patrick.net

^Thanks again SFace. I'm not sure how the ETR ends up being 23.4 in the above. But I get the tax holiday bit. Interestingly, it seems like the money sitting overseas can be used to purchase things like treasuries through the US banking system. Do you know if it can be used to do buybacks of company stock or to buy stock in general?

http://blogs.wsj.com/washwire/2011/12/14/corporate-tax-holiday-takes-another-hit-in-congress/

thomas.wong1986 says

is it Cash, investments, AR, inventory, fixed assets.. long term assets ?
Like Apple many have few dollars sitting in their cash accounts (pay salary,vendor bills).. Apple has what 3-4B out of $80-90B in cash US accounts.. the rest are in US Govt Bonds.. there isnt Billions sitting in some cayman islands transfered from the US as you think...
How does it come to be..

NYT, arent accounting or tax experts.. they have a political agenda.
Surely they should get someone from the Big 4 Accounting/Tax firm to explain all this ... but that would kill their articles off !

No one said or thought there are billions transferred from the US to the caymans, where did you get that? The story clearly gives the trail of the money, did you actually read it?

So you are saying the NYT story is completely wrong and no one of the hundreds of millions of people that read it has challenged it. At least I've never seen anything challenging it. That's very interesting.

SFace says

On the other hand, it puts US multinationals at a huge disadvantage becuase let's say Suntech (China) and First Solar (US) competes in Mexico. Suntech pays the Mexico income tax rates that is it and they can take the cash back and invest in Brazil. First Solar pays the Mexico rate. If they take the cash back to the parent, they have to bring the rate to 35% whereas Suntech doesn't. They can use the cash to expand in Mexico but cannot move it around and deploy capital like China.

Which brings up the point that if the tax rate is so bad that it represents a "huge disadvantage" to US multinationals then why are so many huge multinational companies willing to be based in the US? Of the 10 biggest corporations that "moved" out of the US in the last decade 5 were in legal trouble and 2 moved because most of their business shifted to other parts of the globe. I say "moved" because a lot of the "moves" were paper moves with the bulk of the corporate headquarters operations staying in the US. Pretty amazing that so many huge corporations stay headquartered in a country with such repressive tax rates and overwhelming business regulation. Maybe, just maybe, the grass isn't always greener.

Secondly they most certainly can move the cash around and deploy the capital. They can do it any where in the world except bringing it to the US.

Highest corporate tax rates in the world:

1- Japan
2- USA

http://www.forbes.com/pictures/eglg45hhik/usa/#gallerycontent

Do the math.

bob2356 says

I say "moved" because a lot of the "moves" were paper moves with the bulk of the corporate headquarters operations staying in the US. Pretty amazing that so many huge corporations stay headquartered in a country with such repressive tax rates and overwhelming business regulation. Maybe, just maybe, the grass isn't always greener.

You can simply look at Delaware.. why are so many US Companies like the ones in California, New York or other states incorporated in Delaware.. what is Delaware doing to attract the majority these companies business.

http://en.wikipedia.org/wiki/Delaware_General_Corporation_Law

YesYNot says

I think what bob meant was that by shifting profits to foreign subsidiaries, and then storing money in a foreign company, you are deferring taxes until you bring the money home.

No! thats not it...

If US Company "A" sells to a US Customer "B" then it is booked in the US Books and will be taxed accordingly. its Cash collected will remain in the US books and US Bank Accounts.

You will not find that the revenue/expenses and its associated profits are moved anywhere! They remain on US Books..

There is no way to "move" or allocate your US BASED "PreTax Profits" around. This is a Accounting/IT boondoggle... IT CANNOT BE DONE!

To attempt to do it would be considered Accounting Fraud and your auditors would nail you for it. The profits that are earned in the US, remain in the US Book's Retained Earnings Account of the US Entity. The Cash that is earned in the US, often stays in the US, either as Cash in Bank or are used to often Buy US Treasury or other securities. All of this is reconciled and reported on the IRS M-1 and M-2 schedule.

If your moving money to fund your subs operations, this is a intercompany transfer (cost plus structure).. A Receivable to the Parent and a Liability to the Sub. Very often you will find the cash is burned to pay foreign employee salaries, bills, taxes, vendors. and nothing is left at the end of the month until funding is required again.

For bigger companies..

Many are confusing what is going outside of the US. Ireland is the Consolidation and Taxing Entity of your NON-US business.. Foreign Customer Sales, Foreign Expenses, and Foreign taxes paid.
Again .. non US Business.. foreign customers and foreign expenses.

All these companies are doing is Consolidating their Financial Statements from UK pounds, Euro (France, Span, Germany, Italy), Yen Japan, China, Australian, etc etc. into a single International Entity in Ireland.

Are they transferring Euros, Yen, UK Pounds to Irish currency... maybe ! but what does that do regarding taxes.. nothing!

Each one of these countries taxing authority will audit the books of the subs as part of the taxing process. And the US SEC/ IRS also audits the books of the multinationals Consolidated (US and Non-US entities) on a 5 year rotational process.

Your unlikely to find some shady stuff going on here.

bob2356 says

So when exactly will all these billions in yet untaxed profits sitting offshore actually be returned to the shareholders as dividends?

