Corporate Profits Are Moving Offshore
By
William Cate
Published September 2004
[http://home.earthlink.net/~beowulfinvestments/]
[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
According to a study published in Tax Notes [http://www.taxanalysts.com/], between 1999 and 2002, American companies increased their profits taken in low tax countries by 68%. This means that American companies earned US$149 billion in profits that they took in eighteen tax haven countries. Taking profits in tax havens is a consequence of the increasing mobility of capital and the existence of sovereign nations with different tax systems. To do this study, Tax Notes analyzed the most recently available U.S. Commerce Department data.
Most American companies try to lower their taxes by setting up foreign subsidiaries and using internal lending so profits are taken primarily in tax havens and costs are incurred in high-tax countries. Techniques that shift profits to tax havens involve pushing the U.S. laws to their limit. However, they are currently legal and corporate officials are obligated to minimize taxes. There is no question but that the use of tax havens to lower tax rates makes investing offshore more lucrative than investing in the United States.
In 2002, fifty-eight percent of offshore profits are now taken in tax havens. Subsidiaries of U.S. corporations now generate profits mainly in tax havens rather than in locations in which they conduct most of their business. This offshore profits trend is expected to continue and by the end of this decade, over ninety percent of American's major company's' profits will be earned in tax havens. Similar trends can be found in Western Europe and in Asia.
The tax burden is being shifted from multinational corporations to individuals and purely domestic companies. The logical response for individuals is to use the same tax loopholes and move their liquid assets offshore to low-tax jurisdictions. The Prime Directive for domestic companies is to become international companies so that they can export their products and services overseas. Once they are doing business outside of the United States, these national companies qualify for all the tax benefits of any multinational corporation. If the trend continues, the only people paying income taxes will be the local barbershop, bakery and veterinarian. And even their after tax disposable income is likely to be moved offshore.
The European tax defense against corporate profits moving offshore has been the Value Added Tax (VAT). It taxes everything at every level of a product's production. It tends to increase the retail price of goods and makes those domestically manufactured noncompetitive on price with imports. And, the trend toward free trade continues, thus threatening the European Union's economic base. The major added obstacle for the U.S. in adopting the VAT policy is that most States rely on sales tax to partially sustain themselves. A VAT combined with sales tax would cause a recession.
If you share Corporate American's view that you are the best person to wisely spend your money, you'll follow Corporate America offshore. If you feel that Washington has a better grasp of your financial needs, leave your assets here.
To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website:
[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
About the Author
He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]