Published on 12-29-2010
Souce: Tax Prof Blog
Bloomberg
Bloomberg
by Jesse Drucker:
At the White House on Dec. 15, business executives asked President Obama for a tax holiday that would help them tap more than $1 trillion of offshore earnings, much of it sitting in island tax havens.
The money -- including hundreds of billions in profits that U.S. companies attribute to overseas subsidiaries to avoid taxes -- is supposed to be taxed at up to 35% when it’s brought home, or “repatriated.” Executives including John T. Chambers of Cisco Systems Inc. say a tax break would return a flood of cash and boost the economy.
The money -- including hundreds of billions in profits that U.S. companies attribute to overseas subsidiaries to avoid taxes -- is supposed to be taxed at up to 35% when it’s brought home, or “repatriated.” Executives including John T. Chambers of Cisco Systems Inc. say a tax break would return a flood of cash and boost the economy.
What nobody’s saying publicly is that U.S. multinationals are already finding legal ways to avoid that tax. Over the years, they’ve brought cash home, tax-free, employing strategies with nicknames worthy of 1970s conspiracy thrillers -- including “the Killer B” and “the Deadly D.”
Merck & Co Inc., the second-largest drugmaker in the U.S., last year brought more than $9 billion from abroad without paying any U.S. tax to help finance its acquisition of Schering- Plough Corp., securities filings show. Merck is also appealing a federal judge’s 2009 finding that Schering-Plough owed taxes on $690 million it had earlier brought home from overseas tax-free.
The largest drugmaker, Pfizer Inc., imported more than $30 billion from offshore in connection with its acquisition of Wyeth last year, while taking steps to minimize the tax hit on its publicly reported profit.
Disclosures in Switzerland and Delaware by Eli Lilly & Co. show the Indianapolis-based pharmaceutical company carried out many of the steps for a tax-free importation of foreign cash after its roughly $6 billion purchase of ImClone Systems Inc. in 2008.
“Sophisticated U.S. companies are routinely repatriating hundreds of billions of dollars in foreign earnings and paying trivially small U.S. taxes on those repatriations,” said Edward D. Kleinbard, a law professor at the University of Southern California in Los Angeles. “They devote enormous resources first to moving income to tax havens, and then to bringing those profits back to the U.S. at the lowest possible tax cost.”
With the exception of the Schering-Plough case, no authority has accused Merck or Pfizer or Lilly of paying less tax than they should have. While corporations have no obligation to pay any more than the legal minimum, “the question is what should that minimum be?” said Kleinbard, a former corporate tax attorney at Cleary Gottlieb Steen & Hamilton LLP and former chief of staff at the congressional Joint Committee on Taxation.
U.S. companies overall use various repatriation strategies to avoid about $25 billion a year in federal income taxes, he said
Dear Doctor Ramirez: We should develop more incentives to attract US corporations to repatriate more of offshore funds to float again in our economy. Do you remember when Puerto Rico was the Pharmaceutical Center of the World? Remember when these corporations repatriated billions of offshore earnings and created more jobs in the Island and the Mainland because of Section 936 of the USA Internal Revenue Code that provided the incentive? Remember how healthy and strong was our the Financial Sector in PR because 936 companies started bringing billions of dollars to PR? Remember when a portion of these funds were to be used to better the economies of the Caribbean and Central America? It was suppose to create jobs in these economies for the better of its people? Let us go back and bring back what proved to benefit both, the corporations [and its investors] and the citizens of the USA and Puerto Rico? I was part of those glorious years that we saw true growth in the PR economy and billions of dollars returning to our USA of America! Political issues killed what was working! JE Torres,
ReplyDeleteSi pepe!
ReplyDeleteRepeating the myth of the benefits of section 936 does not make it true.
Most of 936 just switched to the CFC section. The old benefits of 936 were mainly for the bankers with cheap funds and the highest interest loans on the nation. What we have is American citizens suffering the discrimination of the colonial status just for the benefits of a few fat cats and their local political marionettes.