CORPORATE POLITICIANS ARE NOW MOVING ALL PUBLIC REVENUE TO MAXIMIZING CORPORATE PROFITS. LET'S LOOK AT THE TAX CODE TO SEE WORKING AND MIDDLE-CLASS MADE TO PAY MORE BECAUSE CORPORATIONS ARE PAYING NOTHING AND IN FACT USING TAXES IN PROFIT-MAKING.
WHILE DISMANTLING PUBLIC SERVICES AND HANDING PUBLIC ASSETS TO CORPORATIONS ------THE PUBLIC IS INCREASINGLY BECOMING THE DEEPLY POOR RELIANT ON GOVERNMENT HANDOUTS FOR BASIC NEEDS.
AS WALL STREET COLLECTION AGENCIES ARE INFUSED THROUGH ALL PUBLIC AGENCIES TAPPING MORE PUBLIC WEALTH IN FEES, FINES, AND OUTRIGHT FRAUD -------THE PUBLIC JUSTICE SYSTEM THAT HOLDS WHITE COLLAR CRIME AND CORPORATE TAX EVASION ACCOUNTABLE IS BEING COMPLETELY DISMANTLED.
The Trans Pacific Trade Pact will have all US government reporting to global corporate tribunals which will write all public policy, decide how law is enforced, will extract ever higher taxes, fees, and rates from people living in a corporate state. The building of this structure starts by centralizing all power of public policy and justice to the executive offices-----mayor, county executive, governor, and President and away from legislative bodies and the courts. This is why you see so many 'commissions' that make vital decisions all appointed by these executives. When you have corporate public executives you have corporate appointments to commissions and hence no public policy in the public interest. THIS IS A DELIBERATE BUILDING OF GOVERNMENT STRUCTURE AWAY FROM OUR NORMAL DEMOCRATIC PROCESS. When a governor and state assembly simply tell a court that awards damages to citizens that the state will not pay those damages.....you see the court system undermined.
That mayor, county executive, governor, and President is reporting and taking action from this global corporate tribunal and not you and I.
Let's look how the rich and corporations are now not only paying no taxes but the taxes you and I pay go right to the pockets of corporations. I have talked at length about corporate subsidy at all levels of government. Maryland raised taxes across the board through the Erhlich/O'Malley terms to augment this corporate subsidy. Now, they are passing the estate tax break which allows the same people enriched from the massive corporate frauds to keep their loot.
REPATRIATION OF GLOBAL CORPORATION TAX REQUIREMENTS.
Obama made a mantra of holding corporations accountable and reversing wealth inequity and we see has done the complete opposite. Below we see the most important corporate tax issue------how to extract tax revenue from US global corporations working in the US and controlling all of our public policy yet not paying a cent in corporate tax. Why is it important for corporations to pay taxes? THEY USE LARGE SECTORS OF THE PUBLIC INFRASTRUCTURE.....OF ENERGY AND PUBLIC SERVICES.....THEY BENEFIT FROM OUR PUBLICLY EDUCATED CITIZENS......AND ARE PROTECTED IN COURT BY OUR PUBLIC JUSTICE SYSTEM. Corporations use all of these public benefits 1000% more than a single individual. THAT IS WHY CORPORATIONS PAY TAXES. It is not a double-tax burden as opponents to corporate tax say. Keep in mind corporate tax designations like s-corporation status move much tax burden off to shareholders who now rarely pay taxes at all----because there is no accountability.
ALONG WITH SYSTEMIC CORPORATE FRAUD, IT IS THIS CORPORATE TAX EVASION MAKING OUR GOVERNMENT COFFERS EMPTY.
The big corporate tax issues of 2008 election were how the US would make US global corporations pay their fair share as most business moved to expanded global markets. US global corporations have spent these last years since the crash consolidating overseas and building overseas headquarters from which they operate yet they lord over all of us here in the US. IF THEY DO BUSINESS AND HAVE OFFICES IN THE US-----THEY MUST PAY TAXES. Since these corporations have left the US economy stagnant as they expand overseas the money earned and taxed has fallen dramatically, starving our government coffers. The effects of global markets and corporations on our domestic economy is STARK. We cannot maintain a democratic society with global markets.
The REPATRIATION TAX was meant to address these global market gains back when NAFTA passed with Reagan/Clinton. Don't worry they said----we will make sure all that money gained overseas brings revenue to our government coffers. Then, they wrote the law with so many loopholes that no money from overseas profits has come to the US-----US corporations have simply left those profits sit off-shore. So, the US loses billions of corporate tax revenue each year because neo-liberals with a super-majority in Congress ignored all policy issues that would have held corporations accountable. Just think, this expansion since 2008 has almost all business executed by US corporations now overseas. This was the issue all democratic candidates for office ran with in 2008-----and then ignored. This is how you know your candidate is a neo-liberal.
THE US IS NOW LIKE A THIRD WORLD NATION THAT SIMPLY EXPORTS ALL MONEY RESOURCES AND KEEPS ITS OWN COUNTRY IMPOVERISHED.
Obama just offered up an override of the corporate repatriation tax of trillions of dollars in tax avoidance as a way to pay for infrastructure work. Obama cannot see the corporate fraud but he is an expert on giving trillions of dollars in corporate tax cuts. THAT'S A NEO-LIBERAL FOR YOU----WORKING FOR WEALTH AND PROFIT. Keep in mind this repatriation issue has existed since Clinton and NAFTA. When your pols allow a corporation to become too large to oversee-----they have failed the American people. The 2008 election was about reversing these policies and it was instead met with trillions of dollars in corporate tax breaks and FED policy that expanded these corporations ten fold.
REMEMBER, SIMPLY REINSTATING RULE OF LAW WOULD IMMEDIATELY DOWNSIZE ALL OF THESE GLOBAL CORPORATIONS. THIS IS WHY ELECTIONS HAVE BEEN CAPTURED TO MAKE SURE ANY CANDIDATE SEEKING TO DO THIS IS CENSURED.
Global corporations are now telling us they will repatriate these tax evasive profits at a 3.5% tax and Obama suggests this tax revenue will go right into infrastructure. Remember what infrastructure means----corporate infrastructure------gas pipelines and export terminals, high-speed rail and CSX cargo rails and bridges for example. Remember, the American people are paying huge amounts of money in taxes for the roads and high utility rates for water and sewage infrastructure. SO, neo-liberals are saying OK......let's bring in just enough to allow US global corporations to pay for their infrastructure development. See the parallel with Enterprise Zone corporate tax breaks-----any corporate taxes paid stays right in that Enterprise Zone maintaining corporate infrastructure.
Caterpillar dodged $2.4 billion in US taxes by booking 85% of its profits in Switzerland, where the company employs a mere .5% of its workforce and has zero factories or warehouses.
Dodging Repatriation Tax Lets U.S. Companies Bring Home Cash
By Jesse Drucker Dec 29, 2010 12:01 AM ET Forbes
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 percent 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.
Photographer: Joshua Roberts/Bloomberg John Chambers, chief executive officer of Cisco Systems Inc.
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.
‘Trivially Small Taxes’
“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.
‘Best of Worlds’
“The current U.S. international tax system is the best of all worlds for U.S. multinationals,” said David S. Miller, a partner at Cadwalader, Wickersham & Taft LLP in New York. That’s because the companies can defer federal income taxes by shifting profits into low-tax jurisdictions abroad, and then use foreign tax credits to shelter those earnings from U.S. tax when they repatriate them, he said.
They’re aided by a cadre of attorneys, accountants and investment bankers in the tax-planning industry -- such as a panel of KPMG LLP tax advisers who held forth in a chilly hotel ballroom at a Philadelphia conference last month. There, they discussed a series of techniques for multinationals to return cash from overseas while avoiding or deferring the taxes.
KPMG tax advisers Kevin Glenn and Tom Zollo used slides to describe several methods. One diagram resembled a schematic from the Manhattan Project. Another strategy would require certain “bells and whistles” to convince regulators of an actual non-tax business purpose, Glenn explained.
Cat and Mouse
Such maneuvers reflect a decades-long cat-and-mouse game. As regulators and lawmakers tighten the rules, companies seek new, legal methods for getting around them. One of the techniques the KPMG advisers discussed was in response to loophole-closers Congress passed in August to address a projected $1.4 trillion federal budget deficit. The changes will make it harder for companies to manipulate the credits they get for taxes paid overseas.
