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Corporations Couldn’t Wait to ‘Check the Box’ on Huge Tax Break

The ‘check-the-box’ rule, meant to cut red tape for companies, has inadvertently allowed them to avoid billions of dollars in taxes each year, and the government keeps balking at closing the loophole.

Photo Illustration by Scott Olson/Getty Images

This article was co-published with the Financial Times.

A simple rule meant to cut paperwork for U.S. companies has grown into one of the biggest multinational tax breaks around, costing the United States and other governments billions of dollars in lost taxes each year.

It thrives thanks to determined business support, including a campaign two years ago that forced the Obama administration to retreat from altering it and tax professionals worldwide who exploit its benefits.

The rule is dubbed “check-the-box.” It allows U.S. companies to strip profits from operations in high-tax countries simply by marking an Internal Revenue Service form that transforms subsidiaries into what the agency calls a “disregarded entity.” Others have labeled them “tax nothings.”

Check-the-box allows companies to avoid the normal 35 percent U.S. corporate tax on certain types of income. The Treasury Department estimates that annual revenue losses from check-the-box have hit almost $10 billion. Other countries are also said to lose billions as income is shifted to places with low or no taxes, although there is no official estimate.

The impact of check-the-box goes beyond the drain on government coffers. The rule, along with other tax provisions, has helped fuel explosive growth in foreign investment by American corporations. Since 2004, the earnings that U.S. companies keep overseas have doubled to about $1.8 trillion, U.S. Department of Commerce data show.

These “unrepatriated” earnings, which are not subject to tax while held abroad, figure prominently in Washington’s debate about corporate taxes. While President Barack Obama has proposed clamping down on loopholes, business groups and allies in Congress are rallying for a tax holiday on overseas profits and a sharp reduction in the corporate tax rate.

Their argument: The high rate creates a disincentive to invest in jobs at home. U.S. companies with the most profits accumulated abroad tend to invest heavily in research and development that can spur job creation.

Check-the-box is but one of many forms of “tax arbitrage”—the art of exploiting differences in countries’ tax systems. It can reduce taxes all by itself or figure into more complex transactions. As the Financial Times and ProPublica reported Monday, the IRS in recent years has clamped down on what it views as abusive arbitrage deals involving foreign tax credits.

But check-the-box lives on. It is not among loopholes targeted by Obama’s new plan. Its untouchable status—the government has twice tried to kill it and balked—provides a case study in how a billion-dollar tax break was born by mistake, then protected by the power of the business community.

Now check-the-box is “an open invitation to arbitrage,” said David Rosenbloom, director of the international tax program at New York University’s School of Law.

Birth of a tax break

The original idea was innocent enough—to cut red tape by making it easier for companies to decide how to categorize their subsidiaries.

In the mid-1990s, U.S. companies were creating a growing number of domestic entities. The new rule said that, by simply checking a box on IRS Form 8832, businesses could declare them as corporations or partnerships.

But within days of its announcement in 1996, tax lawyers were on the phone saying the Treasury Department had overlooked the international ramifications. Inadvertently, the government had provided a way for companies to move profits from subsidiaries in high-tax countries like Germany to Luxembourg, the Caymans or other jurisdictions with lower or no taxes on certain kinds of income. Often, this is done by making royalty or interest payments between operations in different countries.

For decades, the IRS has had anti-abuse rules to make sure such payments could be subject to taxes. However, these rules generally don’t apply to payments made within a corporation. Check-the-box made it simple for a company to designate a subsidiary as a branch, with no U.S. tax consequences for the income unless it is repatriated.

Joseph Guttentag, international tax counsel at Treasury when check-the-box was introduced, said the government may not have understood, but tax lawyers quickly “saw all the avoidance goodies they could do.”

Countries like the U.K. and Germany quickly raised concerns that the rule was stripping earnings from their tax bases. By early 1998, the U.S. said check-the-box was being used to “circumvent” anti-abuse rules.

Treasury proposed new regulations—and corporate America erupted.

General Electric, PepsiCo, Morgan Stanley, Merrill Lynch, Monsanto and other major companies urged Congress to resist the change. The U.S., they said, was trying to be “the tax policeman for the world.” Allies in Congress dug in, and Treasury quickly rescinded the proposal.

What followed was a check-the-box boom as multinationals and tax advisers around the globe embraced its benefits.

By March 2000, Treasury reported the existence of nearly 8,000 “disregarded entities.” A paper by Heather M. Field, an associate professor at the University of California’s Hastings College of the Law in San Francisco, found that tens of thousands more were created between 2001 and 2006.

Check-the-box became an essential tool in tax planning, driving down the average effective corporate tax rate on the foreign income of U.S. businesses by 1 percent to 2 percent between 1996 and 2004, according to a private, unpublished paper by Treasury economist Harry Grubert.

The Netherlands became the preferred place for U.S. companies using check-the-box, according to tax lawyers and government data, although Luxembourg also attracts considerable activity.

The Dutch tax system offers a favorable legal and regulatory environment, including special tax treatment for financial services and for licensing and royalty payments. As a result, multinationals channel trillions of dollars a year through the Netherlands.

A report by the Dutch Central Bank found that the U.S. corporate share of funds flowing in and out of the country via special Dutch entities increased sixfold in recent years. U.S. Commerce data show that U.S. businesses kept $118 billion of income in Dutch holding companies from 2006 to 2009.

In 2004, with overseas earnings piling up, Congress approved a temporary tax holiday that allowed American companies to bring home profits at a rate of 5.25 percent. The largest source of repatriated funds, about $90 billion, came from the Netherlands, according to a 2008 IRS study.

