How the US Corporate Tax system outsourced your jobs (part IV)

From 2000 through 2005, U.S. multinationals eliminated 2.1 million jobs at home while adding 784,000 to their payrolls abroad, according to the Bureau of Economic Analysis.
http://www.usatoday.com/money/perfi/taxes/2008-03-20-corporate-tax-offshoring_N.htm

Hopefully DU will have enough interest to follow this series exposing the failed Corporate Tax Structure of the United States and gain a thorough understanding of the underlying structural problems in our Corporate Tax Code.

In case you missed parts 1, 2,& 3. they can be found at the links below
Part 1 - http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x88792
Part 2 - http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x88802
Part 3 - http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x88828

Now that the Us Corporation has Inverted (see part III) and become a subsidiary of the Foreign Parent Corporation, the US Corporation can now sell off the Patent Rights, and Intellectual Property Rights to the Parent Foreign Corporation. These Paper Values of the Property/Intellectual/Patent Rights can be set freely by the US Corporation and have no “Means Test” in the US Corporate Tax Code. Essentially the US Corporation is Free to devalue these at will to avoid taxation on the transfer. Similarly the Parent Foreign Corporation is free to overvalue the License Fees for the US Corporations producing these same products paying “License Fees” to produce the patented product, thus increasing operating cost/tax deduction, for the US Subsidiary Corporation.

Additionally the R&D cost of the Intellectual/Patent Rights is 100% Tax Deductible for the US Corporation. No period of devaluation or deferred Tax Credit is applied.

Today's U.S. tax system encourages corporations to structure their operations to shift profits to low-tax foreign countries such as Ireland, Bermuda or the Netherlands. That's especially true for companies that benefit from so-called intangible assets that are difficult to value. By assigning patents or other licenses to foreign affiliates, corporations can legally book profits in low-tax venues rather than the USA.

Now enters Internationally recognized Tax Haven Countries

Andora, Anguilla, Antigua, The Bahamas, Bahrain, Belize, Bermuda, Cyprus, Dominica, Gibraltar, Grenada, Hong Kong, Ireland, Jordan, Lebanon, Liberia, Liechtenstein, Luxembourg, Macau, Malta, Netherlands, Antilles, Panama, Singapore, St. Kitts, St. Lucia, St. Vincent, Grenadines, Switzerland, the UK Caribbean Islands and Vanuatu

And the Off Shore Profits Tax Exemption

The U.S. tax code's treatment of profits earned by foreign subsidiaries of American corporations. Profits earned in the United States are subject to the 35% corporate tax. But Multinational Corporations can defer paying U.S. taxes on their overseas profits until they return them to the USA — transfers that often don't happen for years. General Electric, for example, has $62 billion in "undistributed earnings" parked offshore, according to recent Securities and Exchange Commission filings. Drug giant Pfizer boasts $60 billion. ExxonMobil has $56 billion.

Furthermore the Off Shore Profits Tax Exemption encourages the Multinational Corporations to “Double Down” on their foreign investments by creating or exporting additional Manufacturing facilities overseas. “Overvaluing” the necessary Raw Materials or Subcomponents exported to the US Corporate Subsidiary for their production will additionally reduce the overall US tax burden of the US Subsidiary.

China for instance has a flat 25% Corporate Tax Rate with a 10% Capitol Gains Tax applied on top. By the use of a Parent Multinational Corporation located in one of the many Tax Haven Countries, the Subsidiary Corporation manufacturing facility located in China can devaluate their products sold to the Parent Corporation there by avoiding Taxation in China. That same Parent Corporation then resells those same products to the US Subsidiary Corporation at an over valued price thereby decreasing the US Subsidiary’s tax liability. The Parent Multinational Corporation never even took possession of the products or added value to the products other then the value on paper.


The deferral clause has been in the tax code for more than half a century and has outlasted numerous reform efforts. In April 1961, even as U.S.-backed rebels were dying at Cuba's Bay of Pigs, President Kennedy asked Congress to rewrite tax provisions that "consistently favor United States private investment abroad compared with investment in our own economy."

America’s focus in 1961 was stopping the spread of communism through out the world and what better way then to export Wholesale Capitalism. However the world has changed significantly since then, China’s Most Favored Nation Trading Status, the WTO, G-8, G-20, The EU has tossed the global trade model on its head. America’s lack of resolve to act swiftly and decisively could ultimately lead to the Economic Downfall of once most prosperous nation in the world.

We still need to discuss "Arms Length" and "Check Box Provisions". I'll address that next