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Sunday, January 11, 2015

How to get away with paying less taxes



 By:  Avi Parshan
The United States has a very high corporate income tax rate, up to 35 percent. Some American lawyers have found a loophole in the tax system to avoid paying this tax. The companies that use this loophole only need to pay foreign tax rates, not the hefty American percentage. The United States Government needs to fix the tax loophole by creating legislation to punish those that invert to other countries for tax purp­­­­­oses and lowering the cooperate tax rate, so companies will not want to leave.
There are multiple ways to invert a business. The first kind is when the company acquires a smaller company, based internationally, and moves their headquarters to that country. An example of this is when Burger King, a United States based company, purchased the Tim Horton’s chain, which is located in Canada, for 11.4 billion United States Dollars (Jargon). Eventually, Burger King will move their headquarters to Canada and pay taxes at a significantly lower rate. Canada approved the merger because they have nothing to lose. Canada will receive more tax revenue from Burger King.
The second type of inversion is where the company only relocates on paper, but does not move their company to another country. Apple, Microsoft, Google, Amazon, and many others have inverted this way. All they had to do is classify a certain amount of their business as foreign and it stays offshore. But, they will pay the corporate income tax when they bring money back into The United States.
These are multi-billion dollar companies that are trying to make another cent by moving. Be aware that inverting United States based companies is already ruining the economy. U.S. multinationals have as much as 1.8 trillion dollars in what are called "permanently reinvested earnings" offshore (Sahadi). If that money was brought back to the United States, it would be taxed at the corporate rate in addition to what the company paid the other government already.
The United States government will lose 19.5 billion dollars in tax revenue, because of the companies that inverted and more that are predicted to invert in the future (Sloan). Because The United States Treasury will lose money, they will have to find other ways to get it back. In return, the average American citizen ends up losing out by having to pay higher tax rates.
By inverting, these huge companies take advantage of the United States financial markets. The publicly traded companies, like Apple, Microsoft, and Burger-King are still traded on the United States Stock Exchange. Because they are not international stocks, it is easy for United States investors to purchase shares without being bombarded by the extraneous fees.
The majority of the inverted companies still do most of their business in the United States. They are taking advantage of the economy without paying their share back. They are, essentially, dodging taxes. Legally, there is nothing wrong with inverting your company, but morally it is very incorrect.
There are a few ways to solve one problem. The United States government failed to make their tax rules globally competitive. That is why so many companies have inverted. But, if the United States government lowers the corporate tax rate, they will be able to compete with other countries to officially bring the inverted companies back.
The American government needs to fix the tax inversion loophole. They can punish those companies that inverted. Alternatively, they can lower the corporate tax rate and hopefully companies will come back. Either way, the United States government will get some of their money back. ­­­­­­

Works Cited
"Burger King in Talks to Buy Tim Hortons in Tax Inversion Deal." TheGuardian.com. The Guardian, 25 Aug. 2014. Web. 15 Dec. 2014.
Drawbaugh, Kevin. "Burger King's Move To Canada Could Save It $275 Million In Taxes." HuffingtonPost.com. The Huffington Post, 11 Dec. 2014. Web. 16 Dec. 2014.
"Fact Sheet: Treasury Actions to Rein in Corporate Tax Inversions." Treasury.gov. U.S. Department of Treasury, 22 Sept. 2014. Web. 16 Dec. 2014.
Gunther, Marc. "Ending the Race to the Bottom: Why Responsible Companies Should Pay Taxes." TheGuardian.com. The Guardian, 22 July 2014. Web. 15 Dec. 2014.
Jargon, Julie. "Burger King Defends Plan to Buy Tim Hortons." WSJ.com. The Wall Street Journal, 26 Aug. 2014. Web. 11 Jan. 2015.
Korte, Gregory. "Treasury Cracks down on Corporate Tax 'inversions'" USAToday.com. USA Today, 22 Sept. 2014. Web. 12 Dec. 2014.
McCoy, Kevin. "Corporate Inversions Mean Tax Hit for Shareholders." USAToday.com. USA Today, 23 Sept. 2014. Web. 16 Dec. 2014.
Patton, Mike. "Will Tax Inversions Sink The U.S. Economy?" Forbes.com. Forbes Magazine, 21 Aug. 2014. Web. 23 Dec. 2014.
Process, The. "Obama Administration Takes First Steps against Tax 'inversions'" CNN.com. Cable News Network, 22 Sept. 2014. Web. 12 Dec. 2014.
Sahadi, Jeanne. "The Myth of Corporate America's Offshore Cash." CNN.com. Cable News Network, 10 July 2013. Web. 17 Dec. 2014.
Shoen, John W. "How Does a Corporate 'Tax Inversion' Work?" NBCNews.com. NBC News, 23 Sept. 2014. Web. 15 Dec. 2014.
Sloan, Allan. "Positively Un-American Tax dodges." Fortune.com. Fortune, 07 July 2014. Web. 15 Dec. 2014.
Sorkin, Andrew Ross. "Reluctantly, Patriot Flees Homeland for Greener Tax Pastures." NYTimes.com. New York Times, 14 July 2014. Web. 15 Dec. 2014.
Subramanian, Prass. "Treasury’s New Rules Won't Kill Tax Inversions: Josh Brown." Yahoo.com. Yahoo, 23 Sept. 2014. Web. 15 Dec. 2014.
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