Obama shifts stance

Check-the-box continued unchallenged until 2009, when Obama took office. In his first budget proposal, the president made closing tax loopholes a top revenue-raising goal. And in the international area, check-the-box was his top target, the biggest revenue raiser in a list of 11 reforms.

Again, corporate opposition was swift. Philip D. Morrison, a tax lawyer at Deloitte Tax, wrote in a prominent tax journal that it was "ridiculous" for the Obama administration to claim that check-the-box was an "unintended" loophole because the business community had already fought – and won – this battle in 1998. Morrison faulted the administration for using overheated rhetoric and "deep cynicism" in its portrayal of the rule.

Some of the nation's most influential business groups, including the Business Roundtable, National Association of Manufacturers, National Foreign Trade Council and Chamber of Commerce, quickly criticized the Obama proposals in May 2009 as part of a pro-jobs campaign.

In Congress, tax committee members lined up alongside business leaders, with Rep. Dave Camp of Michigan, the top Republican on the House Ways and Means Committee and now its chairman, saying the proposals would put U.S. corporations on the auction block.

“Ironically, what the president proposes will make it more likely that American companies will be bought by their foreign competitors,” Camp asserted.

The Obama administration quickly retreated.

“They knew the business community was going to push back. What they were really surprised by was how vehemently the business community reacted to it,” said Catherine Schultz, vice president of tax policy for the National Foreign Trade Council.

In early 2010, Treasury Secretary Timothy Geithner informed the Senate’s tax-writing committee that the administration was dropping its attempt to broadly reform check-the-box. Instead, Treasury would focus on combating misuse of the rule as part of other tax-avoidance techniques, including inappropriate foreign tax credits, he said.

“Our goal in these proposals is to limit the role taxes play in business investment decisions by reducing implicit incentives to move jobs and investment overseas,” Geithner testified.

While announcing his deficit-cutting plan last week, Obama faulted the corporate tax system as “riddled with special-interest loopholes” and a high rate that hurts “our competitiveness in the world economy.”

He proposed more than a dozen business-tax reforms, including ending breaks for fossil-fuel development and tightening accounting measures involving foreign income. Although Obama did not mention check-the-box, its business supporters have defended it on Capitol Hill.

On the same day that Obama addressed Congress, an executive from Cargill, the world's largest trader of agricultural commodities, told the Senate Finance Committee about possible reforms to the tax code—but not check-the-box.

Scott M. Naatjes, Cargill’s vice president and general tax counsel, said repealing check-the-box would cause U.S. companies to pay more taxes abroad and make them less competitive. Sixty percent of Cargill’s operations are outside the United States.

The Senate panel also heard testimony from a law professor suggesting that American companies are not so disadvantaged.

Reuven Avi-Yonah, head of the international tax program at the University of Michigan Law School, testified that large European countries have stricter rules when it comes to taxing profits made outside their country. Japan and Germany recently have made it harder for corporations there to avoid taxes or shift income to lower-taxed jurisdictions, he said.

In an earlier interview, Avi-Yonah said it would take a comprehensive approach by Washington to curb the ability of corporations to find new loopholes.

“It’s a problem to only close specific loopholes instead of addressing the issue in a general way,” he said. “Companies simply find new ways to replace the approaches shut down by authorities.”

Meanwhile, check-the-box deals “are going like crazy,” according to one prominent tax lawyer who helps structure such transactions. He declined to be named for fear of jeopardizing his job but added: “I can design these a thousand different ways.”

Correction (9/29/2011): Tax lawyer Philip D. Morrison said in a prominent tax journal that it was "ridiculous'' for the Obama Treasury to claim check-the-box allowed for an "unintended avoidance of current U.S. tax.'' He did not say the Obama proposal to change the tax provision was ridiculous, as stated in the original version of this article published Sept. 27.

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Just to be clear, using shell companies and “licensing” schemes to move money around so that it can’t be tracked or “counted” is money laundering for us mere mortals.  It’s only when it’s a multinational corporation doing the work that it’s considered merely a wild interpretation of the rules.

Since a lot of those companies are pharmaceutical, just bust them like drug dealers “channeling” their money though a dying book store.

I know I shouldn’t be surprised, by this point, but it really shocks me that so many illegal things are apparently fine when it’s done by a bank.

It reminds us of Republicans who now brazenly oppose closing tax loopholes on the grounds that doing so raises taxes. Amoral corruption on a grand scale in business and in the Congress it owns.

Its hardly surprising that businesses move rapidly and aggressively to protect their profit margin.  Its hardly surprising that our elected representatives move rapidly and aggressively to protect their “profits”, too (e.g., those generated from business-related campaign contributions and those potentially accruing to elected officials in their post-“public service” careers).  Its hardly surprising that the present Administration backed down, this for the same reasons.  What is surprising (at least slightly) is the generally enthusiastic public reception for these and other moves that materially benefit the rich (whoops, I mean the “job creators”)  but are to the detriment of the bulk of the American public. Maybe its true…“Against stupidity, the gods themselves battle in vain.”

Why not..You would check also if it could save your money.
But after many years of that “red box”...Nothing is going to change.
If it didn’t before, or between,nothing is going to change now.
Our political system and our elected officials remind me of a very old song “super skier”.
Need to stop as I will be going on a rampage. But I will say this, it is time to close those loop holes, forget the words of increased taxes because it won’t at present effect middle and lower class Americans.

