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Thread: Big Business Evades Taxes...

  1. #1
    God/dess VenusGoddess's Avatar
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    Default Big Business Evades Taxes...

    Pretty interesting, no?

    **********************************

    How Big Business Evades Taxes

    By Lucy Komisar, Pacific News Service
    April 25, 2004
    http://www.alternet.org

    Were you stunned by the revelation, days before your taxes were due, that nearly two-thirds of companies
    operating in America reported owing no taxes from 1996 through 2000? That over 90 percent of large
    corporations – with at least $250 million in assets or $50 million in gross receipts – reported owing taxes
    of only 5 percent or less?


    The law requires firms to pay 35 percent tax on U.S. profits. Had big business complied, corporate income
    taxes in 2002 would have been $308 billion instead of only an estimated $136 billion. Do you wish you knew
    the corporate secret?


    Is your town or state suffering from service cutbacks because tax revenues are down? Would you like to cut
    your tax bite from the current 15 to 35 percent to 5 percent or zero? How do corporations do it?


    The General Accounting Office report, commissioned by Senators Carl Levin (D-MI) and Byron Dorgan (D-ND) and released April 5, gave a clue to how. It's called "transfer pricing," or improperly shifting income to
    lower-tax countries.


    Firms set up offshore "subsidiaries" which, on their books, perform functions that let them cut onshore
    taxes. They may sell their own "logo" to the subsidiary and then pay a high price to "rent" it
    back, deducting "rent" as expense. They may move money to the subsidiary and "borrow" it back, deducting
    interest payments. If several of their subsidiaries are involved in a deal, the firms may grossly inflate
    profits assigned to those in offshore tax havens, which levy no or minimal taxes on "profits" claimed
    there.


    The U.S. firm may "trade" with an offshore "shell" it owns – a phony company set up in a tax haven –
    pretending it's buying goods or services at a high price or selling its product low, to create
    deductions. Because the tax haven keeps owners' names secret, the IRS won't know the company is "trading"
    with itself.


    Professors Simon J. Pak (Penn State University) and John S. Zdanowicz (Florida International University)
    examined the impact of over-invoiced imports and under-invoiced exports on 2001 U.S. tax revenues.
    Would you buy multiple vitamins bought from China at $850 a pound, plastic buckets from the Czech Republic
    for $973 each, tissues from China at $1,874 a pound, a cotton dishtowel from Pakistan for $154, and tweezers
    from Japan at $4,896 each?


    By contrast, U.S. companies, on paper, were getting very little for their exports. If you were in
    business, would you sell multiple vitamins to Finland at 61 cents a pound, bus and truck tires to Britain
    for $11.74 each, color video monitors to Pakistan for $21.90, missile and rocket launchers to Israel for
    $52.03 and prefabricated buildings to Trinidad for $1.20 a unit?


    Comparing claimed export and import prices to real world prices, the professors figured the 2001 U.S. tax
    loss at $53.1 billion.


    We all know that Enron cheated investors by using offshore firms to pretend that money it borrowed was
    money it earned. We later found it also used shells to hide income from the IRS. Enron had 881 offshore
    subsidiaries: 692 in the Cayman Islands; 119 in the Turks and Caicos; 43 in Mauritius and 8 in Bermuda.
    Enron had no office in the Cayman's, but Box 1350 there received mail for 500 affiliates. Enron's 1996
    through 2000 pretax U.S. profits were $1.8 billion, but it paid no tax in four of those five years. It
    even got a rebate! Because of fancy paperwork that invented tax losses even while it was boasting of
    profits to investors, Enron got back $381 million from the IRS.


    Bob McIntyre, who heads the Washington-based Citizens for Tax Justice, says that in 1996-2000, Goodyear's
    profits were $442 million, but it paid no taxes and got a $23-million rebate. Colgate-Palmolive made $1.6
    billion and got back $21 million. Other companies that got rebates in 1998 included Texaco, Chevron, PepsiCo,
    Pfizer, J.P. Morgan, MCI WorldCom, General Motors, Phillips Petroleum and Northrop Grumman. Microsoft,
    run by the world's richest man, reported $12.3 billion U.S income in 1999 and paid zero federal taxes. In the
    past two years, Microsoft paid only 1.8 percent on $21.9 billion pretax U.S. profits.


    There are some 55 "offshore" zones, including legendary Switzerland; the Caribbean with
    money-laundries Grand Cayman, Antigua, Aruba and the British Virgin Islands; European favorites Luxembourg, Liechtenstein, Monaco, Austria, Cyprus; and British Channel Islands Jersey, Guernsey, Isle of Man. Many banks in "offshore" centers are subsidiaries of major international banks, including Citibank, Bank of New York and Credit Suisse.


