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The public has a right to know how companies that pay no taxes pull it off

larrysummers.com

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Re: The public has a right to know how companies that pay no taxes pull it off

#21

Post by modeless »

gnicholas wrote: post #11
dmacedo wrote: post #3

I wonder how feasible it is for individuals (or groups of individuals?) in the US, to also incorporate themselves and, through the same or similar loopholes, also pay no tax... How would the IRS respond in those instances. Has that been tried? Is anyone aware of anything like that? Is the cost of such a scheme prohibitive for an individual vs. a large Corp? I'd be curious what the challenges and outcome of such an ex…

Former international tax lawyer here. This would not be possible because these benefits are largely based on international structures, and any non-US corporation owned by a few US-based individuals would be designated as a Controlled Foreign Corporation (CFC). This would prevent you from reaping the biggest benefits from a taxation perspective. The reason that publicly-traded companies are not CFCs is that a CFC must…

So 7 people could form a corporation to do this? One owns 49% and the rest 8.5% each. Or 11 people if you want equal shares for all.

Re: The public has a right to know how companies that pay no taxes pull it off

#22

Post by bobthepanda »

sooheon wrote: post #17
gnicholas wrote: post #11

Earlier quoted context omitted.

Former international tax lawyer here. This would not be possible because these benefits are largely based on international structures, and any non-US corporation owned by a few US-based individuals would be designated as a Controlled Foreign Corporation (CFC). This would prevent you from reaping the biggest benefits from a taxation perspective. The reason that publicly-traded companies are not CFCs is that a CFC must…

So small groups of individuals can take advantage of this given they are international enough?

Presumably, people who are international enough aren't being taxed by the US in the first place.

Re: The public has a right to know how companies that pay no taxes pull it off

#23

Post by nmfisher »

MuffinFlavored wrote: post #12
ryanmarsh wrote: post #5

Earlier quoted context omitted.

LOL this is primarily why many self employed people eventually incorporate. Tax reduction. You should try it some time.

I can’t figure out what to deduct that is more than the $12.2k single filer deductible. I have $500k/yr I’d love to pay less taxes on at the moment due to a booming side business + healthy salary. Can’t find any deductions worth my time and the CPA filing fees.

In Australia, it’s not so much deductions (home office, car, computer, phone, etc), as much as absurdly legal practices like “distributing” income to your family. This means you can divvy up your income so it’s taxed at each family member’s marginal rate (rather than your own top-line consolidated rate).

That might sound reasonable, until you realize that those family members never see that money. The “distribution” is a complete fiction.

I’m usually fairly conservative when it comes to taxes, but I’m astonished this is allowed to continue.

Re: The public has a right to know how companies that pay no taxes pull it off

#24

Post by RhodoYolo »

an_opabinia wrote: post #18

Summers is right, of course releasing M3 would be a no-brainer. Can we ever reconcile accounting and economics? With its excess cash reserves, if Apple paid tax, absolutely nothing about its business would change. The more profound perspective is, who is really the tax collector then? Who is playing that economic role? Obviously these giant tax-evading companies. They are accumulating huge stockpiles of cash they can…

Why does US tax money coming back into the country and at what rate? Wouldn't you want to encourage money to be made elsewhere and brought back to the states for investment? or am i fundamentally misunderstanding economics?

Re: The public has a right to know how companies that pay no taxes pull it off

#25

Post by RhodoYolo »

gnicholas wrote: post #13
gscott wrote: post #7

Earlier quoted context omitted.

People have tried and the problem is when you want to bring the money back to use it on something. Say you setup a licensing company on an island nation that use to then charge yourself $10,000 a month to license the software you wrote... that you transferred there. Now lets say you want to buy a house and you bring back a certain amount of money. That money is taxable and that is where people mess up they don't repo…

The first point of failure is that if you are a US taxpayer, then you are already taxed on your worldwide earnings, including the earnings of your wholly-owned foreign subsidiary. Even if you could borrow domestically against your foreign earnings in order to finance your lifestyle, you would have already been taxed on those foreign earnings, as an individual.

if you're spending US money. Someone you describe may set up properties outside the US not taxable by the US.

Re: The public has a right to know how companies that pay no taxes pull it off

#26

Post by ALittleLight »

I read about tax avoidance schemes like corporate inversions or sending all your patents to a company in some tax free haven and licensing your patents from your company for all your profits, and so on, and it makes me really mad. Companies making many billions of dollars paying no taxes.

My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Why isn't the same standard applied to rich companies?

"You're technically owned by an Irish company you invented to avoid taxes? Cool. The c-suite plus your accountants are going to prison for the next five years and we're seizing the X billion you actually owe plus a punitive fine."

These tax shenanigans would stop if laws were enforced.

Re: The public has a right to know how companies that pay no taxes pull it off

#27

Post by gnicholas »

modeless wrote: post #21
gnicholas wrote: post #11

Earlier quoted context omitted.

Former international tax lawyer here. This would not be possible because these benefits are largely based on international structures, and any non-US corporation owned by a few US-based individuals would be designated as a Controlled Foreign Corporation (CFC). This would prevent you from reaping the biggest benefits from a taxation perspective. The reason that publicly-traded companies are not CFCs is that a CFC must…

So 7 people could form a corporation to do this? One owns 49% and the rest 8.5% each. Or 11 people if you want equal shares for all.

Yes, but it would be very difficult to coordinate their overlapping/conflicting interests. It could work in the case of family members, whose interests are generally more aligned. But the tax code allows the IRS to attribute ownership among related persons. So you can't do this sort of thing with people who are close blood relatives, otherwise the ownership structure can be collapsed, and it won't work.

Re: The public has a right to know how companies that pay no taxes pull it off

#28

Post by avemuri »

gscott wrote: post #7
dmacedo wrote: post #3

I wonder how feasible it is for individuals (or groups of individuals?) in the US, to also incorporate themselves and, through the same or similar loopholes, also pay no tax... How would the IRS respond in those instances. Has that been tried? Is anyone aware of anything like that? Is the cost of such a scheme prohibitive for an individual vs. a large Corp? I'd be curious what the challenges and outcome of such an ex…

People have tried and the problem is when you want to bring the money back to use it on something. Say you setup a licensing company on an island nation that use to then charge yourself $10,000 a month to license the software you wrote... that you transferred there. Now lets say you want to buy a house and you bring back a certain amount of money. That money is taxable and that is where people mess up they don't repo…

I'm not very familiar with US taxation, but when you do this, don't the transfers end up taxable? Eg. Shouldn't the Nevada company license fee have some sort of CA sales tax on it?

Re: The public has a right to know how companies that pay no taxes pull it off

#29

Post by gnicholas »

RhodoYolo wrote: post #25
gnicholas wrote: post #13

Earlier quoted context omitted.

The first point of failure is that if you are a US taxpayer, then you are already taxed on your worldwide earnings, including the earnings of your wholly-owned foreign subsidiary. Even if you could borrow domestically against your foreign earnings in order to finance your lifestyle, you would have already been taxed on those foreign earnings, as an individual.

if you're spending US money. Someone you describe may set up properties outside the US not taxable by the US.

Sure, by my original point was that you get taxed before you even get to that step.
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