The dividend isnt a "Cash shareholder dividend".. it is transfered to the US back via Intercompany .. "Due from Sub" offset by "Due to Parent" and eliminated in Consolidations. At that point the deferred tax asset/liabilty is reduced and "declared on the IRS return". Your payment is the difference between the US rates and Foreign Tax paid. (see foreign tax credit). So your paying only the difference between the two rates.

Many companies, who do business overseas and have cash offshore, have already been taxed by foreign governments. In addition if they file a US IRS consolidated tax return, they pay for the US taxes get a IRS foreign tax credit for the foreign taxes already paid and not some 35%.

OK! now you moved the "Cash" to the US and Paid US Taxes..

So how do you pay your Foreign sub Salary, Bills, Rent, other expenses, and expansion project. What exactly is left in the Bank ?

bob2356 says

So you are saying the NYT story is completely wrong and no one of the hundreds of millions of people that read it has challenged it. At least I've never seen anything challenging it. That's very interesting.

Why is it they never quote some CPA working for a Big 4 accounting firm tax department who knows all this stuff. Fact is they dont even quote the IRS. Ever wonder about that... its all politics!

If all this crap was true... dont you think the IRS (even under Obama) would be like a pack of dogs all over this as if it was Enron! Dont they Audit the big multinationals on a rotational basis. But NO! you never hear that from some journalist.

thomas.wong1986 says

OK! now you moved the "Cash" to the US and Paid US Taxes..

So how do you pay your Foreign sub Salary, Bills, Rent, other expenses, and expansion project. What exactly is left in the Bank ?

No one seems to have any trouble paying the bills overseas when the US government declares a tax repatriation holiday and all the cash comes rushing back into the US. In the 2004 tax holiday over 300 billion came back. Over 90% went to executive bonuses, stock buybacks (which boost stock prices, boosting executive bonuses), and last, but certainly least dividends (oh joy for the stockholders). The remaining crumbs went into reinvestment in the companies.

thomas.wong1986 says

bob2356 says

So you are saying the NYT story is completely wrong and no one of the hundreds of millions of people that read it has challenged it. At least I've never seen anything challenging it. That's very interesting.

Why is it they never quote some CPA working for a Big 4 accounting firm tax department who knows all this stuff. Fact is they dont even quote the IRS. Ever wonder about that... its all politics!

If all this crap was true... dont you think the IRS (even under Obama) would be like a pack of dogs all over this as if it was Enron! Dont they Audit the big multinationals on a rotational basis. But NO! you never hear that from some journalist.

So where are all the rebuttals for the story? I can't find any other than the usual fox incoherent babbling. Forbes, the wsj, and the economist have run articles about the nyt article and haven't disputed it. I read wsj and forbes articles about google using double irish in 2009 I believe. So everyone is wrong about this? What about the former apple executives in the story? They don't know what they are talking about?

No one quotes the IRS. The IRS doesn't make statements.

bob2356 says

In the 2004 tax holiday over 300 billion came back. Over 90% went to executive bonuses, stock buybacks (which boost stock prices, boosting executive bonuses), and last, but certainly least dividends (oh joy for the stockholders). The remaining crumbs went into reinvestment in the companies.

What does executive bonus have to do with intercompany dividend payments ? Since it eliminates on a consolidated books it has no impact on net income. Very often, exec pays is tied to revenue growth targets, timely product introductions and net income on a consolidated basis.

Dividends received deduction

http://en.wikipedia.org/wiki/Dividends_received_deduction

Impact

This deduction is designed to reduce the consequences of triple taxation. Otherwise, corporate profits would be taxed to the corporation that earned them, then to the corporate shareholder, and then to the individual shareholder. While Congress allowed for double taxation on corporations, it did not intend a triple - and potentially infinitely-tiered - tax to apply to corporate profits at every level of their distribution.
The dividends-received deduction complements the consolidated return regulations, which allow affiliated corporations to file a single consolidated return for U.S. federal income tax purposes.
[edit]Application

Generally, if a corporation receives dividends from another corporation, it is entitled to a deduction of 70 percent of the dividend it receives.

If the corporation receiving the dividend owns 20 percent or more, however, then the amount of the deduction increases to 80 percent.[3] If, on the other hand, the corporation receiving the dividend owns more than 80 percent of the distributing corporation, it is allowed to deduct 100 percent of the dividend it receives.

Note that in order for the deduction to apply, the corporation paying the dividend must also be liable for tax (i.e., it must be subject to the double taxation that the deduction is intended to prevent)

SFace says

As a controller, that is a stupid statement. Do you tell your boss no it cannot be done all the time. Accounting is based on entity concepts and related entity transactions are based on arms-length theories.

If you have revenues related to your US customers ( in any of the 50 states) and expenses to your US employees and vendors ( in any 50 states), how exactly are you carving the (pre tax profit or taxable income) items out and transferring to some other Entities oversees at some other foreign currency unrelated to the sale?

This is a boondoggle!

