Individuals that own small corporations. Multinationals with operations in high-tax foreign countries. Detractors complain that it is paying corporations to do research they would have done anyway.
The companies elect to realize profits in low-tax countries and because of this the rest of us have to pay billions of unnecessary taxes to make up for the shortfall, writes Peter Rost, an ex-pharmaceutical executive. It is, however, anything but boring.
Abuse of transfer prices is a key tool multinational corporations use to fool the U. The truth is that they rob us all blind. The money we lose can be estimated in the tens of billions, or possibly hundreds of billions of dollars every year. A few weeks ago U. Merck, one of the largest U.
Merck then quietly transferred patents for several blockbuster drugs to the new subsidiary and then paid the subsidiary for use of the patents. The answer is simple.
And if they charge enough, poof; all the profit vanishes from the US, or Canada, or any other regular jurisdiction and end up in a corporate tax-haven. Many multinational corporations essentially have two sets of bookkeeping. One set, with artificially inflated transfer prices is what they use to prepare local tax returns, and show auditors in high-tax jurisdictions, and another set of books, in which management can see the true profit and lost statement, based on real cost of goods, are used for the executives to determine the actual performance of their various operations.
Of course, not every multinational industry can do this as easily as the drug industry. This money is then accumulated in corporate tax-havens where the drugs are manufactured, such as Puerto Rico and Ireland. Puerto Rico has for many years attracted lots of pharmaceutical plants and Ireland is the new destination for such facilities, not because of the skilled labor or the beautiful scenery or the great beer—but because of the low taxes.
According to the U.
Of course, no company should have to pay more tax than they are legally obligated to, and they are entitled to locate to any low-tax jurisdiction. The problem starts when they use fraudulent transfer pricing and other tricks to artificially shift their income from the U.
Reality is that standard operating procedure for multinationals is to consistently violate this rule. After all, it takes 17 years for them to pay up, per the GSK example above, even when they get caught.
Another industry which successfully exploits overseas tax strategies to cheat us all is the hi-tech industry. In fact, Microsoft Corp. The result of this was that Microsoft's world-wide tax rate plunged to 26 percent infrom 33 percent the year before. And this is how Microsoft has radically reduced its corporate taxes in much of Europe and been able to shield billions of dollars from U.
But remember, this is only one example. Most of the other tech companies are doing the same thing. Google recently also set up an Irish operation that the firm credited in a SEC filing with reducing its tax rate.
A company takes a great, patented, American product and then develops a new generation. Then, of course, the old product disappears.
Some, or all, of the cost and development work for the new product takes place in Ireland, or at least, so the company claims.
The ownership of the new generation product and all income from licensing can then legally be shared between the U.
Unfortunately those of us working and paying tax in the U. So we have to make up the income shortfall. This helps us generate breakthrough products.
But once a company has a successful product, they have every incentive to move the second generation of a successful product overseas, to Ireland and a few other corporate tax havens.
There is only one problem for U. In fact, according to BusinessWeek, U. But of course, Congress, which is basically paid for by our multinational corporations, generously provided for a one-time provision in the corporate tax code, so that they could repatriate profits earned beforeand held in foreign subsidiaries, at an effective 5.
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Learn vocabulary, terms, and more with flashcards, games, and other study tools. The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest ranking individual.
The CEO generally works under the board and its chairman, and the board generally has the. U.S. corporations — like many Americans — exploit every available rule in the tax code to minimize the taxes they pay.
The United States has one of the highest corporate tax rates in the world. franchise tax if it is doing business in the state, whether your corporation is active, inactive, operating at a loss, or filing a short period return for less than 12 months.