    Why does Washington tolerate the offshore tax evasion system? Because powerful people benefit. With
    President Bush on its board, Harken Energy set up an offshore network that cut its taxes. White House
    spokesman Dan Bartlett defended Harken for seeking "tax competitiveness," the preferred euphemism. When
    Vice President Cheney ran Halliburton, it increased its offshore subsidiaries from 9 to at least 44.


    Lucy Komisar is a freelance journalist who is writing a book about the offshore bank and corporate secrecy
    system.

    http://www.alternet.org/story.html?StoryID=18474



  2. #2
    God/dess montythegeek's Avatar
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    Default Re:Big Business Evades Taxes...

    VG,
    The use of gross receipts as a basis of a calculation is totally bogus.
    Read the real report by the GAO at http://www.gao.gov/new.items/d04358.pdf

    Look at the mix of corporations used to generate these numbers. In particular look at Table 19.
    You will see that the financial services companies reported interest expense equal to 120% of their gross receipts. This is because the basis of counting gross receipts makes no sense in financial services where 40% of the companies reporting no taxable income were. They are intermediaries not sellers of goods. It would be like trying to apply a sales tax to a bank and using how much interest they received to figure the tax.

    If you figure the profits tax as the IRS does as a percentage of profits it is quite close to the statutory rate. To look at percentages of revenue is like saying corporations have no costs other than goods purchased and payroll.

    Ever consider that those taxes paid to state and local governments are deductible? Figure your taxes as a percentage of gross income then compare that to the tax rates that apply to Adjusted gross income (the actual basis of tax law).

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    Default Re:Big Business Evades Taxes...

    Quote Originally Posted by montythegeek link=board=6;threadid=11749;start=msg150138#msg150 138 date=1091754137
    Ever consider that those taxes paid to state and local governments are deductible? Figure your taxes as a percentage of gross income then compare that to the tax rates that apply to Adjusted gross income (the actual basis of tax law).
    What? I do not understand...sorry.

    But, if the company lies about the costs that they are incurring and transferring them to an offshore location where the taxes are lighter...wouldn't that be wrong? I mean, shouldn't they pay taxes all of that money?

    I totally don't understand all the loopholes these companies find... Just wish I could find a few more for myself!! LOL

  4. #4
    God/dess montythegeek's Avatar
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    Default Re:Big Business Evades Taxes...

    Quote Originally Posted by VenusGoddess link=board=6;threadid=11749;start=msg150246#msg150 246 date=1091764493
    Quote Originally Posted by montythegeek link=board=6;threadid=11749;start=msg150138#msg150 138 date=1091754137
    Ever consider that those taxes paid to state and local governments are deductible? Figure your taxes as a percentage of gross income then compare that to the tax rates that apply to Adjusted gross income (the actual basis of tax law).
    What? I do not understand...sorry.

    But, if the company lies about the costs that they are incurring and transferring them to an offshore location where the taxes are lighter...wouldn't that be wrong? I mean, shouldn't they pay taxes all of that money?

    I totally don't understand all the loopholes these companies find... Just wish I could find a few more for myself!! LOL
    Sure there are ways for companies to cheat just as there are ways for individuals to cheat. These broadbrush treatments though are misplaced emphasis. Consider an individual performer with an S corporation who can legally divert income to dividends and try to avoid paying some social security taxes on it. These stretching of the laws are enforcement issues and Congress needs to give more money to the IRS to do it.

    The point of the comment that was not clear is that one size fits all does not work for companies any more than it does taking gross income for an individual and figuring a gross tax rate and comparing those and ignoring valid deductions.

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    Default Re:Big Business Evades Taxes...

    Gotcha.

    Thanks, Monty!

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    Featured Member scorpio's Avatar
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    Default Re:Big Business Evades Taxes...

    remember, corporations do not pay taxes! What we seem to forget is that any tax paid by a company is figured in as a cost of doing business. This cost is then figured into pricing, so the consumer, you and I, end up actually paying the expense of corporate tax. This is one area where I agree with republicans and disagree with democrats. Increasing corporate taxes raises prices off goods and services, hurting the very people it is designed to protect. The notion that corporations should be exempt from taxes though, is wrong also.

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    Default Re:Big Business Evades Taxes...

    I would also point out that many of these legal loopholes, particularly offshore arrangements, are also available to very rich individuals ! In the case of very rich individuals, there isn't any issue of passing on taxes to customers through higher pricing of products or services. However, there IS the issue that every tax dollar which isn't paid by a rich individual will eventually have to be paid by a less rich individual who can't afford to take advantage of the same tax shelters and loopholes.

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