Forget and close the door to the past and who did what>
we are not of those times anymore. PERIOD!
thanks for reading

Re:  “Their argument: The high rate creates a disincentive to invest in jobs at home.”

That is a flat-out lie.  No tax flimflam is going to offset the fact that rigged currency exchange rates ensure that you can hire 5 workers in the communist People’s Republic of China for the price - in dollars - of one American worker.

The corporations true intention is to accelerate “flood-up/trickle-down” economics - to further distort America’s inequality curve - by dispensing that nearly $2 trillion to their owner/operators. 

And I hope the American people understand what will happen then:  The additional liquidity will enable the right to further corrupt America’s government.  (lollll…I would expect the asking price for a U.S. Senator or Representative to increase by at least 5% at the merest hint that such a “tax holiday” will be implemented.)

While the topic is depressing, or at the least frustrating, it’s great to find such an informative article on the topic. So often when tax loopholes and other financial issues are brought up, there seems little detail. Such ambiguities make our financial problems seem impossible - how do you fix what you can’t understand? Reporting like this makes matters seem clearer. Thusly, fixable.

Walter D. Shutter, Jr.

Sep. 26, 2011, 3:57 p.m.

No one should be surprised or outraged when corpporations shift profits among subsidiaries located in different countries to avoid paying the U.S. corporate tax rate of 35%, reportedly the highest corporate tax rate on the planet.

If only I could do likewise.

The article also states that “the Treasury Department estimates that annual revenue losses from check-the-box have hit almost 10 billion.” Please forgive me for not getting all excited about this lost revenue when our Government will spend about 3.7 TRILLION dollars this fiscal year with about 1.3 TRILLION of that spending being borrowed money.

Well, the corporations are certainly taking your advice, Mr. Shutter.  From

http://www.ips-dc.org/reports/executive_excess_2011_the_massive_ceo_rewards_for_tax_dodging

I quote:  “In fact, corporate tax dodging has gone so out of control that 25 major U.S. corporations last year paid their chief executives more than they paid Uncle Sam in federal income taxes.”

Walter D. Shutter, Jr.

Sep. 26, 2011, 7:20 p.m.

Response to ibsteve2u:

Reviewing my post, I fail to see where I offered tax advice of any kind to anyone or anything. The fact of the matter is that I suspect the “tax dodging” behavior complained of in the article you cited can be directly linked to advice provided by experienced tax attorneys and accountants well schooled in tax avoidance.  In addition, it would apppear those tax attorneys and accountants really earned their pay.

And speaking of earning their pay, the “Executive Excesses” article you cite….“25 major U.S. corporations last year paid their chief executives more than they paid Uncle Sam in federal income taxes.” 
If you read the article closely, you will discover that the authors examined the 100 U.S. corporations WITH THE HIGHEST CEO COMPENSATION. That is obviously an unrepresentative sample of U.S. corporations, and where I come from it’s called stocking the pond. Even so, it should also be inmmediatly apparent that, of the the 100 U.S. corporations with the highest CEO compensation, 75 paid their CEO LESS than they paid Uncle Sam in federal income taxes. Now that’s a real shame! 

On balance, I can’t determine if the authors were more pissed off because:
a. Corporate CEOs make a lot of money, or
b. Corporations don’t pay enough income tax, or
c. Both of the above.

Finally, for the life of me, I can’t understand why anyone would want to pay his money, or money he was charged with growing and/or preserving, to this “Uncle Sam” character.  Absent his Star-Spangled duds, “Uncle Sam” sure does remind me of an old pedophile that used to hang around the playground of my Elementary School.  God, his hands were cold!  Er, I mean that was the rumor.

@Shutter - pardon me; I mistook your “If only I could do likewise.” as an expression of envy and so approval, particularly as it was preceded by your remark that no one should be surprised at their behavior.

And I don’t think the articles authors “salted the mine”, if you will, by using the corporations with the highest-paid CEOs as their sample set.  Had they used the corporations with the lowest paid CEOs, the amount of income earned by that corporation and so the amount of tax dodged would likely have been a correspondingly lower number and so of less significance in our nation’s current fiscal crisis.

What I would conclude from the article is that a remarkable number of those individuals who are benefiting the most from the infrastructure and security afforded by the United States of America command the entities which they run to evade paying their share of the cost of providing them with that infrastructure and security.

It is the equivalent of the child who gets the most impressive gift from Santa walking up to the jolly old man and jack-slapping him.

The finance industry makes sure that both parties won’t lift a finger to plug that hole:

http://www.opensecrets.org/industries/indus.php?cycle=2012&ind=F

Whatever else, pragmatically speaking, the bottom line is that corporations were given a break for over a decade to make a difference.  The only difference they made was for themselves . . . they contributed nothing to the common good, including major job creation.

Any corporate CEO worth his or her salt would evaluate performance like that and immediately mandate corrective action.  Can we expect less from the CEO of our nation?

Tom Kurzenbaum

Sep. 27, 2011, 12:51 a.m.

These revelations make me want to vomit. DISGUSTING!  Was wiped out by Hurricane Katrina, but dutifully paid the taxes and penalties after using my OWN 401K and IRA monies to make myself whole again. Guess I need to hire a Kstreet lobbying firm and some shrewd tax attorneys for Fair treatment.

Walter D. Shutter, Jr.

Sep. 27, 2011, 8:18 a.m.

ibsteve2u:

Of course the authors salted the mine.  The purpose of the article, after all, was to point out that some U.S. corporations pay their CEOs more compensation than they pay Uncle Sam in federal income tax. Obviously, some do.  However, it should be equally apparent that, had the authors examined a random sample of U.S. corporations, instead of the 100 U.S. corporations with the highest CEO compensation, they would have found fewer, if any, examples of what they were so obviously looking for. 

