H. Jacob Lager

Archive for December, 2012|Monthly archive page

Close Offshore Loopholes to Ease Fiscal Cliff?

In Business tax rate, Business tax rates, U.S. Tax policies on December 14, 2012 at 9:08 am

Fiscal cliff

The best part of writing about taxes is that there is no shortage of current events to chew on.

So I completely missed writing about Romney’s offshore carried interests.  That election is so Fall, 2012.  Mitt who?  What people really want to know about is the Fiscal Cliff!  (Cue ominous musical score).

The “Fiscal Cliff” is a phrase that summarizes the sum total of tax increases and spending cuts that are scheduled to take place on January 1, 2013 if Congress and the President don’t act to change the existing laws by the end of 2012.  At the time of the “Debt Ceiling Crisis” of 2011, the Cliff seemed at once (a) a good way to reassure foreign lenders and (b) something we could surely avoid by acting within the next two years. 

Well, now that we are less than three weeks away from falling off the Cliff, what does any of this have to do with international taxes?

Nothing right now, actually.

But there are sure a lot of people who think that all our Cliff stress could be eased by closing all those foreign loopholes big nasty corporations use to avoid paying US taxes.  The latest to join this chorus is non-profit organization US Public Interest Group (USPIRG), which claims that offshore manipulation “costs the federal government an estimated $150 billion in tax revenue each year.”  According to USPIRG, all we need to do close all those loopholes and we’ll actually have more than enough to “cover the $109 billion in automatic spending cuts” that will happen if (when?) we fall off the Cliff.

Sounds great.  But what are the actual “loopholes” that USPIRG thinks we need to close?  Well, that’s where it the article is a little . . . er, scant?  USPIRG cites three maneuvers by three well-known multinationals that should be undone:

  • Google’s use of the so-called “double Irish” and the “Dutch sandwich” structures which reportedly reduced its tax bill by $3.1 billion between 2008 and 2010.
  • Wells Fargo’s payment of no federal income taxes between 2008-2011 “due to its use of 58 offshore tax haven subsidiaries.”
  • Microsoft’s avoiding $4.5 billion in taxes by “artificially shift[ing] its income to tax-friendly Puerto Rico.”

So is all this true?  Over the next three weeks, I’m going to explore each of the above maneuvers and we’ll see just how these work and (maybe) how they can work for your business.

In the meantime, I’ll keep on eye out for that Fiscal Cliff.

My one bold prediction?  Not a good time to rely on Congress to reinstate the “active financing” exception.


Photo by Jim Moran.