem to be working; all I see is massive collusion between industry and government to create barriers to entry, which makes it even more mystifying when libertarians praise them. )
If government rules in any arena are making your life and your neighbours’ lives miserable, your moral obligation is to very loudly and publicly remove yourself from the physical & legal jurisdiction of the government imposing those rules — so that your action serves as a wake-up call to the tyrants who write the rules and the idiots who keep on voting for those rules. Your response should not be to stay in your house and figure out a clever way to exempt yourself from the rules while telling your neighbours to go hang themselves and then buying up their houses after they go broke.
Most important is that US corporate tax rate is 35%, whereas a tax haven like Sweden is corporate tax rate 22%. US taxes the difference if re-patriating. Why would anyone want to willingly pay more tax?
Same thing in personal taxation. German in Dubai pays no Dubai tax and no German tax. American in Dubai pays no Dubai tax but must pay US tax for everything above the Foreign Income Exclusion. Better to hire a German than to hire an American.
A couple days ago I was talking to a Canadian citizen Green Card holder, resident in the U.S. who is trying to run his U.S. based corporation. It’s interesting that he is able to run this business out of anywhere (largely internet based). In any case, he commented that:
– he was drowning under the forms (required largely because of the payments he was required to make to non-citizens living outside the U.S.).
– he finds the record keeping impossibly expensive and claims to have been subjected to a number of arbitrary IRS fines (for missing filing deadlines, etc).
I suggested the following to him:
1. Move back to Canada
2. Get rid of the Green Card
3. Get rid of the U.S. corporation
4. Reincorporate in Canada as a Canadian coporation
5. Do business “happily ever after” (including serving U.S. customers).
Look, the U.S. is now fundamentally at war with everyone.
@Eric
Could you explain how you see big corporations (in the long run) benefitting from the insanity of U.S. tax laws. I agree that no small business could absorb the cost of all this. But, in a long run sense, in a way that benefits economic growth (other than the compliance industry), how does the tax treatment of corporations benefit anyone?
As I’ve written before, I suggest the Estonian approach. Instead of going through the whole mess of defining taxable profits and then exempting dividends (distribution of profits to shareholders), abolish the whole corporate tax and simply tax dividends as regular income of those who receive them. I don’t really understand why other countries haven’t adopted this approach, it’s so much more simple. It also significantly diminishes the influence of corporations over politicians, since the whole concept of corporate tax breaks doesn’t exist in this system.
@Shadow Raider
“It also significantly diminishes the influence of corporations over politicians, since the whole concept of corporate tax breaks doesn’t exist in this system.”
This would explain why politicians do NOT want to change the system. If companies need breaks, then politicians benefit. U.S. democracy is a “market place” where votes are bought and sold.
Notice this also removes incentives for the U.S. to adopt a VAT. A VAT is a fair system where it is much harder to get “political favors”. It’s also simple (what would the lawyers and accountants do?) It’s also a fairer system – tax is paid by or on behalf everybody.
The U.S. tax system is simply destroying the country. You are close to the action. Will they have the intelligence, the foresight, and the wisdom to change this?
USCitizenAbroad, the US already has VAT in the form of Sales Tax. It’s just applied/used in different ways than VAT is.
@Shadow Raider. Many countries are approaching that, albeit in reverse order. European countries all have 30% dividends/gains (vs USA 15%). Ireland lowered its Corporate tax rate to the lowest levels (12%?) and Sweden is at 22%.
Just came across an article about the dynamics of tax lawmaking that may offer hope for tax reform in general.
It’s very erudite, and way over my head, but I’m guessing some of you here may have the legal and political background to find it interesting…. Here it is, just in case.
http://taxprof.typepad.com/taxprof_blog/2013/07/tahk.html
Susannah Camic Tahk (Wisconsin), Making Impossible Tax Reform Possible, 81 Fordham L. Rev. 2683 (2013):
“This Article examines the phenomenon of earmarking and examines several instances of earmarked state taxes. In so doing, this Article argues that earmarking tax revenues for particular purposes offers an opportunity for lawmakers to permanently reform the tax code at last. “
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