“Some of the best minds in the country are spent all day, every day, wheedling nickels and dimes out of the tax system,” said H. David Rosenbloom, an attorney at Caplin & Drysdale in Washington, D.C., and director of the international tax program at New York University’s school of law.
Chambers, Cisco’s chief executive officer, brought up a repatriation break during the White House meeting, according to a person familiar with the discussion. It could reprise a 2004 tax holiday that allowed multinationals to return profits to the U.S. at a tax rate of 5.25 percent. U.S. corporations brought home $362 billion, with $312 billion qualifying for the relief, according to the Internal Revenue Service.
Short-Term Fix
Such a move “is a short-term fix to a long-term problem, which is the uncompetitive U.S. tax structure,” said Cisco spokeswoman Jennifer Greeson Dunn. The San Jose, California-based company reported $31.6 billion of undistributed foreign earnings, on which it had paid no U.S. taxes, as of July 31.
President Obama, who campaigned in part against companies’ use of offshore havens to avoid U.S. taxes, asked Treasury Secretary Timothy F. Geithner to follow up on the issue with business leaders, according to a White House official who asked not to be identified because the discussions were private.
The argument that a new tax break for offshore earnings would generate a domestic stimulus “holds no water at all,” said Joel B. Slemrod, an economics professor at the University of Michigan’s school of business and former senior tax economist for President Reagan’s Council of Economic Advisers. U.S. companies are already sitting on a record pile of cash -- $1.9 trillion in liquid assets, according to Federal Reserve data.
‘Cash Hoards’
“The fact that they have these cash hoards suggests that investment is not being constrained by lack of cash,” Slemrod said.
U.S. multinationals boost earnings by shifting income out of the country via transfer pricing, a system that allows them to allocate costs to subsidiaries in high-tax countries and profits to tax havens. Google Inc., for example, cut its taxes by $3.1 billion in the last three years by moving most of the income it attributed overseas ultimately to Bermuda, Bloomberg News reported in October.
The tax benefits from such profit shifting can have a greater impact on share price than boosting sales or cutting other expenses, since the reduced rate goes straight to the bottom line, said John P. Kennedy, a partner at Deloitte Tax LLP, speaking at the conference in Philadelphia Nov. 3.
Boosting Share Prices
For a hypothetical company that has 1,000 shares outstanding, has pretax income of $5,000 and trades at 20 times earnings, cutting just 2 percentage points off the rate could drive the share price up $2, Kennedy said.
“You may think two bucks isn’t much, but when you’re the CFO and she has 100,000 options, that’s pretty interesting,” he said. He cited large pharmaceutical and biotech companies, including Merck, Amgen Inc. and Eli Lilly, which have reported effective income tax rates at least 10 percentage points below the statutory 35 percent rate.
The bottom line: The effective tax rate “is, and will continue to be, the metric that is used to judge your performance,” he told the audience of corporate tax accountants and attorneys.
U.S. drugmakers shift profits overseas far in excess of actual sales there. In 2008, large U.S. pharmaceutical companies reported about four-fifths of their pre-tax income abroad, up from about a third in 1997, according to a March article in the journal Tax Notes by Martin A. Sullivan, a contributing editor and former U.S. Treasury Department tax economist. Their actual foreign sales grew more slowly, to 52 percent from 38 percent.
Stranded Cash
Deloitte’s Kennedy warned that booking large portions of income overseas can mean “you are going to strand so much cash offshore that your business chokes.” That’s because the foreign profits cannot be used for such purposes as building domestic factories without triggering federal tax. Overall, U.S. companies reported more than $1 trillion in such “indefinitely reinvested earnings” offshore at the end of 2009, according to data compiled by Bloomberg.
Last year, Merck, based in Whitehouse Station, New Jersey, tapped its offshore cash, tax-free, to pay for just over half the cash portion of its $51 billion merger with Schering-Plough, according to company filings.
At the deal’s closing, Merck’s foreign subsidiaries lent $9.4 billion to a pair of Schering-Plough Dutch units. Then the Dutch companies used those funds to repay a pre-existing loan from their U.S. parent, securities filings show. The $9.4 billion ended up with Schering-Plough shareholders as part of the cash owed under the merger, according to the company’s disclosure.
No Tax Hit
Bottom line: Merck used its overseas cash to pay the former Schering-Plough shareholders -- with no U.S. tax hit. In considering whether companies owe taxes in such cases, the IRS often asks whether payments from an offshore unit constitute a dividend, which would be taxable.
In Merck’s case, it arguably could be, said Robert Willens, who runs an independent firm that advises investors on tax issues.
“Merck was obligated to pay Schering-Plough shareholders and they tapped into the funds of their overseas subsidiaries to do it,” he said. “You’d have to be concerned about a constructive dividend there.”
Merck objected to any characterization of the payment as a dividend. “We don’t think the characterization is accurate and we remain confident with our tax position,” said Steven Campanini, a company spokesman.
On Appeal
In the Schering-Plough case decided last year, the drugmaker brought home $690 million tax-free as a result of assigning its rights to income from a complex interest-rate swap to a foreign subsidiary in the 1990s. A judge found the company “failed to establish a genuine purpose for the transactions other than tax avoidance” and said Schering-Plough was not entitled to $473 million in back taxes in dispute. Merck is appealing the judgment.
Even when companies pay large tax bills to import their foreign profits, they find ways to minimize the impact on the earnings they show investors. Last year, New York-based Pfizer repatriated more than $30 billion from offshore to help pay for its $64 billion purchase of Wyeth, according to company disclosures and a person familiar with the transaction.
The acquisition created a so-called deferred tax liability on Pfizer’s balance sheet of about $25 billion, according to securities filings, in part to allow for an anticipated tax hit on the earnings that would be repatriated.
Impact Wiped Out
While bringing home more than $30 billion helped generate a $10 billion tax obligation, Pfizer was able to draw down $10 billion of its new deferred liability through its income statement. Doing so wiped out the tax impact of the repatriation on its earnings reported to shareholders.
So while the company paid a real tax bill to the U.S. government stemming from the repatriation, that tax payment had limited impact on its publicly reported profits.
Pfizer made use of a legal accounting quirk that allowed it to set up the deferred liability on its balance sheet, but reverse part of that liability through its income statement, said Edmund Outslay, a professor of tax accounting at Michigan State University.
“Had Pfizer repatriated these earnings independently of the purchase of Wyeth, it would have incurred a huge tax charge” on its income statement, Outslay said. “So through the magic of purchase accounting, you create an opportunity to bring this money home while mitigating its impact on your effective tax rate.”
Effective Tax Rate
Pfizer spokeswoman Joan Campion said the $10 billion tax hit was indeed erased on the income statement because of the accounting treatment, but noted that the company’s effective tax rate rose in 2009 in part because Wyeth’s overseas profits were repatriated to help finance the deal.
Other strategies based on acquisitions have achieved nickname status among corporate tax advisers.
The “Killer B” maneuver is named for section 368(a)(1)(B) of the Internal Revenue Code, which deals with tax-free reorganizations. A U.S. company using the technique would sell its shares to an offshore subsidiary, bringing cash back to the U.S. tax-free. The offshore unit could then use the stock to make an acquisition. In 2006, the IRS issued a notice aimed at shutting down the maneuver.
Using a Variation
International Business Machines Corp. used a variation on the technique in May 2007, with an offshore unit purchasing the shares from a trio of banks, according to a company securities filing. That permutation wasn’t covered by the IRS in 2006. Two days after IBM’s disclosure, the agency announced plans for additional rule changes addressing stock sales to subsidiaries from shareholders as well as directly from parent companies.
The “Deadly D,” also named for a section of tax law, allows a U.S. company to attach the high tax basis in a newly acquired company to one of its existing foreign units. In some cases, doing so enables the U.S. parent to pull cash from the subsidiary up to the amount of the recent purchase price tax-free. The Obama administration has proposed changing the provision that enables the maneuver.
Lilly closed on its purchase of ImClone in November 2008. The next month, the newly acquired company converted to an LLC and Lilly transferred the investment to its main Swiss subsidiary, Eli Lilly SA, according to disclosures in Switzerland and Delaware. The transfer was in exchange for a $5.8 billion note payable to the U.S. parent company due at the end of 2011.