About corporations: The corporate structure separates the ownership(shareholders) of the entity from the management function which the shareholders delegate to the corporate officers,i.e.the CEO and his subordinate employees. The corporate model also separates the owners from ultimate liability.  Thus, should the corporation become insolvent, the shareholders may lose their investment in the corporation but will not be personally liable for the corporation’s debts and, if unable to pay those debts, wind up in debtor’s prison
as in the halcyon days of yore.
Your standard corporation is not created to provide employment or to pay its"fair share” in taxes.  The “job”, if you will, of the corporation is to legally make as much money for its owners, the shareholders, as it possibly can.  The “job” of the corporate officers is to so manage, within the law, the activities of the corporation to accomplish that goal. And it necessarily follows that legally minimizing tax payments to the government and thus increasing the amount of profit available for distribution to the shareholders is a legitimate corporate activity.

A word about tax evasion v. tax avoidance:  Tax evasion is illegal; tax evasion is not.

Well, reading these comments, I have to say you are all right..

Tom:  It is all so very disgusting, but It is how our Congress and Tax code works, sadly so.

Sal:  This is part of the Great Individualism (selfish gene) that is
celebrated in the GOP these days at the expense of all else, or the common good.

ibsteve2u:  Yes, it is tax dodging (avoidance actually), but not evasion, and that is a fine distinction in our technical legal world that spawns so many lawyers and tax accounts. And you are right to point out the “Lie” that we are not all Pavlovian dogs that only respond to more or less tax incentives. Are you making a profit for writing this? Without that motive, why would you bother?  I joke.

Walter:  Yes, surprise, surprise, every news story has a POV and narrative, but that doesn’t make it wrong.

Amber:  You are correct, It is so very depressing, and I certainly am glad ProPublica sheds light on the subject for us to consider it.  I could just watch NBC nightly news instead of reading here, as there is an “happy talk” antidote.  I could find out that Ketchup now comes in larger package sizes and I wouldn’t be so depressed. If you haven’t seen that Brian Williams story, I am sure you can look it up at MSNBC, under news you can use, or something like that.  Now that is depressing!

Bill:  I hate to think that you are right, that nothing will Change.  But given the evidence of our political dysfunction, in a fatalistic sort of way, you are probably correct. Not cynical, are we?

Keith:  Not surprising at all, as you point out.  Corporations only interest and loyalty is to their shareholders, their Board, and their own salaries.  America, what’s that?  Just a place to move your articles of incorporation away from, to a more favorable territory overseas as it suits your profit need.  (Did you also read the Propublica story on tax arbitrage?  It is another informative read in the “most read” column under “Momentum builds for Global crackdown on tax loopholes”. )

Ron:  Well, you are right to remind us, but do we expect different of the GOP?  The Dems are the same.  All of Congress is beholden to the Corporate God. Or are they just a super supreme person with rights even better than ours?  I get confused.  Think I will ask the Supreme Court. Scalia, Roberts… “What do you think?”

and finally….

John:  Boy, You don’t know how right you are!!!  Ask the millions of middle class immigrants and Expats who have been severely impacted by the IRS net cast for Rich Evading Tax Cheats who have been hiding their funds in secret Swiss Bank Accounts.  That is the IRS narrative all the press reported, and we all supported that?  Right?  Sadly, no one in US media, or even here at Propublica is countering that narrative yet, so you wouldn’t know.  You would have to be reading Canadian news stories… Go to Google news and type in “Help I am on the IRS hit list”.  Now there is an eye opening story for you!  Propublica, why don’t you shed some light on this other depressing tax story? Amber and I want to be depressed some more… :)

Propublica…Thanks for the frustration outlet.

Unfortunately, this article is grossly inaccurate, both in its factual statements about the “check the box” regulations (a Clinton-era regulation, I might add) and about what happens to the taxation of income that passes through disregarded entities.

I encourage the authors of this article to revisit this topic in the near future, but only after having read a leading authority on the subject matter.  I recomment Boris I. Bittker & James Eustice, Federal Income Taxation of Corporations & Shareholders ¶ 2.02 (Warren, Goram & Lamont 2011).

Once fully apprised of all that you are presently clueless, I encourage you to re-author an article with proper substance.  You may email me, if you would like more information, or would like someone to review and comment on that article.

Amidst the hype, few focus on the 35% US corporate rate, among the highest globally.  I wonder why so many US based multi-nationals are motivated to defer tax?  Interesting how we can observe Canada to the north lower its Federal corporate rate to 18%, remove tariffs on certain equipment, and refuse to acknowledge the associated increase in economic activity while blaming our woes on the “wealthy”?

This article fails to illustrate how check-the-box is utilized to reduce the US effective tax rate, instead introducing the idea as an assertion.

Though utilized in reducing foreign effective tax rates, treaties and protocols have been amended to allow foreign tax authorities to look through the US structure via hybrid entity clauses to match the intended treaty withholding rates to the ultimate US ownership of the disregarded entities.

Eric,

I’m a tax professional and completely agree with your comments.  This article is just intentional demagoguery of corporations with foreign operations to grind a political ax.  It’s unfortunate to see such blatant distortion of the actual law masquerading as “public-interest” journalism.

