Question

Many companies make efforts to minimize their tax liability by shifting the location of income. Read the above article "Fortune 500 Companies Hold a Record $2.6 Trillion Offshore" and discuss the following questions. What are the popular destinations of tax havens for American firms? What potential consequences will such shift bring? What recommendations do you have for the U.S. government?

Answer 1

Popular destinations of tax havens for the American firms are Caymen Islands, Bermuda, Ireland, Singapore, Luxembourg, the Isle of Jersey, and the Bahamas.

The options for the government are

• Provide tax holdiday to the companies so that they bring these earnings back to the US at a cheaper tax rate.
• End the “deferral,” that is, repealing the rule that indefinitely exempts offshore profits from U.S. income tax until these profits are repatriated. This would allow the government the profits earned even if earned abroad.

However, the more plausible solution is to enact a law which would need the companies to be taxed at the higher rate. This would mean, the tax havens will earn some profits and the rest will need to be deposited in the United States. However, this would require the SEC to remove the exemption from the current regulation that allows companies to avoid disclosure of the tax they would owe on their unrepatriated funds if they deem it not practicable to make that calculation.