Extracting Earnings
Willens, the independent tax adviser, said the steps indicated a likely D reorganization, or another method “to extract earnings from overseas without tax consequences -- of course.” Lilly had no comment beyond its filings, said David P. Lewis, the company’s vice president for global taxes.
The KPMG panel discussion in Philadelphia, called “Global Cash Tax Management Plans and Repatriation Planning,” dissected other techniques, including one that took six slides to explain. It works like this:
Soon after a U.S. multinational has purchased another U.S. company, the new unit promises to pay the parent a large amount of cash pursuant to a note agreement. Since both parties are U.S. companies, there is no tax bill for the parent under current U.S. law.
Then the new acquisition converts to a foreign company. So when the payment pursuant to the note is made, it comes from overseas. That means the foreign cash is treated as a nontaxable payment under the note, instead of a taxable dividend.
Going Offshore
The newly converted foreign subsidiary could access the multinational’s existing offshore cash by borrowing from a foreign sister unit, said Glenn, the KPMG tax partner. He and Zollo were joined by colleague Frank Mattei, as well as Don Whitt, a Pfizer tax official.
“This basic transaction is something that at least a couple of taxpayers have done, and I know a number of others have evaluated,” Glenn said. The strategy’s name follows the alphabetic tradition of Bs and Ds. It’s called “the Outbound F.”
______________________________________________
Remember, the biggest way of recovering massive corporate fraud is through direct taxation. This is what the Robin Hood----financial tax on banks was to do. Neo-liberals intend to cut all corporate taxes just as republicans they simply have to pretend they hate doing it. So, you hear all kinds of data pushed in the media that US corporations are uncompetitive because of high tax rates-----only, they do not pay those tax rates.
The media never points out as well that other nations have tax systems that capture corporate tax in other ways then income tax so actually other nations do tax their corporations as much and more that US corporations.
IT IS A LIE TO MAKE US CORPORATIONS SEEM AT A DISADVANTAGE FROM HIGH TAX RATES.
When your neo-liberal paints corporate tax reform as holding corporations accountable----they are lying to you. Any changes to corporate tax code will be loosely written for plenty of loophole avoidance.
STOP ELECTING NEO-LIBERALS WHO ONLY WANT TO BOOST CORPORATE PROFIT.
The Tax Repatriation Issue
By Matthew Yglesias Slate
The idea of a corporate income tax repatriation holiday seems to have fallen off Washington's political agenda for now, but since a lot of very rich well-known companies would benefit from it I imagine the idea will come back and in light of Apple CEO Tim Cook's remarks today I thought I should try to explain it.
The way the American corporate income tax works is that the actual location of the corporate income in question matters. So if Apple runs a subsidiary in Japan that earns huge profits selling iPhones to Japanese people, the federal government deems this none of the IRS' business. The tax is paid only on American income based on US-based operations. And obviously US-based multinationals are happy to not pay those taxes. The problem arises, however, because in order to use those profits to pay a dividend or acquire a US-based company you would need to bring those foreign profits home and pay taxes on them. This becomes a scenario where the high statutory rate of the corporate income tax makes a big difference. As we've seen before, thanks to extensive availability of loopholes and deductions the overall corporate income tax burden isn't very high. But the headline rate is 35 percent. That's kind of a big deal. If it was somehow possible for Congress to commit itself to never altering the corporate income tax, at some point the stockpiles of foreign cash would just get too ridiculous and firms would suck it up and pay the bill. But because everyone knows there's a chance that congress will either cut the corporate income tax rate or declare a temporary "repatriation tax holiday" the rational shareholder prefers to not get paid a dividend out of foreign earnings. Better to sequester the funds abroad and wait for President Romney to create a more favorable tax environment. So in a funny way, the fact that a tax holiday might happen ends up strengthening the case for doing a tax holiday.
More fundamentally it strengthens the case for corporate income tax reform and over the long term for finding a different, less distortionary form of revenue.
_________________________________________
Corporate politicians always use the idea of simplifying the tax code as a way to increase tax revenue paid by the rich and corporations. They always tie this sacrifice by corporations to ending a social program for example. Clinton famously did this when he ended Welfare and started to privatize public agencies. You see where this repatriation law went in exchange for huge losses to the public sector services and programs. This is what you are now hearing in Congress, the Maryland Assembly, and even locally in Baltimore. WE CANNOT AFFORD PUBLIC SECTOR WORKERS AND THEIR BENEFITS BECAUSE NO CORPORATE AND WEALTH TAXES ARE BEING COLLECTED. So, Doug Gansler and Heather Mizeur----running for Governor of Maryland use a Combined Reporting scheme for making corporations pay while privatizing all that is public and bashing public sector pensions and wages. Combined Reporting has been shown to be too expensive to implement and indeed states having these laws do not enforce them.
IT IS JUST A SCHEME USED TO MAKE IT APPEAR CORPORATIONS ARE PAYING THEIR FAIR SHARE.
Keep in mind that Maryland has absolutely no oversight and accountability in corporate and tax responsibilities as it is-----can you imagine the state actually building a structure that would hold corporations accountable in this complex fashion?
OF COURSE NOT----IT IS A PLOY FOR ENACTING EVER LOWER TAXES ON CORPORATIONS. THIS IS NOT PROGRESSIVE FOLKS!
'The definition of a "unitary business," which determines the entities that are part of the combined report, is notoriously imprecise and subject to controversy, resulting in the under-inclusion of entities; prolonged administrative and court disputes; and arbitrariness by the revenue department in seeking to include profitable entities but excluding loss entities'.
Combine reporting of corporate income taxes isn't a panacea for Maryland
May 31, 2013
Regarding your recent editorial on combined reporting for corporate income tax in Maryland, you argue that a switch to combined reporting in favor of a 0.65 percent decrease in the corporate rate would represent only a temporary "inconvenience" (How to make Md.'s taxes more competitive," May 9).
The Council On State Taxation, a trade association representing almost 600 corporations engaged in interstate commerce, including significant operations in Maryland, has found that combined reporting neither provides the panacea for perceived "hiding" of profits nor provides the "permanent" revenue benefit asserted in the editorial.
The editorial notes that combined reporting is "a decades-old idea that is the law in a majority of states." While it is true that combined reporting has spread from its mainly western confines to some eastern states, with the exception of West Virginia and Washington, D.C., the mid-Atlantic and South are otherwise devoid of this mandatory filing method.
Had the editorial page ever canvassed corporate tax departments, it would have found that combined reporting is not a short-term inconvenience. The definition of a "unitary business," which determines the entities that are part of the combined report, is notoriously imprecise and subject to controversy, resulting in the under-inclusion of entities; prolonged administrative and court disputes; and arbitrariness by the revenue department in seeking to include profitable entities but excluding loss entities.
The editorial cites the current anti-abuse provisions in the Maryland corporate tax law as an example of complexity. Rather, these provisions underscore that every reporting regime will be subject to scrutiny as to whether it creates opportunities for abuse; it is hardly an argument for why including every related entity under the uncertain unitary business standard, and determining taxable income for the "multi-state conglomerate," to use the words of the editorial, is no more difficult than determining the income of a single entity doing business in Maryland.
One need only look to California and Illinois to see prime examples of states with hopelessly complex combined reporting regimes that are constantly seeking revisions in response to other perceived "loopholes" in the law.
The editorial also asserts that combined reporting "seeks to more accurately calculate a corporation's economic activity in a state." This statement may well reflect the intent, but not the reality.
In practice, combined reporting may actually reduce the link between income tax liabilities and where income is earned. Combined reporting regimes vary across the states; it is fair to say that each state's system is unique. Combined reporting variables include what entities are included or excluded from the combined report; how inter-company transactions are handled; treatment of net operating losses and credits among group members; treatment of foreign income and expenses; and many more complex and arcane tax rules.
Perhaps the greatest variable is apportionment. This imprecise gauge of income attributable to the taxing state becomes even more inaccurate in combined reporting states, as states and taxpayers struggle with the proper inclusion of factors of numerous corporate and pass-through entities. Add on the tendency of taxpayers to exclude profitable entities and revenue departments to exclude loss entities and you get a pretty clear picture of how combined reporting works in the real world.
This leads to the main point of the editorial: revenue. The editorial makes the simplistic "trade-off" argument for a modestly lower corporate rate, saying that there would be some immediate and permanent revenue benefit from a combined reporting move.