Puleeeze! One can always make this election by filing a form. The IRS is just saving itself paper processing by allowing the box check. Taking away the box won’t change corporations’ choice of taxation. My very small corps choose to be disregarded because they can have the legal protection from lawsuits of a corporation while not having to file a whole separate corporate income tax return-which costs money they could spend instead on employees. They do pay higher Social Security taxes, so sometimes it’s better for them to elect to be an S corporation.

Russell J. Creely, CPA

Sep. 27, 2011, 12:33 p.m.

The check the box regulations allow a company to choose how to be taxed.  If they choose to be taxed as a disregarded entity, their earnings are reported directly on their owners’ tax returns.  While many of the abuses described may be occurring, these regulations do not help, or hinder, these abuses.  If money is not being repatriated and subsequently taxed, the problem is not in how the entities are taxed for Federal purposes, but how the international laws affect all the various legal entities and their requirements to repatriate income.  These regulations have provided a lot of efficiency in changing an entities’ form of taxation whcih allows the little guy to afford to play.  Don’t attack these regulations to deal with other problems.  And, please, don’t misconstrue these regulations to be the problem.

Fred, our corporate tax rate is similar to economic mainstay Japan and up-and-comers Argentina, Brazil, and India.  There are also some really unpleasant countries in the same category.  So it’s very likely that there isn’t much correlation between taxes and economic movement and cherry-picking is possible no matter what extreme is favored (as long as it’s extreme).

Karen, the problem is clearly not the paperwork itself or its valid uses, but rather the way it’s abused.

Hello John,

Am going to take some license and make assumptions about you, to help illustrate core philosophic differences.

a) How do similar corporate rates among some countries justify ignoring the flow of capital to lower tax jurisdictions?  Given equivalent market, HR, legal and management risk, $1M net profit at 18% vs 35% leaves $170,000 more cash to fund additional equipment, debt service, new employees, advertising, R&D or profits to owners.  Few in logical mind frame choose to pay additional tax when law allows otherwise.

b) “cherry-picking” is abuse?  That is the attitude I experience from most IRS examiners - maximum assessment, maximum tax because funding gov’t is the sum of existence - especially when you are paid by gov’t.  Welcome to the rule of law - all taxpayers are entitled (yes, society owes them) to minimize tax liabilities according to laws enacted.

Core in all is the presumption that cash in the hands of government is somehow better placed than in the private economy - a presumption that coincides with lack of private enterprise experience, lack of experiencing with risk obtaining a daily living, and willful disregard for gov’t waste and lack of accountability.

Back to the IRS - after taxpayers assert law they then talk about “intent” or “fairness” and other nebulous concepts - except when maximizing their assessment, when “law” returns.  Congress gets what they create - knee-jerk frequent changes to tax code to manipulate social behavior and cover spending habits - creates loopholes.  The US Congress could not create a flat tax - impossible - in 6 months it would be tweaked and altered.  Equity, consistency and fairness are rarely reflected in tax law, so why are constituents expected to advance the same at their expense?  So they can fund loans to unaccountable green energy developers, politically motivated research or grants, and further expansion of the CFR?

I have the same cynicism with the $10B estimate of lost revenue slapped into this article.  Treasury had a similar estimate of loss revenue from small businesses running via S-corp rather than proprietorship form.  So taxpayers chose not to pay the maximum amount of tax?  Imagine that…

Actually, the opposite is true.  The check the box election allows the foreign income to be taxed currently rather than being deferred under the normal deferral of foreign source operating income.  It simplfies the US tax reporting.  Further, for treatment of foreign sourced income, the US “same-country” rules generally prohibit the ability to to “tax shopping” as you suggest.  And finally, the foreign source countries themselves are generally more prohibitive of moving income from the source country to a tax haven juristiction.  You article is very misleading and disappointing. 

The basis of US taxation of foreign subsidiary operations is that U.S. tax on operating income is deferred until the income is repatriated, brought back to the US.  Until the US decides to tax the world wide income of US resident corporations, this is a generous break for US companies to encourage them to invest abroad.

Need to address the definition of “American”. 

A corporation that is essentially a holding company headquartered in America with the majority of its production located offshore isn’t American regardless of the fact that it sells products in America and is, perhaps, listed on the NYSE or NASDAQ.

In my opinion.

And to think it’s OUR money that made these multi-national companies successful.  Our taxpayer dollars, our 401K contributions, our government money buying their services, funding their R&D, Americans buying and using their services.  Let them sell the companies overseas because they aren’t doing us a bit of good.  They’re simply draining U.S coffers.  Note to Congress:  Do Not Give Corporations a tax holdiay.  Corporate greed is bringing down the global economy and these multi-nationals can leave their tax-sheltered money where it is and go down with it.

Steve, I want to agree, but I feel like that reasoning frees them from U.S. law while allowing them to continue to lobby through shadow companies.

Don, “encourag[ing] them to invest abroad” has been dismantling this country’s economy by replacing banana republic slave labor (like the suicidal Chinese at Foxconn) for Americans making non-poverty wages.  Maybe we should, y’know, stop and “encourage them” to invest in their own country.

Fred, my point on “cherry picking” was that anybody can look at a list of corporate tax rates around the world ignoring the unsupporting data, and say, “ah, look, corporate taxes help/hinder the economy.”  If you look at the entire list, though, you see that there’s not much correlation at all.

That’s not to say that the government “deserves” the money.  Recent history has shown that they’ll just spend it on blowing up Middle Eastern villages, give guns and drugs to dangerous criminals on our streets, and…hand enormous taxpayer-funded checks to private industry that has mismanaged itself into oblivion rather than make products people want to buy.

