G20 declares door shut on tax havens

[dbackjon]

The most dramatic crackdown on tax havens was unveiled by G20 leaders at their summit today, paving the way for the naming and shaming of countries that fail to comply with internationally agreed standards.

Gordon Brown hailed the agreement as he issued a blunt warning to individuals and corporations that invest in renegade tax havens that their money will be unsafe.

"People will increasingly see that it is unsafe to be in a country which still wants to declare itself as a tax haven," the prime minister said.

"There will be no guarantee about the safety of funds there. If tax information is exchanged on request, as these countries have agreed to, then the benefits from being in these countries will diminish every day."

Within hours of the agreement, which was only concluded in the final minutes of the summit after a row between France and China, the Organisation for Economic Cooperation and Development was issueing a list of countries that are failing to comply with its guidelines. The OECD – dubbed the rich countries' club – placed countries in four categories based on the actions they have taken to comply with the "internationally agreed tax standard":

• Those that have substantially implemented the standard, including most advanced countries such as Britain, the US, France, Germany and China

• Tax havens that have committed to – but not yet fully implemented – the standard. These include Andorra, Monaco, Gibraltar and Lichtenstein

• Financial centres that have committed to – but not yet fully implemented – the standard. These include Switzerland, Singapore, Chile and three EU countries – Belgium, Luxembourg and Austria

• Those that have not committed to the standard, including Costa Rica, Malaysia, the Philipines and Uruguay.

http://www.guardian.co.uk/world/2009/ap ... tax-havens

[hank scorpio]

A step in the right direction IMO.

[OL FU]

So the biggest announcement out of the summit was that the countries determined a way to collect more taxes

[AZGrizFan]

So the biggest announcement out of the summit was that the countries determined a way to collect more taxes

They've really bought into the Obama message.

[hank scorpio]

So the biggest announcement out of the summit was that the countries determined a way to collect more taxes

You mean back taxes?

[AZGrizFan]

So the biggest announcement out of the summit was that the countries determined a way to collect more taxes

You mean back taxes?

How can they be "back" taxes if the countries being dicussed have NEVER agreed to go by the agreement?

[OL FU]

So the biggest announcement out of the summit was that the countries determined a way to collect more taxes

You mean back taxes?

Does Geithner know about this

[hank scorpio]

[quote="AZGrizFan"][quote="hank scorpio"][quote="OL FU"]So the biggest announcement out of the summit was that the countries determined a way to collect more taxes [/quote]

You mean back taxes?[/quote]

How can they be "back" taxes if the countries being dicussed have NEVER agreed to go by the agreement?[/quote]

In the sense that you would be a douche to hide your money in another country.

[AZGrizFan]

How can they be "back" taxes if the countries being dicussed have NEVER agreed to go by the agreement?

In the sense that you would be a douche to hide your money in another country.

Guess I'll have to close my Phillipines account then, huh?

[danefan]

This isn't about "hiding" money in other countries.

This is about corporations moving profit to offshore entities because of favorable tax rates. Most of the countries involved here are countries that have tax treaties with the US that prevent double taxation. Meaning you can effectively move operations and profits around to low-tax jurisdictions and avoid paying US tax. You are still getting taxed, but not as much and the treaties say you get taxed wherever you have a "permanent establishment" as defined under the treaty.

Examples: Cayman Islands, Bermuda, Ireland, Malaysia, Singapore, Philippines, etc......

The OECD is a group of countries who go around and try to get all of the tax treaties to be uniform so companies cannot "tax treaty" shop their operations. That is what G20 is trying to do.

[hank scorpio]

This isn't about "hiding" money in other countries.

This is about corporations moving profit to offshore entities because of favorable tax rates. Most of the countries involved here are countries that have tax treaties with the US that prevent double taxation. Meaning you can effectively move operations and profits around to low-tax jurisdictions and avoid paying US tax. You are still getting taxed, but not as much and the treaties say you get taxed wherever you have a "permanent establishment" as defined under the treaty.

Examples: Cayman Islands, Bermuda, Ireland, Malaysia, Singapore, Philippines, etc......

The OECD is a group of countries who go around and try to get all of the tax treaties to be uniform so companies cannot "tax treaty" shop their operations. That is what G20 is trying to do.

Thank you for some clarity.

[dbackjon]

This isn't about "hiding" money in other countries.