In bad times, the Maryland Business Tax Reform Commission found, combined reporting would be a revenue loser. As profits continue to grow (hopefully), the Department of Legislative Services projects revenue gains. Ignore the uncertainties mentioned above that make this revenue spike anything but a certainty, especially in the early years after adoption, when compliance and enforcement will be in their fledgling stages.
Do Marylanders really think a demonstrably fluctuating revenue source will fund long-term tax relief for business? Or, more likely, would Maryland be saddled with a complex, anti-competitive, under-performing corporate tax regime the next time trouble approaches and the state looks to raise revenue?
Independent studies have shown that combined reporting at best is an uncertain proposition for raising revenue – it could just as well be a revenue loser (see, for example, the recent University of Tennessee study on the topic, cited in our opposition testimony to SB 469).
Further, the editorialists should remember that any tax increases will ultimately be borne by labor in the state, through fewer jobs (or lower wages over time), or by in-state consumers (through higher prices for goods and services).
The editorial also seems to embrace the idea that Maryland shouldn't try to compete for investment by larger businesses, instead looking to "start-up" companies for its future. Don't throw in the towel, Maryland! Go for both. Improve your business climate, including your tax regime. Demand performance for business tax breaks by all means. But don't embrace combined reporting as the panacea it isn't.
Douglas L. Lindholm, Washington, D.C.
The writer is president and executive director of the Council on State Taxation.
____________________________________
New Report: Fortune 100 Companies Have Received a Whopping $1.2 Trillion in Corporate Welfare Recently Military contractors, oil companies and banks are the biggest 'welfare queens' around.
March 19, 2014 | Alternet
Most of us are aware that the government gives mountains of cash to powerful corporations in the form of tax breaks, grants, loans and subsidies--what some have called "corporate welfare." However, little has been revealed about exactly how much money Washington is forking over to mega businesses.
Until now.
A new venture called Open the Books, based in Illinois, was founded with a mission to bring transparency to how the federal budget is spent. And what they found is shocking: between 2000 and 2012, the top Fortune 100 companies received $1.2 trillion from the government. That doesn't include all the billions of dollars doled out to housing, auto and banking enterprises in 2008-2009, nor does it include ethanol subsidies to agribusiness or tax breaks for wind turbine makers.
What Open the Book's forthcoming report does reveal is that the most valuable contracts between the government and private firms were for military procurement deals, including Lockheed Martin ($392 billion), General Dynamics ($170 billion), and United Technologies ($73 billion).
After military contractors, $21.8 billion was granted out to corporate recipients in the form of direct subsidies; literally transfers of cash from the pockets of Americans to major corporations. The biggest winners were General Electric (GE) ($380 million), followed by General Motors (GM) ($370 million), Boeing (BA) ($264 million), ADM ($174 million) and United Technologies ($160 million).
$8.5 billion in federally subsidized loans were also doled out to giant oil companies Chevron and Exxon Mobile, and $1 billion went directly to massive agri-business Archer Daniels Midland. Of course, the banks also got their piece of the pie: $10 billion in federal insurance went to Bank of America, Citigroup, Wells Fargo, JPMorgan Chase, not including any of the 2008 bailout money. Walmart enjoyed its share of federal insurance backing as well. Thanks to Open the Books, the curtain has been lifted and the whole country can now witness the great suckling of corporate America. As Open the Books founder Adam Andrzejewski put it: "Mitt Romney had it wrong: When it comes to the Fortune 100, it's 99%, not 47%, on some form of the government's gravy train."
_________________________________________
Republicans try their best to make it sound that most money in the Farm Bill goes to Food Stamps----but it is not true. What should disturb more people is that Americans are now overwhelmingly so poor as to be dependent on Food Stamps and this is what a third world society does----makes its people desperate for government food sources.
So, progressives would not be shouting as loudly for more Food Stamps then they would that too many Americans now depend on Food subsidies....ALL WHILE EACH CITIZEN IN AMERICA IS OWED A FEW HUNDREDS OF THOUSANDS OF DOLLARS IN CORPORATE FRAUD.
IF YOUR POL IS NOT DEMANDING JUSTICE FOR THE AMERICAN PEOPLE FROM MASSIVE CORPORATE FRAUD OF PUBLIC WEALTH-----THEY WORK FOR CORPORATIONS----GET RID OF THEM!!!!
Who Are the Real Welfare Queens?
55 Billion Goes to:
School lunch & breakfast programs
WIC (Women, Infants, & Children)
Food subsidies
Food stamps
Nutrition education
Other food and health programs
127 Billion Goes to:
Corporate funding (direct & indirect)
Grants to Fortune 500 companies
Big Agra subsidies (including sugar)
*****************************************************
Let's look beyond the direct corporate subsidy in the Farm bill to how Food Stamp revenue is spent. As health care reform pushes the poor out of health care access because -----'those people who are obese and/or have diabetes and heart disease brought it on themselves'-----we see the entire SNAP program has been driven by forcing people to buy the cheapest food sources that happen to be bad health choices but make corporations fabulously rich.
There is a movement to make SNAP more nutritious by promoting SNAP debit cards at farmers markets----this is good yet the 7-11 stores have SNAP signs that say they sell healthy food. We want people to have choice in what foods to buy----but if you have food deserts where the most people are on food stamps-----you are not really addressing the issue.
WHY DOES THE PUBLIC SECTOR NOT MAKE SURE THESE COMMUNITIES HAVE ACCESS TO GOOD FOOD WITH PUBLIC MARKETS? OH, THAT'S RIGHT-----WE ARE ELIMINATING THE PUBLIC SECTOR!
Also note that as shown above-----a super-sized majority of farm bill spending goes to US global agriculture and its infrastructure and profit-subsidy.....not small farmers.
Washington
7 Farm Bill 2013: Corporate Welfare on Steroids
Of course, when it comes to the ways of Washington, nothing is ever that simple.
The 2013 edition of the Farm Bill, which is the main federal legislation for setting U.S. food policy, passed the Senate last week and now moves on to the House.
First crafted during the Great Depression to help struggling farmers, the Farm Bill is renewed and modified every five years. Congress was supposed to renew it last year, but instead merely extended it in deference to the 2012 election.
This year's Farm Bill calls for spending of $955 billion over 10 years and is 1,150 pages long.
And yes, some of that nearly $1 trillion does go to programs that help farmers. But not much of it.
Nearly 80% goes to fund the food stamp program, otherwise known by the more politically correct name of "Supplemental Nutrition Assistance Program" (SNAP) it was given in 2008.
Yet what's most appalling about Farm Bill 2013 is how much it benefits dozens of large U.S. corporations, such as Wal-Mart Stores, Inc. (NYSE: WMT), Monsanto Co. (NYSE: MON), Kraft Foods Group Inc. (Nasdaq: KRFT) and Tyson Foods Inc. (NYSE: TSN).
Back in 2008, $173.5 million was spent on lobbying that year's farm bill, most of it by corporations eager to ensure that their subsidy gravy train wouldn't get derailed.
It was the second-most lobbying money ever spent on any U.S. legislation, falling short only of the $250 million spent on Dodd-Frank.
That kind of money buys top-of-the-line lobbying power.
"On the [2008] Farm Bill, special interests hired an army of well-connected lobbyists to press their case with Congress, including 45 former members of Congress, [and] at least 461 former congressional and executive branch staffers (including 86 that worked for former agriculture committee members or the U.S. Department of Agriculture)," noted a report on Farm Bill lobbying by Food & Water Watch.
It's little wonder that Farm Bills are chock full of corporate welfare.
Digging into Farm Bill 2013 -- Where the SNAP Money Ends Up While most Americans who receive SNAP benefits need them to get by, most of that money ends up in the hands of big, profitable corporations.
The Farm Bill 2013 allocates $760.5 billion to the food stamp program, and many corporations have gone to great lengths over the years to ensure their share of that pie is as large as possible.
One of the best examples is the soda industry. The Center for Science in the Public Interest estimated that $4 billion in SNAP money was spent on soda purchases in 2010 (this despite that the primary purpose of SNAP is to make sure low-income people can purchase nutritious food).
That's a significant incentive. And sure enough, two All-American companies - Coca Cola Co. (NYSE: KO) and Pepsi Co, Inc. (NYSE: PEP) -- helped get soda eligible for food stamps back in 1964, and continue to spend large sums on making sure it stays that way.
Back in 2008, Coca-Cola spent $513,000 lobbying the Farm Bill; Pepsi spent $437,000.
