Taxing Multinational Corporations, U.s. And Foreign Governments

But as we noted when we fact checked another of Obama's campaign statements— one from the 2010 midterm elections claiming then-House Republican leader John Boehner supported these deductions — there are no provisions in the tax code that specifically reward companies for building factories overseas or outsourcing jobs. There are, however, provisions that allow companies to avoid paying U.S. taxes on income generated by their foreign subsidiaries, at least until they bring those profits back to the United States. Both the president and legislator say these deferrals can encourage U.S.-based multinational companies to keep their foreign profits abroad and reinvest them in infrastructure overseas.”

With the advancements in the globalization of the economy, corporations are finding more ways to avoid the extraordinary tax rates set in place of The United States Of America. With the loss of revenue from large companies dodging taxes the government must make up for the loss by either raising taxes or changing the tax code. A recent company to avoid american taxes is Johnson Controls, a company that “…would not exist as it is today but for American taxpayers, who paid $80 billion in 2008…”(The Editorial Board). This use of American resources to get through tough times, and run to another county during an economic incline is an act that calls for reform in the American tax system. However congress has not passed any legislation to fix the

This not only is giving huge breaks towards companies who exported the U.S job market overseas, but serves as an incentive to continue to export jobs overseas due to a lesser overhead cost and tax exemptions of doing so. The Inventory Property Sales, wealth created overseas of American companies is taxed in the nation or region in where it is created, and the U.S. gives a tax credit for that amount in order to avoid double taxation. However, this exception has lead towards a huge amount of job exporting and tax evasion. Some companies have amassed disproportionate amount of such tax credits “inventory” as it is called. According to Sarah from the Financial Times “To be able utilize their inventory credits, companies artificially boost foreign income through a ‘title passage rule’ that allows companies to allocate 50 percent of income from U.S. production sold in another country as income generated by that foreign country the ‘property sales’” which leads to a further enriching of shareholders and CEO’s while passing the economic burden onto the American public. The 5 year cost to Government from just Inventory Property Sales credits is $16.7 billion. Who benefits are Multinationals with operations in high-tax foreign countries. Not to mention the continuous outsourcing of American jobs due to these loopholes that seem to incentives American corporations to leave the United States

Companies in the US are finding clever deceiving ways to get what they want. Many companies like Google are investing offshore to avoid American taxes. Others like the company Monsanto uses

However, the companies only have to pay the U.S. tax for foreign revenues once they bring the profits back to the United States. As a result of these current tax laws, U.S. companies that seek to avoid high corporate tax rates hold their foreign earned profits overseas. “It just makes no sense to pay a substantial tax on it,” said Joseph Kennedy, a senior fellow at the Information Technology and Innovation Foundation (Rubin, R.). It is far too easy for an IT corporation to create a patent in a foreign country and direct revenue to a corporation within that country, thus avoiding the much higher U.S. tax rates. According to Joint Committee on Taxation estimates, the lost revenue is increasing over time as corporations find even more creative ways to make their U.S. profits look like offshore income (Richards, K., & Craig, J.). As result, multinational American corporations have as much as $2 trillion held in overseas subsidiaries and if brought into the United States with the current tax laws, the federal government could benefit by nearly $50 billion per year.

Throughout years large American industrial companies have been running away from U.S. taxes, but there has been a new change. Companies such as Apple and Google have been affected by a change foreign countries are going through collecting higher taxes than before. It seems as if no longer can these companies get away with paying low taxes. This is happening because the European Commission have passed an order to collect high taxes. One example is Ireland who was ordered to collect fourteen billion dollars from Apple, which brought a surprise to this company. Companies have run out of places to run and pay one percent or less of taxes in foreign places, instead of paying back home.

Summa Holdings, Inc. v. Commissioner, Docket 16-1712 (6th Cir. Feb.16, 2017) is an interesting read, especially for export businesses. The transaction does not violate the Internal Revenue Code and provides substantial tax savings. The Court takes exception to the IRS’ use of the substance-over-form doctrine to “undo a transaction just because taxpayers undertook it to reduce their tax-bills.”

This article begins by explaining that recently many American corporations have moved their headquarters from the U.S. to forging lands in attempts to cut down on taxes. It explains that this is called inversion, and while a few corporations doing so is simply irritating, mass inversion can be detrimental to our society. Another form of inversion is in the form of “never here” which are private companies, which began as U.S. companies that go private and move out of the country only to move to another country to become public. This enables them to duck out of many U.S. taxes without being accused of deserting the U.S.

On April 30, 1984 the US and People’s Republic of China signed a tax treaty to avoid double taxation and prevent tax evasion. All provisions of the

The income earned by the U.S. individuals and corporations in the foreign countries or foreign source are taxed by the U.S. government, even though other countries also tax any income earned within their borders. To offset this double taxation of income by two different countries, the U.S. grants both individuals and corporations a foreign tax credit (FTC) that can be used to offset income taxes assessed by a foreign country on the income earned there (Foreign Tax Credit, FTC, n.d.). The FTC is allowable for foreign income taxes and other similar taxes, such as excess profit and war profit taxes. However, only income taxes qualify for the credit. The Value Added Taxes (VAT) and property, sales and severance taxes do not qualify, although they may be deductible.

The American Jobs Creation Act of 2004 decreased the tax liability for foreign earnings repatriated into the United States. This one time decrease lowered the maximum tax rate for overseas profit from 35 percent to 5.25 percent. However, due to foreign tax credits, the average tax rate corporations actually paid was 3.7 percent. The largest two types of corporations to repatriate their foreign earnings were the pharmaceutical and technology sectors. According to a news article written by Lynnley Browning in 2008, “the tax break gave each company claiming it an average $370 million in tax deductions” (Browning 2008). During 2004 the number of United States Corporations with foreign subsidiaries totaled around 9700. As stated above only 843 corporations participated in the Repatriation Tax Holiday. Of these 843, over 30 percent of total repatriation is accounted for by the pharmaceutical manufacturers alone. On average these 29 pharmaceutical manufacturers each claimed a tax deduction on overseas profits of $3 billion.

883(a)(5) provides for a special rule that does not take into account any failure of a foreign country to grant an exemption to a corporation organized in the United States if the corporation is subject to tax by the foreign country on a residence basis pursuant to provisions with the foreign law. Simply put, if a foreign country neglected to tax a United States corporation who qualifies to be a resident of the country, it is not factored into the tax treatment from the United States.

Intercompany transactions could occur across national borders, it would lead MNC companies to get more exposure to the differences of the tax regulations between countries. This might lead MNC companies to set up their objective to minimize their taxes through the use of discretionary transfer prices. These issues are attracted the attention of the member of the U.S. senate, foreign governments and international organization such as the OECD, G20 and European Union (EU).

A tax haven is a country that offers foreign corporations and individuals relatively low corporate and income tax rates, with a politically and economically stable environment. Some tax havens are Switzerland, Hong Kong, Bermuda, Ireland, and the Cayman Islands. Although the businesses have moved across seas, the United States forces them to pay the corporate tax. Fortunately for the businesses, it they keep their income and money across seas they do not have to the pay the American corporate tax, Unfortunately this is ghastly for the United States Government businesses keep their products and profits over seas.

The actions of multinational corporations (MNCs), which derive from their morally dubious goals, may be completely legitimate within a capitalist society. One of these actions that will be examined in this essay is the use of tax havens, as a way of avoiding higher tax liability. This paper will utilise the case study of Apple’s tax avoidance, in examining the legitimation of a company’s goal of profit maximisation, a goal that is against the moral/social consensus