By contrast, though, the multinational megacorporations have used their money to wipe out the job market in their alleged home country, skirt regulations to pollute, and manufacture bubble after bubble to swindle Americans out of their remaining money.  So the money isn’t much better in their hands.

I believe in a free market, but only one where the participants follow the law (in spirit and in letter) and help fund the government that protects that freedom.

(Mind you, I also believe in a big government, but not one that isn’t outright terrified of the people’s power over them.  Right now, just like with the market that has no interest in law, we have the former but not the latter.)

Now, you can argue that a corporation only has limitted power, but that’s not necessarily true except in a mathematical sense.  Among Apple users, some Apple policy has effective control of everything you do from who you can contact to what you can read or listen to.  Disney has an enormous marketshare and a vertical monopoly, owning the TV stations you watch, the studios that produce the programming, the talent that creates it, and the merchandising companies that make sure you’re aware of the brand.

With that much power concentrated in a private entity (and Apple wants more, as their recent lawsuits show, trying to keep anybody from competing with them on merit…and just wait until you see what Microsoft has planned for next year), the government needs to protect the free market or abandon hopes of progress, no?  Personally, I much prefer taxation their absurd profits over the giant cartoon mallet of anti-trust regulation.

Where is the empirical support for this article?  Rather than being sensational and “playing to the base”, put down some real examples and numbers:  show me the structures and how check the box provided something that wasn’t already there.  (Truth be told, CTB simply was the tax lawyer’s negative employment act, serving to reduce the complexity in achieving something that could have always been achieved but with countless hours billed at high rates.)  And for those of you in the US, remind me again HOW foreign tax arbitrage hurts America?  Ask the IRS to come clean: how happy will they be to credit taxes paid to a foreign government where the amount exceeds the amount otherwise payable under a CTB arbitrage structure.  I’m sure you’d be surprised with their candid response, assuming they were willing to let down their diplomatic facade to give you their true views.  (The answer: the more you pay to the foreign government, the less you will later be asked to pay to the US government.)  One last truth:  American companies invest where the growth is - now ask yourself, is that in the US (a relatively mature market) or is that Brazil, China, Russia, India or other emerging countries?  I’m pretty sure that powers that be at most companies are not looking at CTB as the impetus for their foreign growth - my guess is that they are looking for new customers and new frontiers.  The US isn’t the center of the world folks, so get over that post-WW2 mentality that suggests as much.  The Financial Times should be ashamed to be associated with this article.

...and yet the FT has thrown their weight behind this article…

In reading this article can anyone doubt that our government here in the US is run by corporate plutocrats. Maybe the current persistent depression is a blessing in disguise if it ultimately flushes out all that pollutes the system. The wealthy corporate interests have far more to loose.

@Steve Hunter:  Wish that were true.  The “wealthy corporate interests” created this depression by gutting America’s industrial infrastructure and great swathes of her service sector, transferring the difference between American wages and artificially lower offshore wages into their own pockets.

But in doing that, they opened up markets offshore to go along with production.  That is why they’re holding $2 trillion or so in profits they harvested offshore idle; they don’t need that money for day-to-day operations.

They’re not hurting at all, for they’ve accomplished their goal and cut the strings that bound their own welfare to that of the American people.  They now can blackmail the government of the United States of America into giving them what they want in exchange for mere promises on their part - promises that it is highly unlikely that they will ever fulfill.

Until the American people realize that they are in an antagonistic relationship with Corporate America’s owner/operators and use what power they have left to them to defend themselves in this war the right and their corporations launched 40 years ago (that long, now!), they’ll not have a prayer of going on the offensive and reclaiming America.

Until the American people do reclaim America, then they have only one reality:  Today is better than tomorrow will be.

What did you expect corporations to do when they can get away with something?  What kind of people do you think we are dealing with?  By the way, where is propublica’s reporting on the http://www.occupywallst.org protests in New York and other cities?  The corporate media, predictably, is pretending this isn’t happening.

@max - I think the focus of most of the corporate media since Reagan (“flood-up/trickle-down” economics of course unleashed their greed, too) has been to provide the sugar coating for the right’s poisonous pills.

So of course they’re not giving airtime to the protests…they don’t want the American people to know that they still have power - if they will only use it.

@ibsteve2u

I agree, and it will be awhile before more voters begin to see the connection between how the corporate media frames the news and their own situations, but it will happen eventually.  In the meantime, it might be fruitful if more voters see which corporations are openly working against them by backing extreme anti-middle class and working class candidates, e.g., Charles Schwab, Home Depot, and anything made by Koch Industries, with many more to follow.  We can vote year round with our wallets.  Consumer awareness and targeted boycotts have always been the twin 800-pound gorillas corporate crooks fear the most.  I know this excellent website does not want to become partisan, but when the richest 1% is constantly screwing the other 99% it has already transcended partisan politics.

@max - I couldn’t help but laugh…you see, it is my belief that ProPublica is doomed to be labeled “partisan” for the same reason that NPR and PBS were:  They tell the truth, and the truth is unfavorable to the right.

I forget…who was president in the mid nineties…....

@mike - Bill “I’m-a-Democrat-but-I’m-signing NAFTA-championing WTO for the PRC-signing DOMA-signing DADT-signing deregulation-signing everything-and-anything-else-the-Republicans-want-anyway” Clinton.

There are still a lot of Americans who think he was and is a Democrat.  Heck, the man apologized to Haiti for inflicting inequitable free trade on them...but hasn’t uttered so much as a whispered aside to the tens of millions of Americans he hurt.

And continues to hurt.