The fight to keep snacks and sodas on the list of SNAP eligibility is a running battle, and big corporations are definitely winning.
WHILE DISMANTLING PUBLIC SERVICES AND HANDING PUBLIC ASSETS TO CORPORATIONS ------THE PUBLIC IS INCREASINGLY BECOMING THE DEEPLY POOR RELIANT ON GOVERNMENT HANDOUTS FOR BASIC NEEDS.
AS WALL STREET COLLECTION AGENCIES ARE INFUSED THROUGH ALL PUBLIC AGENCIES TAPPING MORE PUBLIC WEALTH IN FEES, FINES, AND OUTRIGHT FRAUD -------THE PUBLIC JUSTICE SYSTEM THAT HOLDS WHITE COLLAR CRIME AND CORPORATE TAX EVASION ACCOUNTABLE IS BEING COMPLETELY DISMANTLED.
The Trans Pacific Trade Pact will have all US government reporting to global corporate tribunals which will write all public policy, decide how law is enforced, will extract ever higher taxes, fees, and rates from people living in a corporate state. The building of this structure starts by centralizing all power of public policy and justice to the executive offices-----mayor, county executive, governor, and President and away from legislative bodies and the courts. This is why you see so many 'commissions' that make vital decisions all appointed by these executives. When you have corporate public executives you have corporate appointments to commissions and hence no public policy in the public interest. THIS IS A DELIBERATE BUILDING OF GOVERNMENT STRUCTURE AWAY FROM OUR NORMAL DEMOCRATIC PROCESS. When a governor and state assembly simply tell a court that awards damages to citizens that the state will not pay those damages.....you see the court system undermined.
That mayor, county executive, governor, and President is reporting and taking action from this global corporate tribunal and not you and I.
Let's look how the rich and corporations are now not only paying no taxes but the taxes you and I pay go right to the pockets of corporations. I have talked at length about corporate subsidy at all levels of government. Maryland raised taxes across the board through the Erhlich/O'Malley terms to augment this corporate subsidy. Now, they are passing the estate tax break which allows the same people enriched from the massive corporate frauds to keep their loot.
REPATRIATION OF GLOBAL CORPORATION TAX REQUIREMENTS.
Obama made a mantra of holding corporations accountable and reversing wealth inequity and we see has done the complete opposite. Below we see the most important corporate tax issue------how to extract tax revenue from US global corporations working in the US and controlling all of our public policy yet not paying a cent in corporate tax. Why is it important for corporations to pay taxes? THEY USE LARGE SECTORS OF THE PUBLIC INFRASTRUCTURE.....OF ENERGY AND PUBLIC SERVICES.....THEY BENEFIT FROM OUR PUBLICLY EDUCATED CITIZENS......AND ARE PROTECTED IN COURT BY OUR PUBLIC JUSTICE SYSTEM. Corporations use all of these public benefits 1000% more than a single individual. THAT IS WHY CORPORATIONS PAY TAXES. It is not a double-tax burden as opponents to corporate tax say. Keep in mind corporate tax designations like s-corporation status move much tax burden off to shareholders who now rarely pay taxes at all----because there is no accountability.
ALONG WITH SYSTEMIC CORPORATE FRAUD, IT IS THIS CORPORATE TAX EVASION MAKING OUR GOVERNMENT COFFERS EMPTY.
The big corporate tax issues of 2008 election were how the US would make US global corporations pay their fair share as most business moved to expanded global markets. US global corporations have spent these last years since the crash consolidating overseas and building overseas headquarters from which they operate yet they lord over all of us here in the US. IF THEY DO BUSINESS AND HAVE OFFICES IN THE US-----THEY MUST PAY TAXES. Since these corporations have left the US economy stagnant as they expand overseas the money earned and taxed has fallen dramatically, starving our government coffers. The effects of global markets and corporations on our domestic economy is STARK. We cannot maintain a democratic society with global markets.
The REPATRIATION TAX was meant to address these global market gains back when NAFTA passed with Reagan/Clinton. Don't worry they said----we will make sure all that money gained overseas brings revenue to our government coffers. Then, they wrote the law with so many loopholes that no money from overseas profits has come to the US-----US corporations have simply left those profits sit off-shore. So, the US loses billions of corporate tax revenue each year because neo-liberals with a super-majority in Congress ignored all policy issues that would have held corporations accountable. Just think, this expansion since 2008 has almost all business executed by US corporations now overseas. This was the issue all democratic candidates for office ran with in 2008-----and then ignored. This is how you know your candidate is a neo-liberal.
THE US IS NOW LIKE A THIRD WORLD NATION THAT SIMPLY EXPORTS ALL MONEY RESOURCES AND KEEPS ITS OWN COUNTRY IMPOVERISHED.
Obama just offered up an override of the corporate repatriation tax of trillions of dollars in tax avoidance as a way to pay for infrastructure work. Obama cannot see the corporate fraud but he is an expert on giving trillions of dollars in corporate tax cuts. THAT'S A NEO-LIBERAL FOR YOU----WORKING FOR WEALTH AND PROFIT. Keep in mind this repatriation issue has existed since Clinton and NAFTA. When your pols allow a corporation to become too large to oversee-----they have failed the American people. The 2008 election was about reversing these policies and it was instead met with trillions of dollars in corporate tax breaks and FED policy that expanded these corporations ten fold.
REMEMBER, SIMPLY REINSTATING RULE OF LAW WOULD IMMEDIATELY DOWNSIZE ALL OF THESE GLOBAL CORPORATIONS. THIS IS WHY ELECTIONS HAVE BEEN CAPTURED TO MAKE SURE ANY CANDIDATE SEEKING TO DO THIS IS CENSURED.
Global corporations are now telling us they will repatriate these tax evasive profits at a 3.5% tax and Obama suggests this tax revenue will go right into infrastructure. Remember what infrastructure means----corporate infrastructure------gas pipelines and export terminals, high-speed rail and CSX cargo rails and bridges for example. Remember, the American people are paying huge amounts of money in taxes for the roads and high utility rates for water and sewage infrastructure. SO, neo-liberals are saying OK......let's bring in just enough to allow US global corporations to pay for their infrastructure development. See the parallel with Enterprise Zone corporate tax breaks-----any corporate taxes paid stays right in that Enterprise Zone maintaining corporate infrastructure.
Caterpillar dodged $2.4 billion in US taxes by booking 85% of its profits in Switzerland, where the company employs a mere .5% of its workforce and has zero factories or warehouses.
Dodging Repatriation Tax Lets U.S. Companies Bring Home Cash
By Jesse Drucker Dec 29, 2010 12:01 AM ET Forbes
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 percent 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.
Photographer: Joshua Roberts/Bloomberg John Chambers, chief executive officer of Cisco Systems Inc.
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.
‘Trivially Small Taxes’
“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.
‘Best of Worlds’
“The current U.S. international tax system is the best of all worlds for U.S. multinationals,” said David S. Miller, a partner at Cadwalader, Wickersham & Taft LLP in New York. That’s because the companies can defer federal income taxes by shifting profits into low-tax jurisdictions abroad, and then use foreign tax credits to shelter those earnings from U.S. tax when they repatriate them, he said.
They’re aided by a cadre of attorneys, accountants and investment bankers in the tax-planning industry -- such as a panel of KPMG LLP tax advisers who held forth in a chilly hotel ballroom at a Philadelphia conference last month. There, they discussed a series of techniques for multinationals to return cash from overseas while avoiding or deferring the taxes.
KPMG tax advisers Kevin Glenn and Tom Zollo used slides to describe several methods. One diagram resembled a schematic from the Manhattan Project. Another strategy would require certain “bells and whistles” to convince regulators of an actual non-tax business purpose, Glenn explained.
Cat and Mouse
Such maneuvers reflect a decades-long cat-and-mouse game. As regulators and lawmakers tighten the rules, companies seek new, legal methods for getting around them. One of the techniques the KPMG advisers discussed was in response to loophole-closers Congress passed in August to address a projected $1.4 trillion federal budget deficit. The changes will make it harder for companies to manipulate the credits they get for taxes paid overseas.
“Some of the best minds in the country are spent all day, every day, wheedling nickels and dimes out of the tax system,” said H. David Rosenbloom, an attorney at Caplin & Drysdale in Washington, D.C., and director of the international tax program at New York University’s school of law.
