Corporate America's Hidden Billions

"AIG is chump change -- let's find corporate America's hidden billions

(snip)

"According to the Government Accountability Office, nearly all of America's top 100 corporations maintain subsidiaries in countries identified as tax havens. As the GAO notes, there could be reasons other than avoiding the IRS to set up branches in places such as Singapore, Luxembourg and Switzerland, where taxes are light or nonexistent and keeping clients' illicit secrets is considered a matter of national pride.

"But what reason other than evasion could there be for Goldman Sachs Group to set up three subsidiaries in Bermuda, five in Mauritius, and 15 in the Cayman Islands? Why did Countrywide Financial need two subsidiaries in Guernsey? Why did Wachovia need 18 subsidiaries in Bermuda, three in the British Virgin Islands, and 16 in the Caymans? Why did Lehman Brothers need 31 subsidiaries in the Caymans? What do Bank of America's 59 subsidiaries in the Caymans actually do? Why does Citigroup need 427 separate subsidiaries in tax havens, including 12 in the Channel Islands, 21 in Jersey, 91 in Luxembourg, 19 in Bermuda and 90 in the Caymans? What exactly is going on at Morgan Stanley's 19 subs in Jersey, 29 subs in Luxembourg, 14 subs in the Marshall Islands, and its amazing 158 subs in the Caymans? And speaking of AIG, why does it have 18 subs in tax-haven countries? (Don't expect to find out from Fox News Channel or the New York Post, because News Corp. has its own constellation of strange subsidiaries, including 33 in the Caymans alone.)

"When the cost of these shenanigans was last estimated two years ago, the U.S. government's annual loss in revenue due to tax avoidance by major corporations and super-rich individuals was pegged at about $100 billion -- considerably more than a rounding error, even today. But of course that is only a rough assessment, as is the estimate of $12 trillion in untaxed assets hidden around the world. Nobody will know for certain until the books are opened and transparency is established.

(snip)

"None of these tax havens could exist without the connivance or at least the cooperation of the world's most powerful governments, which remain dominated by financial industry lobbyists even now. The Organization for Economic Cooperation and Development has sought greater transparency from the tax havens for years, hearing promises from most and defiance from a few."

By Joe Conason at Salon; more at http://www.salon.com/opinion/conason/2009/03/23/big_clawback/index.html?source=rss

These are typically "sister" corporations that recharacterize corporate income into capital gains income at a lower tax rate.

Taxes are still paid, and it's only worth doing if, like transfer pricing schemes, there is a "lift" between the difference of keeping the money here and paying taxes without recharacterizing the income or paying the fees and local taxes associated with foreign capital gains tax rates.

Here's the catch:

If your company has a healthier balance sheet as a result of having expanded operations, diversified investments and a better cash reserve, they have the resources to hire and retain more and better talent, and in practice a company that the markets view as successful is one that is rated as experiencing growth.

If you tax corporations for every possible dollar, it is an absolute certainty that people will fall off the payroll because corporate positions and benefits = corporate ATM in hard times.

It's the same thing with investment partnerships. CalPers (California Pension fund), Southern Baptist Annuity, and virtually every educational endowment in the U.S. takes advantage of income recharacterization.

What do you think will happen if they are suddenly taxed full rate on every penny? Retirement funds and university funds will collapse in value and subsequently impact their memberships quite directly.

It is a necessary evil - or at the very least not a simple problem with a simple solution.

If our value system says get more government revenue, then we should raise income taxes fairly and stop spending on stupid shit like trillion dollar oil wars.

You seem to be saying that without this dishonesty jobs would be lost. I'm not sure that I buy that but, supposing that you're correct, then we should make sure that everyone pays their taxes honestly and then, if it threatens jobs, give some deductions that are based on job retention and creation. Make job creation the tax haven instead of the Caymans.

If there's a problem with things like retirement funds and endowments, then we need to lower the taxes on those specific entities. If their survival currently depends on dishonest financial shenanigans, then we need to change the rules so that they can survive honestly.

The other side of that coin is that the IRS is easily dishonest when it tries to classify everything not earned on the U.S. exchanges as simple income, whether or not it was a real capital gain.

I agree with you though: create incentives to create local jobs, and penalize companies for NOT using Americans to produce for companies that sell American goods & services. That's a pretty big head start!

I would consider that to be dishonest.

If the government is taxing you twice and holding your money until you file to have it reclassified or returned, that's dishonest.

As a dual national I am a perfect example of double taxation. If my effective tax rate is 68.5 percent, you can bet I'm not going to just bend over and hand them the lube.

The fact is as a human entity (opposed to a corporate entity) I put my German money with a fund that does a "blind" recharacterization that is legal and auditable so that what I declare at the end of the day gets me back down to a manageable tax burden and I have the use of what would have been overpaid immediately.

Yes, some people take advantage of it, but if you haven't noticed the IRS shoots first and asks questions later. If the American IRS was perfectly reasonable and fair in every situation I wouldn't pay the fees and take the "investment" risk of shuffling money through an exotic financial instrument to recharacterize it.

If I have less money, I give less money to charity, and I am less charitable. My micro universe that means I wouldn't pay a lawn service, house keeper, or pet sitter. My partner and I have given between 10 and 25K a year to our community charities and events and we also give to the arts and every kiddo that comes knocking at the door with a sales pitch for a class trip or funding activity.

I would not do any of those things if I had to instead wait for the IRS to tell me from year to year that they agreed with or disagreed with my rationale for characterization of foreign income.

criers who are continually pitching their fit about people who do no support this criminal bailout I can pull it back up again.

Of course these bastards have hidden money. Of course they have off-shore accounts. Of course they have subsidiaries in places that American law can't touch.

But they need a bailout from their own criminal behavior. And this administration is more than happy to oblige.

so that companies (and individuals) must pay taxes on all income invested offshore.

funny how other countries feel the same way too.

If I take a crap in Germany, the IRS gets 30% of it. But so does Germany.

Hmmmmm. :think:

oh yeah, simple rules of thumb don't intersect reality. What about if you travel and work?

Canada - perfect example. Do we have any posters who can talk about Canadian and U.S. withholdings and how they manage them?

Even if the U.S. only taxed the part that wasn't already taxed by your earned income country, who gets the right to say they taxed you first?

you are right about saying the tax code needs to be overhauled.

Stated problem:
People are hiding income
Companies aren't paying taxes on all their earnings

Less Obvious:
If my German account is "nationalized" I'm not FDIC insured. If a company's factory in Denmark is seized, the U.S. ain't gonna do a damn thing about it. So what exactly are the taxes coming from income in those countries supposed to protect?

It's robbery and the IRS and corporations have a long standing history of competing to be the worst in the give and take and OUTRAGE that somebody is getting away with something.