This is about corporations moving profit to offshore entities because of favorable tax rates. Most of the countries involved here are countries that have tax treaties with the US that prevent double taxation. Meaning you can effectively move operations and profits around to low-tax jurisdictions and avoid paying US tax. You are still getting taxed, but not as much and the treaties say you get taxed wherever you have a "permanent establishment" as defined under the treaty.

Examples: Cayman Islands, Bermuda, Ireland, Malaysia, Singapore, Philippines, etc......

The OECD is a group of countries who go around and try to get all of the tax treaties to be uniform so companies cannot "tax treaty" shop their operations. That is what G20 is trying to do.

What Congress really needs to do is shut the door on this entirely.

Let's take my old company - 100% US operations, derived 60% of revenue from the Government.
Opened a "Licencing/Intellectual Property" subsidiary in the Bahamas. This subsidiary charged a fee of seven percent of revenue to the main company for the company using the name of the company (i.e. for the goodwill/value of the company name). This seven percent was an expense on the US operations books, so lowered taxable income by that amount. The revenue of the Bahamanian company was virtually non-taxed by the Bahamas.

I felt this was immoral and dishonest. My CFO felt similiar, but felt he had to, since it was legal and all our competitors did the same. He was afraid if he didn't, the company would be liable to shareholder lawsuits for wasting money.

[danefan]

This isn't about "hiding" money in other countries.

This is about corporations moving profit to offshore entities because of favorable tax rates. Most of the countries involved here are countries that have tax treaties with the US that prevent double taxation. Meaning you can effectively move operations and profits around to low-tax jurisdictions and avoid paying US tax. You are still getting taxed, but not as much and the treaties say you get taxed wherever you have a "permanent establishment" as defined under the treaty.

Examples: Cayman Islands, Bermuda, Ireland, Malaysia, Singapore, Philippines, etc......

The OECD is a group of countries who go around and try to get all of the tax treaties to be uniform so companies cannot "tax treaty" shop their operations. That is what G20 is trying to do.

What Congress really needs to do is shut the door on this entirely.

Let's take my old company - 100% US operations, derived 60% of revenue from the Government.
Opened a "Licencing/Intellectual Property" subsidiary in the Bahamas. This subsidiary charged a fee of seven percent of revenue to the main company for the company using the name of the company (i.e. for the goodwill/value of the company name). This seven percent was an expense on the US operations books, so lowered taxable income by that amount. The revenue of the Bahamanian company was virtually non-taxed by the Bahamas.

I felt this was immoral and dishonest. My CFO felt similiar, but felt he had to, since it was legal and all our competitors did the same. He was afraid if he didn't, the company would be liable to shareholder lawsuits for wasting money.

I do not think its immoral or dishonest. It is using the system to your advantage. Don't hate the player, hate the game. (no better way to explain it). Perhaps I've just convinced myself of that because its what pays my bills.

The use of offshore IP holding companies was pretty much halted in January of this year when the IRS issued new Cost-Sharing regulations. In your scenario above the US company would now have to be compensated by the offshore entity in advance and would be subject to taxation on the entire value immediately. This does not effect current structures, but it will preclude new ones.

This practice was used by most pharmaceutical companies to get IP related to blockbuster drugs offshore after they had been developed by onshore R&D efforts. Ireland's big business is pharmaceutical production and it provides a special low tax rate for Pharma companies.

[bobbythekidd]

I have a better idea. Why not make the US a tax haven for companies that are headquartered anywhere else in the world? All that money would be here in the US working in our economy.

[OL FU]

This isn't about "hiding" money in other countries.

This is about corporations moving profit to offshore entities because of favorable tax rates. Most of the countries involved here are countries that have tax treaties with the US that prevent double taxation. Meaning you can effectively move operations and profits around to low-tax jurisdictions and avoid paying US tax. You are still getting taxed, but not as much and the treaties say you get taxed wherever you have a "permanent establishment" as defined under the treaty.

Examples: Cayman Islands, Bermuda, Ireland, Malaysia, Singapore, Philippines, etc......

The OECD is a group of countries who go around and try to get all of the tax treaties to be uniform so companies cannot "tax treaty" shop their operations. That is what G20 is trying to do.

What Congress really needs to do is shut the door on this entirely.

