corporate taxes

House Passed Bill Which Closes the "Offshore Outsourcing" International Corporate Tax Scheme

A little observed provision to remove the tax incentives to offshore outsource your job was passed last Friday by the House of Representatives in the American Workers, State, and Business Relief Act of 2010 bill.

The legislation ties corporate revenues directly to the foreign tax credit. If passed, no longer can a corporation claim credits for foreign taxes yet park the actual profits made offshore in a low tax country. Previously corporations claimed the foreign tax credits, yet only to reduce their U.S. tax liability. The actual foreign revenues were not repatriated into the United States. If one obtains tax credits yet doesn't have to actually pay tax on profits accrued offshore, this encourages the movement of capital, assets and production overseas, including jobs.

In White House Semi-English:

How To Avoid Paying Taxes, if you are a Multinational Corporation that is - Transfer Pricing

Bloomberg has an amazing overview on transfer pricing, via an upcoming paper by Economist Kimberly Clausing. It is estimated $60 billion dollars in corporate taxes are avoided through this technique and $1 trillion dollars in profits are parked offshore, much of which is to avoid paying taxes.

The nutshell of the technique is to attribute sales in one country to profits in another.

The system allows for creating paper transactions between subsidiaries of the same company to allocate expenses and profits to selected countries. For instance, when technology firms license their patents to offshore subsidiaries in low-tax countries, profits from sales overseas are booked to the foreign units, not the U.S. parents. The tax savings add to profits.

U.S. tax laws have sought to regulate transfer pricing in various forms since 1921. Treasury Department regulations in 1968 created standards for pricing inter-company transactions. Thousands of pages of rules have followed, and the tax code was amended in 1986 because of concerns that companies were shifting profits from the U.S.

Obama's Offshore Outsourcing Corporate Tax Code Change has no impact on offshore outsourcing vendors

You're going to love this one. According to Ernst & Young, Obama's majorly hyped tax incentive he's planning on plugging, which gives an incentive to offshore outsource your job, all of those offshore outsourcing companies will not be affected in the least. Nice huh? All U.S. corporations have to do is create a separate business entity and then contract with that entity to offshore outsource your job.

Can you spell LOOPHOLE?

Domestic business process outsourcing (BPO) units providing services to the American companies will not be affected by the proposed decision of US President Barack Obama to discourage outsourcing by imposing taxes, said global consultancy firm Ernst & young.

Obama/Geithner/Summers Betray America's Trust

The chorus of naysayers to the Obama administration's response to our economic crisis must be raised to deafening levels. There is little time to waste, even if our government may already be bought and paid for by the financial elites. That does not mean that the citizens must go down quietly or meekly.

Earlier today, Robert Oak highlighted an effort to urge Obama to reconsider his policies with respect to the mega-bank bailouts. For me, one of the most important parts of this appeal is:

IRS Might Tighten Transfer Pricing Rules on Multinational Corporations

A potential tightening of some rules which enable multinational corporations to lower their U.S. tax bill seems to be in the works.

I.R.S. May Tighten Rules:

The Internal Revenue Service is considering a plan to curb a tactic commonly used by multinational corporations with American operations to lower their tax bills, a move that would help bring back some of the billions of dollars in taxable profits held overseas.

The plan was described on Wednesday by two government officials briefed on the matter, who spoke on the condition of anonymity because they said the plan was still in its early stages.