With or without check the box, any citizen, whether it’s an individual individual acting on his own behalf or a group of individuals acting collectively (aka a corporation), is going to try to minimize taxes paid to any jurisdiction.  Square one, the money belongs to the person or persons who earned it.  The money I (individually or as a corporation collectively) keep I directly invest in growing my business, I spend on consumables, I hire more employees.  The money I pay in taxes I have no control over and possibly only indirectly benefits me.

The check the box discussion should be held in the context of an overall measurement of how much revenue the government should be taking from the private sector.

The data suggests…no, the data insists that the best way to destroy a country is to listen to those who say a progressive tax structure is a bad thing.

http://www.motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph

For what happens when you begin replacing a progressive tax structure with a system that rewards greed such as “flood-up/trickle-down” economics?  The greedy only get greedier - and so you get today’s America.

Steve, I don’t know if I buy that particular argument (during the years I read Mother Jones, I found them more inflammatory than insightful on a lot of topics), but here’s a more straightforward approach:  Money ain’t linear.

If you’re making half what you need to survive, you can’t simply double your hours for the rest of your life, due to health, ethical, and relationship considerations.  What’s worse is that the burden isn’t limited to the individual, as we all pay for the poor’s healthcare and crime, and their strained relationships and isolation limit innovation.

Doubling your income likewise gives more than twice the influence in terms of what you can buy and cause through donation (especially in an era of relatively easy credit), not to mention additional advancement opportunities (even the most brilliant kids from the ghetto rarely go to MIT) and leisure time.

The shape of the curve is arguable, but it’s not a straight line, which is what a flat tax demands.  If it’s not straight, a flat tax says that we should raise the poverty line by X% while making the tax burden negligible to the purchasing power of the rich.

Mike, you bring up another point that I wish was another axis to the tax code:  If you’re expanding the economy, you shouldn’t be paying taxes to the same extent as someone drawing money from the economy.  Running a factory employing Americans is good.  Running a factory employing Chinese, not so good.  Taking trillions of dollars from Americans and using it as collateral to borrow more money to show how much money you have, or otherwise “making your money work for you,” very, very bad.

The government shouldn’t be taking much of anything from the guy selling better medical equipment or selling local foods, but I think the companies busily exporting jobs to banana republics and taking government handouts to lend money back to us at interest owe the taxpayer a bit more than 14-35% of their profits.

Max, the Occupy Wall Street coverage has been…well, decent, down here (lower New York) since the beginning, at least mentioned regularly.  It’s basically been treated like the Tea Party groups were, as a bunch of inarticulate extremists who are against spending money or something.

Interestingly, media treatment has been much more favorable on the local news than people talking about them.  I’m in an office of engineers who, at this very moment, are talking about how the banks and investors always get the shaft.  Yep.  Those poor little rich boys being harassed by the mobs getting maced on the bridge they were invited to use as a meeting area…

@John - while I will not dispute that your ability to dispute anything from anyone is indisputable, I would point out that I did not in any way, shape, or form argue for a flat tax.

Nor do I see any particular benefit in your defamatory attack upon Mother Jones; said attack struck me as an attempt to discredit the data presented without actually demonstrating any ability to discredit the data presented.

You show a tendency towards belittling every effort made at attaining serious and lasting change which suggests that your primary goal is the protection of the status quo…the gains the wealthy have attained through the wealth redistribution efforts launched by Reagan and reinforced by Bush.  Even your seemingly reluctant acceptance of an idea now and again strikes me as nothing more than throwing the dogs an illusory bone; the rarity of your agreement suggests that those ideas you directly or indirectly support would actually benefit you or someone you represent rather more than the American people.

At this point I would venture that there is a good possibility that you are involved - to one extent or another - with manufacturing or resource harvesting in America, for your philosophy appears to be libertarian-with-crumbs-for-the-People…that is, you seek to ensure that those with the most reap most of the benefits from any change, but you can perceive a benefit in permitting the masses to believe that something will “trickle down” to them.

Errr…I was agreeing with you, bolstering what I considered second-rate analysis from Mother Jones with basic math.

I don’t think I need to discredit their analysis, since it’s petty:  Wah, people want there to be more equity than there is, therefore someone should redistribute wealth actively.  That’s not data related to the topic, that’s using data selectively to support a religion.  And that’s why I no longer subscribe to them—if it’s about money or the environment, all honesty goes out the window in favor of placing blame and often agitating for control.

But you’re probably right.  I must be a Libertarian banker with a black mustache to twirl while I foreclose on widows and orphans who wants a businessman in office to allow Wall Street and Hollywood to overrun the country.  All people must be extremists, and you shouldn’t even acknowledge people from another camp unless you’re denouncing them.  It’s much safer, I’m sure, to imagine enemies everywhere and respond to anything you dislike with “lolll,” then accuse others of belittlement and divisiveness.

I mean, I can’t help but notice that you don’t engage in any conversation.  You proclaim, you accuse, you insult, and you invent backgrounds for people to argue against, but that’s about the extent of your apparent philosophy.  Is that how you support the American people?  Speaking as an American person, I get enough of that kind of support from Washington, so you can amp down a bit.

@john:  Sigh…let us strip away the dross from your response, and get right to what meat there is: 

“I don’t think I need to discredit their analysis, since it’s petty:  Wah, people want there to be more equity than there is, therefore someone should redistribute wealth actively.”

What is that, if not a demand that the status quo of active wealth redistribution - flood up, without trickle down - demonstrated quite ably by the Mother Jones data be continued?  Sure, you phrase it as an attack - but your intent is the continuance of the economic policies that are destroying the American middle class and so America.