Chambers, Cisco’s chief executive officer, brought up a repatriation break during the White House meeting, according to a person familiar with the discussion. It could reprise a 2004 tax holiday that allowed multinationals to return profits to the U.S. at a tax rate of 5.25 percent. U.S. corporations brought home $362 billion, with $312 billion qualifying for the relief, according to the Internal Revenue Service.
Short-Term Fix
Such a move “is a short-term fix to a long-term problem, which is the uncompetitive U.S. tax structure,” said Cisco spokeswoman Jennifer Greeson Dunn. The San Jose, California-based company reported $31.6 billion of undistributed foreign earnings, on which it had paid no U.S. taxes, as of July 31.
President Obama, who campaigned in part against companies’ use of offshore havens to avoid U.S. taxes, asked Treasury Secretary Timothy F. Geithner to follow up on the issue with business leaders, according to a White House official who asked not to be identified because the discussions were private.
The argument that a new tax break for offshore earnings would generate a domestic stimulus “holds no water at all,” said Joel B. Slemrod, an economics professor at the University of Michigan’s school of business and former senior tax economist for President Reagan’s Council of Economic Advisers. U.S. companies are already sitting on a record pile of cash -- $1.9 trillion in liquid assets, according to Federal Reserve data.
‘Cash Hoards’
“The fact that they have these cash hoards suggests that investment is not being constrained by lack of cash,” Slemrod said.
U.S. multinationals boost earnings by shifting income out of the country via transfer pricing, a system that allows them to allocate costs to subsidiaries in high-tax countries and profits to tax havens. Google Inc., for example, cut its taxes by $3.1 billion in the last three years by moving most of the income it attributed overseas ultimately to Bermuda, Bloomberg News reported in October.
The tax benefits from such profit shifting can have a greater impact on share price than boosting sales or cutting other expenses, since the reduced rate goes straight to the bottom line, said John P. Kennedy, a partner at Deloitte Tax LLP, speaking at the conference in Philadelphia Nov. 3.
Boosting Share Prices
For a hypothetical company that has 1,000 shares outstanding, has pretax income of $5,000 and trades at 20 times earnings, cutting just 2 percentage points off the rate could drive the share price up $2, Kennedy said.
“You may think two bucks isn’t much, but when you’re the CFO and she has 100,000 options, that’s pretty interesting,” he said. He cited large pharmaceutical and biotech companies, including Merck, Amgen Inc. and Eli Lilly, which have reported effective income tax rates at least 10 percentage points below the statutory 35 percent rate.
The bottom line: The effective tax rate “is, and will continue to be, the metric that is used to judge your performance,” he told the audience of corporate tax accountants and attorneys.
U.S. drugmakers shift profits overseas far in excess of actual sales there. In 2008, large U.S. pharmaceutical companies reported about four-fifths of their pre-tax income abroad, up from about a third in 1997, according to a March article in the journal Tax Notes by Martin A. Sullivan, a contributing editor and former U.S. Treasury Department tax economist. Their actual foreign sales grew more slowly, to 52 percent from 38 percent.
Stranded Cash
Deloitte’s Kennedy warned that booking large portions of income overseas can mean “you are going to strand so much cash offshore that your business chokes.” That’s because the foreign profits cannot be used for such purposes as building domestic factories without triggering federal tax. Overall, U.S. companies reported more than $1 trillion in such “indefinitely reinvested earnings” offshore at the end of 2009, according to data compiled by Bloomberg.
Last year, Merck, based in Whitehouse Station, New Jersey, tapped its offshore cash, tax-free, to pay for just over half the cash portion of its $51 billion merger with Schering-Plough, according to company filings.
At the deal’s closing, Merck’s foreign subsidiaries lent $9.4 billion to a pair of Schering-Plough Dutch units. Then the Dutch companies used those funds to repay a pre-existing loan from their U.S. parent, securities filings show. The $9.4 billion ended up with Schering-Plough shareholders as part of the cash owed under the merger, according to the company’s disclosure.
No Tax Hit
Bottom line: Merck used its overseas cash to pay the former Schering-Plough shareholders -- with no U.S. tax hit. In considering whether companies owe taxes in such cases, the IRS often asks whether payments from an offshore unit constitute a dividend, which would be taxable.
In Merck’s case, it arguably could be, said Robert Willens, who runs an independent firm that advises investors on tax issues.
“Merck was obligated to pay Schering-Plough shareholders and they tapped into the funds of their overseas subsidiaries to do it,” he said. “You’d have to be concerned about a constructive dividend there.”
Merck objected to any characterization of the payment as a dividend. “We don’t think the characterization is accurate and we remain confident with our tax position,” said Steven Campanini, a company spokesman.
On Appeal
In the Schering-Plough case decided last year, the drugmaker brought home $690 million tax-free as a result of assigning its rights to income from a complex interest-rate swap to a foreign subsidiary in the 1990s. A judge found the company “failed to establish a genuine purpose for the transactions other than tax avoidance” and said Schering-Plough was not entitled to $473 million in back taxes in dispute. Merck is appealing the judgment.
Even when companies pay large tax bills to import their foreign profits, they find ways to minimize the impact on the earnings they show investors. Last year, New York-based Pfizer repatriated more than $30 billion from offshore to help pay for its $64 billion purchase of Wyeth, according to company disclosures and a person familiar with the transaction.
The acquisition created a so-called deferred tax liability on Pfizer’s balance sheet of about $25 billion, according to securities filings, in part to allow for an anticipated tax hit on the earnings that would be repatriated.
Impact Wiped Out
While bringing home more than $30 billion helped generate a $10 billion tax obligation, Pfizer was able to draw down $10 billion of its new deferred liability through its income statement. Doing so wiped out the tax impact of the repatriation on its earnings reported to shareholders.
So while the company paid a real tax bill to the U.S. government stemming from the repatriation, that tax payment had limited impact on its publicly reported profits.
Pfizer made use of a legal accounting quirk that allowed it to set up the deferred liability on its balance sheet, but reverse part of that liability through its income statement, said Edmund Outslay, a professor of tax accounting at Michigan State University.
“Had Pfizer repatriated these earnings independently of the purchase of Wyeth, it would have incurred a huge tax charge” on its income statement, Outslay said. “So through the magic of purchase accounting, you create an opportunity to bring this money home while mitigating its impact on your effective tax rate.”
Effective Tax Rate
Pfizer spokeswoman Joan Campion said the $10 billion tax hit was indeed erased on the income statement because of the accounting treatment, but noted that the company’s effective tax rate rose in 2009 in part because Wyeth’s overseas profits were repatriated to help finance the deal.
Other strategies based on acquisitions have achieved nickname status among corporate tax advisers.
The “Killer B” maneuver is named for section 368(a)(1)(B) of the Internal Revenue Code, which deals with tax-free reorganizations. A U.S. company using the technique would sell its shares to an offshore subsidiary, bringing cash back to the U.S. tax-free. The offshore unit could then use the stock to make an acquisition. In 2006, the IRS issued a notice aimed at shutting down the maneuver.
Using a Variation
International Business Machines Corp. used a variation on the technique in May 2007, with an offshore unit purchasing the shares from a trio of banks, according to a company securities filing. That permutation wasn’t covered by the IRS in 2006. Two days after IBM’s disclosure, the agency announced plans for additional rule changes addressing stock sales to subsidiaries from shareholders as well as directly from parent companies.
The “Deadly D,” also named for a section of tax law, allows a U.S. company to attach the high tax basis in a newly acquired company to one of its existing foreign units. In some cases, doing so enables the U.S. parent to pull cash from the subsidiary up to the amount of the recent purchase price tax-free. The Obama administration has proposed changing the provision that enables the maneuver.
Lilly closed on its purchase of ImClone in November 2008. The next month, the newly acquired company converted to an LLC and Lilly transferred the investment to its main Swiss subsidiary, Eli Lilly SA, according to disclosures in Switzerland and Delaware. The transfer was in exchange for a $5.8 billion note payable to the U.S. parent company due at the end of 2011.
Extracting Earnings
Willens, the independent tax adviser, said the steps indicated a likely D reorganization, or another method “to extract earnings from overseas without tax consequences -- of course.” Lilly had no comment beyond its filings, said David P. Lewis, the company’s vice president for global taxes.
