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
increasing mobility of capital and existence of sovereign nations with different tax systems. To do this study, Tax Notes analyzed 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 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 use of tax havens to lower tax rates makes investing offshore more lucrative than investing in 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 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 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 United States, these national companies qualify for all tax benefits of any multinational corporation. If trend continues, only people paying income taxes will be local barbershop, bakery and veterinarian. And even their after tax disposable income is likely to be moved offshore.
