To really understand the extent of Google and Apple’s innovative zeal, you may want to look past their groundbreaking products – and more at their tax avoidance strategies. In a new scheme that defies belief, some of the nation’s top tech giants are managing to evade taxation on money by parking it overseas – and then somehow taking government payments on it....
The tech sector has led the way on this, moving their patents and other intellectual property to low-tax countries to give the appearance that their profits have been earned offshore....
At current tax rates, the companies would have to pay $119.45 billion of that to the IRS if they repatriated it. Much of this money is held in segregated U.S. bank accounts, solely for the purpose of avoiding taxes by nominally keeping it offshore.
Sure enough, tech firms are among the companies lobbying for a repatriation tax holiday, which would allow them to return that money home at ultra-low rates....
But it’s actually worse than all this. A report from the Bureau on Investigative Journalism shows that these tech firms are actually taking government payments on the money they have parked overseas to avoid taxation. That’s because that money isn’t sitting under a mattress somewhere in Bermuda or the Cayman Islands; it’s invested, and the No. 1 investment these firms use is the ultra-safe, ultra-liquid instrument of U.S. government debt.
Salon
More evil than genius? How iPad and Google Glass makers are secretly scamming America
More evil than genius? How iPad and Google Glass makers are secretly scamming America
David Dayan
9 comments:
I thought the US taxes in USDs not "cash"?
What is "cash" in the NIPA?
What is "cash" in the ITAs?
What is "cash" in GAAP?
How can a US firm "repatriate" a Euro balance?
This article is out of paradigm.... this is the whole basis here:
‘This is a ridiculous situation,’ said University of Michigan professor of law, Reuven Avi-Yonah. ‘The result is US taxpayers pay interest on this money as opposed to the government receiving taxes. Bringing this cash onshore and taxing it at 35% would significantly help reduce the annual deficit of the US government,’ said Avi-Yonah."
Doesnt sound like this lawyer understands the accounting...
rsp,
Firms hold short term tsys as "cash." The trillions in cash that corps are sitting on are not in physical currency or demand deposits. They are in T-bills.
Is there any good reason to tax businesses at all except to maybe discourage consumption, e.g. cigarettes?
Why not just eliminate all business taxes? Tax individual income, or better yet: land. Maybe throw in a wall st. speculation tax on transactions to punish extreme robo-trading / short-sepculation, and encourage long-investment.
Yes, JK;
the only thing more ridiculous than this situation is this particular analysis;
misses the context for the data
Taxes on firms is silly. Taxes should be aimed at reducing consumption to address incipient inflation, as well as discouraging negative externality and behavior, as well as disgorging excessive saving.
Consumption taxes like sales tax are regressive and unpopular so a VAT can could be used instead. A VAT can be scaled to target specific areas and it can also be variable across the cycle.
We really need to discuss taxation in greater detail.
Matt:
In very general terms:
Yes the US taxes exclusively in US dollars or in special cases they will seize property and convert that to cash to satisfy the deemed liability.
US corporate tax returns are filed (if elected and most are) on a consolidated basis using US GAAP as a starting point. Under GAAP the consolidated financial statements are translated in US dollars, so financial assets such as foreign currencies are translated to US dollars. Consolidated basis, is a boon for US companies as losses that otherwise would not be deductible if tax returns were file for each legal entity. Many tax returns might be the consolidation of 1,500 + companies.
Accounting income for the period is the starting point for arriving at taxable income. Some things are deductible for accounting purposes and not for tax and visa versa. So accounting income is reconciled to taxable income.
The consolidated income / loss for taxation purposes is what is subject to tax. Taxes paid to foreign jurisdictions is treated as a foreign tax credit - to avoid double taxation (usually there is a treaty involved), if not, it can be deducted (generally) from taxable income.
The cash that has not been "repatriated" is net of taxation when it was earned. However, under most other tax jurisdictions the subsidiaries, foreign and otherwise would declare and pay an inter-company dividend to the parent. There would be no tax consequences as the cash is still inside the consolidated entity and would only become taxable once it was paid outside the consolidated entity -- think dividends.
The other nations treat this transfer as a capital transaction and the US does not, it treats it as income subject to taxation. Therefore many corporations defer the transfer in hope of a political cave in in their favour. As has happened in the past.
The lawyer's point (if I may) is that this cash whether converted to US dollars or not is invested in risk free treasuries, certainly some are US, Yen etc. and that coupon income is being paid by US taxpayers ( which he incorrectly assumes etc.).
Most corporations are flush with cash, have no real shareholder pressure to dividend out the cash and may not even know precisely how much is or could be available if not disclosed.
There are also some highly technical constructs to structure loans available if the parent wants to use some for expansion etc. without triggering the US tax.
The cash, regardless of denomination is all sitting the same bank, just in different accounts.
I like many of the taxes on firms that enable government to force the consumers of certain services to pay for the costs of using that service. Taxes on banks to provide for their insurance makes sense. Taxes on lumber companies for managing timber lands and watersheds makes sense. Taxes on Farmers to pay for crop insurance and subsidy might make sense. By taxing trucking companies for example or fuel, the government can discourage exploitation of public roadways. I like taxes on air planes, airports. Taxes levied on firms are a really good way to prevent users of certain services from socializing costs. Real estate taxes make good sense, especially for homeowners that tend to create traffic jams, require vast amounts of infrastructure to deliver utilities, and require police to keep them from killing and stealing from one another along with all sorts of demands they place on government, schools, hospitals, permits, and what not. Firm taxes seem more fair than a one size fits all VAT. Simple is good in many areas but not when it comes taxes.
Ryan:
You do realize that all VAT taxes, by design, place the burden on the end consumer?
VAT is not a burden on any firm and has no bottom line impact, other than from an accounting point of view.
I'm familiar with the VAT, the reasoning and concept. Usually accountants get pretty titillated at the high costs of record keeping. By most estimates, the VAT is the most burdensome costly tax to implement, and isn't worth it if the rate is less than 10%. That's fairly telling about the costs to society and the economy.
Here is a list of what we keep in the UK:
annual accounts, including profit and loss accounts
bank statements and paying-in slips
cash books and other account books
orders and delivery notes
purchase and sales books
records of daily takings such as till rolls
relevant business correspondence
Records of all the standard-rated, reduced-rated, zero-rated and exempt goods and services that you buy or sell.
Copies of all sales invoices you issue. Except: if you are a retailer you do not have to keep copies of any less detailed VAT invoices for items under £250 including VAT - unless your customer has asked for a VAT invoice.
All purchase invoices for items you buy.
All credit notes and debit notes you receive.
Copies of all credit notes and debit notes you issue.
Any self-billing agreements you make as a supplier.
Copies of self-billing agreements you make as a customer and name, address and VAT registration number of the supplier.
Records of any goods you give away or take from stock for your private use including rate and amount of VAT.
Records of any goods or services bought for which you cannot reclaim the VAT, such as business entertainment.
Any documents dealing with special VAT treatment, such as reliefs or zero-rating by certificate.
Records of any goods you export.
Records of any taxable self-supplies you make - for example if you sell cars and you use one of your cars in stock for business purposes.
Any adjustments such as corrections to your accounts or amended VAT invoices
A VAT account
AND all of that has to be maintained for 6 years, ready for inspection at any time.
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