Let's take my old company - 100% US operations, derived 60% of revenue from the Government.
Opened a "Licencing/Intellectual Property" subsidiary in the Bahamas. This subsidiary charged a fee of seven percent of revenue to the main company for the company using the name of the company (i.e. for the goodwill/value of the company name). This seven percent was an expense on the US operations books, so lowered taxable income by that amount. The revenue of the Bahamanian company was virtually non-taxed by the Bahamas.

I felt this was immoral and dishonest. My CFO felt similiar, but felt he had to, since it was legal and all our competitors did the same. He was afraid if he didn't, the company would be liable to shareholder lawsuits for wasting money.

Yes that is not a good thing and it is also used to reallocate state revenues from high tax states to low tax states.

I do think the US could do themselves of world of good if they did not tax world-wide income. TAx what is generated in the US, attempt to stop phoney loans from foreign subsidiaries, but allow legitimate earnings in different countries to be re-patriated without being taxed at the US rate.

[danefan]

What Congress really needs to do is shut the door on this entirely.

Let's take my old company - 100% US operations, derived 60% of revenue from the Government.
Opened a "Licencing/Intellectual Property" subsidiary in the Bahamas. This subsidiary charged a fee of seven percent of revenue to the main company for the company using the name of the company (i.e. for the goodwill/value of the company name). This seven percent was an expense on the US operations books, so lowered taxable income by that amount. The revenue of the Bahamanian company was virtually non-taxed by the Bahamas.

I felt this was immoral and dishonest. My CFO felt similiar, but felt he had to, since it was legal and all our competitors did the same. He was afraid if he didn't, the company would be liable to shareholder lawsuits for wasting money.

Yes that is not a good thing and it is also used to reallocate state revenues from high tax states to low tax states.

I do think the US could themselves of world of good if they did not take world-wide income. TAx what is generated in the US, attempt to stop phoney loans from subsidiaries, but allow legitimate earnings in different countries to be re-patriated without being taxed at the US rate.

That's the big problem. The US taxes the hell out of repatriated earnings right now. The American Jobs Creation Act allowed for a one-time dividends received deduction in 2005 that allowed companies to repatriate money, but the law, while good intentioned, wasn't well thought out and was nearly impossible to enforce properly (requirements were very vague), and was for one year only.

There was some talk a few months ago about a similar act being passed now because most major US companies have a ton of cash sitting offshore and could use it now with the credit market being what it is.

[dbackjon]

What Congress really needs to do is shut the door on this entirely.

Let's take my old company - 100% US operations, derived 60% of revenue from the Government.
Opened a "Licencing/Intellectual Property" subsidiary in the Bahamas. This subsidiary charged a fee of seven percent of revenue to the main company for the company using the name of the company (i.e. for the goodwill/value of the company name). This seven percent was an expense on the US operations books, so lowered taxable income by that amount. The revenue of the Bahamanian company was virtually non-taxed by the Bahamas.

I felt this was immoral and dishonest. My CFO felt similiar, but felt he had to, since it was legal and all our competitors did the same. He was afraid if he didn't, the company would be liable to shareholder lawsuits for wasting money.

I do not think its immoral or dishonest. It is using the system to your advantage. Don't hate the player, hate the game. (no better way to explain it). Perhaps I've just convinced myself of that because its what pays my bills.

The use of offshore IP holding companies was pretty much halted in January of this year when the IRS issued new Cost-Sharing regulations. In your scenario above the US company would now have to be compensated by the offshore entity in advance and would be subject to taxation on the entire value immediately. This does not effect current structures, but it will preclude new ones.

This practice was used by most pharmaceutical companies to get IP related to blockbuster drugs offshore after they had been developed by onshore R&D efforts. Ireland's big business is pharmaceutical production and it provides a special low tax rate for Pharma companies.

Good to hear that it is being closed.

[dgreco]

so charge interest at 25% on all back taxes lost. That will make up for 1% of the problem

[HI54UNI]

I have a better idea. Why not make the US a tax haven for companies that are headquartered anywhere else in the world? All that money would be here in the US working in our economy.

Ding ding ding! We have a winner!

Oh wait, that would make sense. Nevermind.

[Ivytalk]

They're closing LIECHTENSTEIN??? Those bastards!

[travelinman67]

They're closing LIECHTENSTEIN??? Those bastards!

Yes...but Leinenkugel is still a safe haven.

[AZGrizFan]

I have a better idea. Why not make the US a tax haven for companies that are headquartered anywhere else in the world? All that money would be here in the US working in our economy.

Yeah, that'd go over REAL well with the tax and tax set.