The KPMG panel discussion in Philadelphia, called “Global Cash Tax Management Plans and Repatriation Planning,” dissected other techniques, including one that took six slides to explain. It works like this:
Soon after a U.S. multinational has purchased another U.S. company, the new unit promises to pay the parent a large amount of cash pursuant to a note agreement. Since both parties are U.S. companies, there is no tax bill for the parent under current U.S. law.
Then the new acquisition converts to a foreign company. So when the payment pursuant to the note is made, it comes from overseas. That means the foreign cash is treated as a nontaxable payment under the note, instead of a taxable dividend.
Going Offshore
The newly converted foreign subsidiary could access the multinational’s existing offshore cash by borrowing from a foreign sister unit, said Glenn, the KPMG tax partner. He and Zollo were joined by colleague Frank Mattei, as well as Don Whitt, a Pfizer tax official.
“This basic transaction is something that at least a couple of taxpayers have done, and I know a number of others have evaluated,” Glenn said. The strategy’s name follows the alphabetic tradition of Bs and Ds. It’s called “the Outbound F.”
______________________________________________
Remember, the biggest way of recovering massive corporate fraud is through direct taxation. This is what the Robin Hood----financial tax on banks was to do. Neo-liberals intend to cut all corporate taxes just as republicans they simply have to pretend they hate doing it. So, you hear all kinds of data pushed in the media that US corporations are uncompetitive because of high tax rates-----only, they do not pay those tax rates.
The media never points out as well that other nations have tax systems that capture corporate tax in other ways then income tax so actually other nations do tax their corporations as much and more that US corporations.
IT IS A LIE TO MAKE US CORPORATIONS SEEM AT A DISADVANTAGE FROM HIGH TAX RATES.
When your neo-liberal paints corporate tax reform as holding corporations accountable----they are lying to you. Any changes to corporate tax code will be loosely written for plenty of loophole avoidance.
STOP ELECTING NEO-LIBERALS WHO ONLY WANT TO BOOST CORPORATE PROFIT.
The Tax Repatriation Issue
By Matthew Yglesias Slate
The idea of a corporate income tax repatriation holiday seems to have fallen off Washington's political agenda for now, but since a lot of very rich well-known companies would benefit from it I imagine the idea will come back and in light of Apple CEO Tim Cook's remarks today I thought I should try to explain it.
The way the American corporate income tax works is that the actual location of the corporate income in question matters. So if Apple runs a subsidiary in Japan that earns huge profits selling iPhones to Japanese people, the federal government deems this none of the IRS' business. The tax is paid only on American income based on US-based operations. And obviously US-based multinationals are happy to not pay those taxes. The problem arises, however, because in order to use those profits to pay a dividend or acquire a US-based company you would need to bring those foreign profits home and pay taxes on them. This becomes a scenario where the high statutory rate of the corporate income tax makes a big difference. As we've seen before, thanks to extensive availability of loopholes and deductions the overall corporate income tax burden isn't very high. But the headline rate is 35 percent. That's kind of a big deal. If it was somehow possible for Congress to commit itself to never altering the corporate income tax, at some point the stockpiles of foreign cash would just get too ridiculous and firms would suck it up and pay the bill. But because everyone knows there's a chance that congress will either cut the corporate income tax rate or declare a temporary "repatriation tax holiday" the rational shareholder prefers to not get paid a dividend out of foreign earnings. Better to sequester the funds abroad and wait for President Romney to create a more favorable tax environment. So in a funny way, the fact that a tax holiday might happen ends up strengthening the case for doing a tax holiday.
More fundamentally it strengthens the case for corporate income tax reform and over the long term for finding a different, less distortionary form of revenue.
_________________________________________
Corporate politicians always use the idea of simplifying the tax code as a way to increase tax revenue paid by the rich and corporations. They always tie this sacrifice by corporations to ending a social program for example. Clinton famously did this when he ended Welfare and started to privatize public agencies. You see where this repatriation law went in exchange for huge losses to the public sector services and programs. This is what you are now hearing in Congress, the Maryland Assembly, and even locally in Baltimore. WE CANNOT AFFORD PUBLIC SECTOR WORKERS AND THEIR BENEFITS BECAUSE NO CORPORATE AND WEALTH TAXES ARE BEING COLLECTED. So, Doug Gansler and Heather Mizeur----running for Governor of Maryland use a Combined Reporting scheme for making corporations pay while privatizing all that is public and bashing public sector pensions and wages. Combined Reporting has been shown to be too expensive to implement and indeed states having these laws do not enforce them.
IT IS JUST A SCHEME USED TO MAKE IT APPEAR CORPORATIONS ARE PAYING THEIR FAIR SHARE.
Keep in mind that Maryland has absolutely no oversight and accountability in corporate and tax responsibilities as it is-----can you imagine the state actually building a structure that would hold corporations accountable in this complex fashion?
OF COURSE NOT----IT IS A PLOY FOR ENACTING EVER LOWER TAXES ON CORPORATIONS. THIS IS NOT PROGRESSIVE FOLKS!
'The definition of a "unitary business," which determines the entities that are part of the combined report, is notoriously imprecise and subject to controversy, resulting in the under-inclusion of entities; prolonged administrative and court disputes; and arbitrariness by the revenue department in seeking to include profitable entities but excluding loss entities'.
Combine reporting of corporate income taxes isn't a panacea for Maryland
May 31, 2013
Regarding your recent editorial on combined reporting for corporate income tax in Maryland, you argue that a switch to combined reporting in favor of a 0.65 percent decrease in the corporate rate would represent only a temporary "inconvenience" (How to make Md.'s taxes more competitive," May 9).
The Council On State Taxation, a trade association representing almost 600 corporations engaged in interstate commerce, including significant operations in Maryland, has found that combined reporting neither provides the panacea for perceived "hiding" of profits nor provides the "permanent" revenue benefit asserted in the editorial.
The editorial notes that combined reporting is "a decades-old idea that is the law in a majority of states." While it is true that combined reporting has spread from its mainly western confines to some eastern states, with the exception of West Virginia and Washington, D.C., the mid-Atlantic and South are otherwise devoid of this mandatory filing method.
Had the editorial page ever canvassed corporate tax departments, it would have found that combined reporting is not a short-term inconvenience. The definition of a "unitary business," which determines the entities that are part of the combined report, is notoriously imprecise and subject to controversy, resulting in the under-inclusion of entities; prolonged administrative and court disputes; and arbitrariness by the revenue department in seeking to include profitable entities but excluding loss entities.
The editorial cites the current anti-abuse provisions in the Maryland corporate tax law as an example of complexity. Rather, these provisions underscore that every reporting regime will be subject to scrutiny as to whether it creates opportunities for abuse; it is hardly an argument for why including every related entity under the uncertain unitary business standard, and determining taxable income for the "multi-state conglomerate," to use the words of the editorial, is no more difficult than determining the income of a single entity doing business in Maryland.
One need only look to California and Illinois to see prime examples of states with hopelessly complex combined reporting regimes that are constantly seeking revisions in response to other perceived "loopholes" in the law.
The editorial also asserts that combined reporting "seeks to more accurately calculate a corporation's economic activity in a state." This statement may well reflect the intent, but not the reality.
In practice, combined reporting may actually reduce the link between income tax liabilities and where income is earned. Combined reporting regimes vary across the states; it is fair to say that each state's system is unique. Combined reporting variables include what entities are included or excluded from the combined report; how inter-company transactions are handled; treatment of net operating losses and credits among group members; treatment of foreign income and expenses; and many more complex and arcane tax rules.
Perhaps the greatest variable is apportionment. This imprecise gauge of income attributable to the taxing state becomes even more inaccurate in combined reporting states, as states and taxpayers struggle with the proper inclusion of factors of numerous corporate and pass-through entities. Add on the tendency of taxpayers to exclude profitable entities and revenue departments to exclude loss entities and you get a pretty clear picture of how combined reporting works in the real world.
This leads to the main point of the editorial: revenue. The editorial makes the simplistic "trade-off" argument for a modestly lower corporate rate, saying that there would be some immediate and permanent revenue benefit from a combined reporting move.
In bad times, the Maryland Business Tax Reform Commission found, combined reporting would be a revenue loser. As profits continue to grow (hopefully), the Department of Legislative Services projects revenue gains. Ignore the uncertainties mentioned above that make this revenue spike anything but a certainty, especially in the early years after adoption, when compliance and enforcement will be in their fledgling stages.