Everything else you say is…misdirection.

Or you can actually read.  I know, it’s probably hard.

I agree with the idea.  I disagree with their petty, self-indulgent faux-analysis.  They are no more correct than a child suggesting that 16/64 is equal to 1/4 because you can cancel the 6 in both parts of the fraction.  Right answer, wrong reason.

The right reason is that progressive taxation is the least damaging to the people taxed and to the society, not because an average of polling numbers suggest that some subset of people would like it.

Democracy can’t be oppression by the majority, even when the oppressed happen to be rich.

Of course, you won’t get any of that.  You’ll see the word “right” and insult me again and tell me what I believe.  I forgive you, though.  You clearly don’t know any better.

Democracy can’t be oppression by the minority, even when the oppressors happen to be rich.

Given your “clever” turn of phrase, your thesis is that one group must be oppressed, then?

Walter D. Shutter, Jr.

Oct. 4, 2011, 3:14 p.m.

Overheard in the Shaolin Temple about 150 years ago:

QUESTION: “Master, our Emperor and his line have ruled this land for nearly a Millenium.  Can you tell me how long a Democracy would last?”

ANSWER:  “Good question, Grasshopper. A Democracy would last until the day the People discover that they have the keys to the Treasury in their pocket.”

Overheard on MSNBC last week:  “It’s settled then. The Rich must pay their Fair Share.”

You appear to deal in absolutes…absolutes which must conform with your desires to be acceptable to you.

I would merely point out that the United States of America was doing quite well - was, in fact, world-renowned as the land of opportunity - until around 1973.

At that point the Republicans sided with the OPEC nations of the Middle East against the American people and the United States of America - blocking all conservation and alternative energy measures - and then used the consequential economic shocks resulting from wildly variable and easily manipulated oil prices to inflict “flood-up/trickle-down” economics upon the American people.

And that - transforming the penalty for excessive greed into only more wealth - unleashed massive greed…driving the subsequent policies of deregulation, inequitable free trade, and yet more doses of “flood-up/trickle-down” economics.  Those policies, in turn, were highly effective as weapons of wealth redistribution…as exemplified, again, by the data contained within the Mother Jones article I referenced.  Which I will reference again for those who are late arrivals:

http://www.motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph

But the wealthy were not “oppressed” prior to Reagan; far from it.  They existed, they were getting wealthier, and more of them were popping up all of the time.  They in fact inflicted all of the suffering and destruction that they have inflicted upon America merely because they felt that they weren’t accumulating more wealth fast enough to please them. 

That is simply a fact that is observable in the subsequent behavior of the wealthy:  Once those policies were in place, those who held positions which enabled them to affect the flow of wealth promptly began diverting ever more wealth to themselves…I give you CEOs as one example.

I would tell you to conclude what you like from that, but your comments indicate that you’ve already reached conclusions that please you.

Sigh…I’m not sure why I bother trying to carry on a conversation.  You clearly have no interest in doing anything but bitching about inequality as if you’re the only one to ever notice.

Let’s review.

You stated that the Mother Jones data shows the “need” for progressive taxation, “the data insists that the best way to destroy a country is to listen to those who say a progressive tax structure is a bad thing.”  My point was that this data isn’t an viable argument unless you mean to merely punish the wealthy for being wealthy, whereas there is direct proof (actual proof in the mathematical sense) that flat taxation would be destructive.

For this, you branded me as supporting a flat tax, or at least standing in support of people who support the flat tax.  Somehow.  Despite holding the contrary viewpoint.

I pointed out that you’re suggesting taxing the rich merely because they’re rich, and because “people want it,” which is what the Mother Jones charts say.  For defending a minority against what’s straightforward prejudice (“they should carry a higher burden because there’s more of us”), your statement directly implies that not oppressing the rich directly leads to oppression by the rich.  If there’s another way to read your statement (“Democracy can’t be oppression by the minority, even when the oppressors happen to be rich”), it’s clearly too subtle for me.

Now you’re retreating to the mere fact that inequity exists and claiming that I’m denying it.

I can’t help but think that you’ve made me a proxy for some other argument you’re having or my mere existence reminds me of someone you hate.  Maybe you’ve decided that anybody who doesn’t agree with you 100% is an enemy to be destroyed.  I don’t know.  But it’s tired and I can’t imagine your weird vendetta is worth your time.  Do you need me to mail you a headshot to throw darts at or something?

As usual your intent is to protect the wealthy from any consequences for the damage they have inflicted upon America - hence your constant accusation that I’m advocating “taxing the rich just because they’re rich”.

That is, you propose to let the rapists off the hook for - as that data plainly shows - many (if not most) of the mega-wealthy of today are the the mega-wealthy of today because they have shafted the American people for 40 years and caused more damage to the United States of America than any of our recognized enemies in any of our wars with the exception of the Civil War.

Which is appropriate, for we again find a civil war raging in America:  The wealthy right against the American people and the United States of America.

As you have chosen to line up with the wealthy right against the American people, I conclude that you are correct:  There is no point in continuing this conversation.

@john:  By the way…I always appreciate those who assemble arguments concocted from my comments in such a way as to craft falsehoods out of thin air.

For example, you stated:  “For this, you branded me as supporting a flat tax, or at least standing in support of people who support the flat tax.”

This is page #1 of the comments…anybody who does a search on this page for the word “flat” will discover that I never so “branded” or accused you.

I find such flagrant distortions suggestive of willful deception; I would hope that the reader consider that when weighing your…arguments.

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