This is how rich US corporations and their investors stay rich ...
... by using offshore tax loopholes to shield income from the taxman ...
(snip)"Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.
Google’s income shifting -- involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” -- helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries.
“It’s remarkable that Google’s effective rate is that low,” said Martin A. Sullivan, a tax economist who formerly worked for the U.S. Treasury Department. “We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 percent.”
The U.S. corporate income-tax rate is 35 percent. In the U.K., Google’s second-biggest market by revenue, it’s 28 percent.
Google, the owner of the world’s most popular search engine, uses a strategy that has gained favor among such companies as Facebook Inc. and Microsoft Corp. The method takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries there, largely escaping the country’s 12.5 percent income tax. (See an interactive graphic on Google’s tax strategy here - .)
The earnings wind up in island havens that levy no corporate income taxes at all. Companies that use the Double Irish arrangement avoid taxes at home and abroad as the U.S. government struggles to close a projected $1.4 trillion budget gap and European Union countries face a collective projected deficit of 868 billion euros."(snip)
(snip)"Technically, multinationals that shift profits overseas are deferring U.S. income taxes, not avoiding them permanently. The deferral lasts until companies decide to bring the earnings back to the U.S. In practice, they rarely repatriate significant portions, thus avoiding the taxes indefinitely, said Michelle Hanlon, an accounting professor at the Massachusetts Institute of Technology.
U.S. policy makers, meanwhile, have taken halting steps to address concerns about transfer pricing. In 2009, the Treasury Department proposed levying taxes on certain payments between U.S. companies’ foreign subsidiaries.
Treasury officials, who estimated the policy change would raise $86.5 billion in new revenue over the next decade, dropped it after Congress and Treasury were lobbied by companies, including manufacturing and media conglomerate General Electric Co., health-product maker Johnson & Johnson and coffee giant Starbucks Corp., according to federal disclosures compiled by the non-profit Center for Responsive Politics. (snip)
Re: This is how rich US corporations and their investors stay rich ...
Billionaire hedge fund moguls like John Paulson and Steve Cohen are using similar devices and loopholes. They are forming reinsurance companies in Bermuda and The Caymans. They then transfer funds from their hedge funds to the reinsurance companies. Those transfers become cash reserves for the reinsurers and have to be invested somewhere. Guess where ? Right. They are transferred back into the hedge funds. There is an IRS loophole that defers taxes on the profits of these reinsurers until their holdings in the hedge funds are sold. ( Why am I SURE Chuckie Schumer helped write THAT provision without even looking it up ? lol. ) And of course, since those funds were invested , any taxes owed are paid at the lower capital gains tax rate.
According to Bloomberg , this is how Paulson swung his deal : He transferred $450 million to a Bermuda company called Pacre Ltd. It's nothing more than a mail drop without a single employee. That money went from Bermuda back into one of Paulson's funds. Tax free now and for years into the future. A number of other hedge funders like Daniel Loeb, David Einhorn and Steve Cohen have swung similar deals with similar results. In total, some $1.7 billion has gone to their three hedge funds from their own reinsurers.
The worst part is that this is legal money laundering. Despite decades of political posturing and IRS vows to clamp down, this practice is becoming more widespread, not less. Hmmm. I wonder why ?