Do Marylanders really think a demonstrably fluctuating revenue source will fund long-term tax relief for business? Or, more likely, would Maryland be saddled with a complex, anti-competitive, under-performing corporate tax regime the next time trouble approaches and the state looks to raise revenue?
Independent studies have shown that combined reporting at best is an uncertain proposition for raising revenue – it could just as well be a revenue loser (see, for example, the recent University of Tennessee study on the topic, cited in our opposition testimony to SB 469).
Further, the editorialists should remember that any tax increases will ultimately be borne by labor in the state, through fewer jobs (or lower wages over time), or by in-state consumers (through higher prices for goods and services).
The editorial also seems to embrace the idea that Maryland shouldn't try to compete for investment by larger businesses, instead looking to "start-up" companies for its future. Don't throw in the towel, Maryland! Go for both. Improve your business climate, including your tax regime. Demand performance for business tax breaks by all means. But don't embrace combined reporting as the panacea it isn't.
Douglas L. Lindholm, Washington, D.C.
The writer is president and executive director of the Council on State Taxation.
____________________________________
New Report: Fortune 100 Companies Have Received a Whopping $1.2 Trillion in Corporate Welfare Recently Military contractors, oil companies and banks are the biggest 'welfare queens' around.
March 19, 2014 | Alternet
Most of us are aware that the government gives mountains of cash to powerful corporations in the form of tax breaks, grants, loans and subsidies--what some have called "corporate welfare." However, little has been revealed about exactly how much money Washington is forking over to mega businesses.
Until now.
A new venture called Open the Books, based in Illinois, was founded with a mission to bring transparency to how the federal budget is spent. And what they found is shocking: between 2000 and 2012, the top Fortune 100 companies received $1.2 trillion from the government. That doesn't include all the billions of dollars doled out to housing, auto and banking enterprises in 2008-2009, nor does it include ethanol subsidies to agribusiness or tax breaks for wind turbine makers.
What Open the Book's forthcoming report does reveal is that the most valuable contracts between the government and private firms were for military procurement deals, including Lockheed Martin ($392 billion), General Dynamics ($170 billion), and United Technologies ($73 billion).
After military contractors, $21.8 billion was granted out to corporate recipients in the form of direct subsidies; literally transfers of cash from the pockets of Americans to major corporations. The biggest winners were General Electric (GE) ($380 million), followed by General Motors (GM) ($370 million), Boeing (BA) ($264 million), ADM ($174 million) and United Technologies ($160 million).
$8.5 billion in federally subsidized loans were also doled out to giant oil companies Chevron and Exxon Mobile, and $1 billion went directly to massive agri-business Archer Daniels Midland. Of course, the banks also got their piece of the pie: $10 billion in federal insurance went to Bank of America, Citigroup, Wells Fargo, JPMorgan Chase, not including any of the 2008 bailout money. Walmart enjoyed its share of federal insurance backing as well. Thanks to Open the Books, the curtain has been lifted and the whole country can now witness the great suckling of corporate America. As Open the Books founder Adam Andrzejewski put it: "Mitt Romney had it wrong: When it comes to the Fortune 100, it's 99%, not 47%, on some form of the government's gravy train."
_________________________________________
Republicans try their best to make it sound that most money in the Farm Bill goes to Food Stamps----but it is not true. What should disturb more people is that Americans are now overwhelmingly so poor as to be dependent on Food Stamps and this is what a third world society does----makes its people desperate for government food sources.
So, progressives would not be shouting as loudly for more Food Stamps then they would that too many Americans now depend on Food subsidies....ALL WHILE EACH CITIZEN IN AMERICA IS OWED A FEW HUNDREDS OF THOUSANDS OF DOLLARS IN CORPORATE FRAUD.
IF YOUR POL IS NOT DEMANDING JUSTICE FOR THE AMERICAN PEOPLE FROM MASSIVE CORPORATE FRAUD OF PUBLIC WEALTH-----THEY WORK FOR CORPORATIONS----GET RID OF THEM!!!!
Who Are the Real Welfare Queens?
55 Billion Goes to:
School lunch & breakfast programs
WIC (Women, Infants, & Children)
Food subsidies
Food stamps
Nutrition education
Other food and health programs
127 Billion Goes to:
Corporate funding (direct & indirect)
Grants to Fortune 500 companies
Big Agra subsidies (including sugar)
*****************************************************
Let's look beyond the direct corporate subsidy in the Farm bill to how Food Stamp revenue is spent. As health care reform pushes the poor out of health care access because -----'those people who are obese and/or have diabetes and heart disease brought it on themselves'-----we see the entire SNAP program has been driven by forcing people to buy the cheapest food sources that happen to be bad health choices but make corporations fabulously rich.
There is a movement to make SNAP more nutritious by promoting SNAP debit cards at farmers markets----this is good yet the 7-11 stores have SNAP signs that say they sell healthy food. We want people to have choice in what foods to buy----but if you have food deserts where the most people are on food stamps-----you are not really addressing the issue.
WHY DOES THE PUBLIC SECTOR NOT MAKE SURE THESE COMMUNITIES HAVE ACCESS TO GOOD FOOD WITH PUBLIC MARKETS? OH, THAT'S RIGHT-----WE ARE ELIMINATING THE PUBLIC SECTOR!
Also note that as shown above-----a super-sized majority of farm bill spending goes to US global agriculture and its infrastructure and profit-subsidy.....not small farmers.
Washington
7 Farm Bill 2013: Corporate Welfare on Steroids
- By David Zeiler, Associate Editor, Money Morning · June 17, 2013 ·
Of course, when it comes to the ways of Washington, nothing is ever that simple.
The 2013 edition of the Farm Bill, which is the main federal legislation for setting U.S. food policy, passed the Senate last week and now moves on to the House.
First crafted during the Great Depression to help struggling farmers, the Farm Bill is renewed and modified every five years. Congress was supposed to renew it last year, but instead merely extended it in deference to the 2012 election.
This year's Farm Bill calls for spending of $955 billion over 10 years and is 1,150 pages long.
And yes, some of that nearly $1 trillion does go to programs that help farmers. But not much of it.
Nearly 80% goes to fund the food stamp program, otherwise known by the more politically correct name of "Supplemental Nutrition Assistance Program" (SNAP) it was given in 2008.
Yet what's most appalling about Farm Bill 2013 is how much it benefits dozens of large U.S. corporations, such as Wal-Mart Stores, Inc. (NYSE: WMT), Monsanto Co. (NYSE: MON), Kraft Foods Group Inc. (Nasdaq: KRFT) and Tyson Foods Inc. (NYSE: TSN).
Back in 2008, $173.5 million was spent on lobbying that year's farm bill, most of it by corporations eager to ensure that their subsidy gravy train wouldn't get derailed.
It was the second-most lobbying money ever spent on any U.S. legislation, falling short only of the $250 million spent on Dodd-Frank.
That kind of money buys top-of-the-line lobbying power.
"On the [2008] Farm Bill, special interests hired an army of well-connected lobbyists to press their case with Congress, including 45 former members of Congress, [and] at least 461 former congressional and executive branch staffers (including 86 that worked for former agriculture committee members or the U.S. Department of Agriculture)," noted a report on Farm Bill lobbying by Food & Water Watch.
It's little wonder that Farm Bills are chock full of corporate welfare.
Digging into Farm Bill 2013 -- Where the SNAP Money Ends Up While most Americans who receive SNAP benefits need them to get by, most of that money ends up in the hands of big, profitable corporations.
The Farm Bill 2013 allocates $760.5 billion to the food stamp program, and many corporations have gone to great lengths over the years to ensure their share of that pie is as large as possible.
One of the best examples is the soda industry. The Center for Science in the Public Interest estimated that $4 billion in SNAP money was spent on soda purchases in 2010 (this despite that the primary purpose of SNAP is to make sure low-income people can purchase nutritious food).
That's a significant incentive. And sure enough, two All-American companies - Coca Cola Co. (NYSE: KO) and Pepsi Co, Inc. (NYSE: PEP) -- helped get soda eligible for food stamps back in 1964, and continue to spend large sums on making sure it stays that way.
Back in 2008, Coca-Cola spent $513,000 lobbying the Farm Bill; Pepsi spent $437,000.
The fight to keep snacks and sodas on the list of SNAP eligibility is a running battle, and big corporations are definitely winning.
RSS Feed