SFace says

Let's say the US entity has 2B in Gross Receipts and 10% operating margin or 200M in income. If they can allocate more favorably and achieve, 8% operating margin, taxable income is now 160M, or a difference of 40M. @ 35% that is 14M in tax. Good luck to the IRS to fight over and win om something that is well documented and supported from the transfer pricing study.

each entity serves its own market.. there are boundaries to which apple in US sells to US customers only.. Apple france sells to french customers only .. etc etc etc. Your not shifting any profits around to meet your targeted net income.

Transfer pricing at one time was used when we actually had production and plants on US soil and shipped goods overseas and billed the foreign entities for the goods... but that is history.. we dont do that anymore. Now it comes from Foxx Comm (Third Party arms-length agreement)..

Today, each global Apple sub gets the goods and a bill ....X units and the total bill to be paid to FoxxComm for the shipment as finished goods. And many others mfg. do the same.

SFace says

A big multinational company has billions in resources, it is fair to say the the IRS does not have the type of resource to proof otherwise as there are 10K multinationals but one IRS. This doesn't even count foreign multinationals like Sony, Fujitsu and Samsung which has the same issues. There is a lot of vertical and horiozontal integregation between a large multinational containing dozens to hundreds of entity. Why do you think GE's tax return is sonmething like 20K pages?

You have local US state auditors, IRS auditors, and your third party Independent audits ( segment reporting) ALWAYS reviewing the numbers.

The huge multi-nations invest in Oracle / SAP and other ERP systems to allow them to track all of there financial results.

In addition, you have internal controls in accounting, tax, and IT that prevent creating any tax scheme avoidance.

SFace says

Go to indeed.com and search title: "international tax". There are currently 650 postings just on jobs that is strictly for international tax alone.

As there are International Accounting jobs as they relate to FAS 52 consolidations staff. Someone has to do the work and oversee compliance.

But they also have State Tax Managers, Fed Tax Managers, and Sales/Property Tax managers. No sinners to be found here.

SFace says

What the NYT described is in fact true. I think you need to step back and think about how these things work carefully. These issues are mostly high level legal issues designed to be IRS audit proof, albeit controversial, thus the financial audits will agree with these positions.

your source in the NYT.. not what he writes about as FACTS! Its all politics.

David Kocieniewski is a business reporter who has been covering the nation’s tax system for The New York Times since 2010.

"Neither corporations nor the government make tax returns public, and the information most companies disclose in their regulatory filings is insufficient to determine how much they pay in federal taxes and how that compares to the official United States corporate rate of 35 percent." - David Kocieniewski

http://www.nytimes.com/2011/09/11/technology/rich-tax-breaks-bolster-video-game-makers.html?ref=davidkocieniewski

SFace says

You're "Mr. No", "can't do it", "not possible" The fact is they all take it to the legal limit. and the end result is the US always get the smallest portion possible for obvious reasons.

What does a sale (revenue) in the USA to a US Customer have anything to do with Ireland or any "Tax Heaven". Which "arbitrary revenue and expenses" in the US are you going to carve out to transfer to a foreign entity to reduce or defer taxes.. no such practice exist today.

SFace says

My source is my knowledge from reading thousand's of 10K's, undertand how business and corporate structuring works in careers that look closely in these things in client service, and M&A.

My suggestion is go work for a big corporation.. SF based SalesForce, Oracle, or McKesson. Nothing like real life experience know the processes and the people actually doing the work.

"Neither corporations nor the government make tax returns public, and the information most companies disclose in their regulatory filings is insufficient to determine how much they pay in federal taxes and how that compares to the official United States corporate rate of 35 percent." - David Kocieniewski

SFace says

I also sleep with someone that deals with this stuff. What the NYT descrribe is dead on accurate.

I banged enough accounting pussy, but we never talk about shop!

thomas.wong1986 says

your source in the NYT.. not what he writes about as FACTS! Its all politics

You are the best tap dancer I've seen since Fred Astaire in "Puttin on the Ritz". The question stands, where are all the rebuttals for the NYT article, or for earlier articles in Forbes, WSJ, and The Economist about the exact same accounting practices. How has the entire world missed all these political stories that are non facts in such major publications? Why don't you rebut the story in detail.

thomas.wong1986 says

your source in the NYT.. not what he writes about as FACTS! Its all politics

You are the best tap dancer I've seen since Fred Astaire in "Puttin on the Ritz". The question stands, where are all the rebuttals for the NYT article, or for earlier articles in Forbes, WSJ, and The Economist about the exact same accounting practices. How has the entire world missed that these were only political stories that are non facts in such major publications? Why don't you rebut the story in detail.

bob2356 says

How has the entire world missed all these political stories that are non facts in such major publications? Why don't you rebut the story in detail.

they are journalists... surely they must have spoken or can get info from public accounting firms tax advisors and publish it.

but that would kill the political goals of the left.

Had there been something shady going on.. the IRS, SEC, and foreign Revenue (tax) authority would be all over this... like a pack of wolves.. where is my money?

thomas.wong1986 says

I banged enough accounting pussy, but we never talk about shop!

I'm going to have to go with Thomas Wang on this one. By the transmissitive property of accounting rules, he must have caught a knowledge outbreak by now.