AMERICAN CORPORATION: PROFIT INCOME IN FOREIGN BANK FOR TAX SHELTERS

US based companies are keeping their profits in bank accounts in other countries. Around $183 billion of stocks are piled in those countries. There was an increase of 14.4% from the previous year in the accumulation of the funds. Bloomberg studied that total of 83 companies in the USA has kept their profit earning in different low taxed countries across the globe. A total of $1.7 trillion has been outside the USA for the purpose of tax exception. Top companies like GE, Microsoft, Johnson & Johnson, and IBM are the top companies who are keeping the money outside the country so that the USA tax revenue department could not get hold of these incomes. Some of the companies are owned by foreign companies which helped them to park their profit margin companies’ bank account. The rise of the cash flow from the low taxed countries is due to the increased number of the customer from these areas. Google has kept $31 billion in annual filling in taxes but of which 65.3% are in the liquid holding outside the USA. This is hampering the USA taxes and resulting in rise of different problems due to this. US based companies receive tax credits in their income from the outside country, but still they are deferring the taxes by not bring those money back to USA. Regulatory filling asked the USA Corporation to report the foreign profit but they can defer taxes on those income. The income is not kept in the form of cash in other countries.

They are using that fund to invest in the physical infrastructure and bond of that low taxed country. Intangible assets are among one of the areas where companies are selling their patents and getting cash out of it. The low tax jurisdiction allows them to pay low taxes. Among these, Microsoft has sold many patents to offshore countries and reported $60.8 billion in offshore holdings, whereas they paid only 3.1% in the foreign tax for this. The USA government tax system is outdated and is not compatible with other countries’ tax system has been claimed by many senior executives of USA based companies. They mentioned that for competing in the foreign land they have to keep the money in those countries for the future need. Citi Group has reported that foreign tax is as low as 8% which is far below that USA tax system rates. The USA tax is 35% which is the high compare to any other country corporate tax rates. This not only creates the obstacle for USA government to get a hold of the income of the companies in foreign lands. Moreover, they are lagging behind among other countries in tax system due to the low tax rate of those countries.

References

Brunori, D. (2013, September 9). Want a tax shelter? just do it. The Forbes. Retrieved fromhttp://www.forbes.com/sites/taxanalysts/2013/09/16/want-a-tax-shelter-just-do-it/

Kocieniewski, D. (2011, March 24). G.E.’s strategies let It avoid taxes altogether.The New York Times. Retrieved fromhttp://www.nytimes.com/2011/03/25/business/economy/25tax.html

Pozen, R. C. (2011, September 19). How to bring our companies’ foreign profits back home. The New York Times. Retrieved fromhttp://www.nytimes.com/2011/09/19/opinion/bring-american-companies-foreign-profits-back-home.htm

Rubin, R. (2013, March 8). Offshore cash hoard expands by $183 billion at companies. The Bloomberg. Retrieved fromhttp://www.bloomberg.com/news/2013-03-08/offshore-cash-hoard-expands-by-183-billion-at-companies.html