International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product (GDP). In international tax strategies, we take advantage of tax rate differentials among 171 countries to cut income tax to the legal minimum. There are a wide variety of tax rates among nations & other jurisdictions that can be mined for substantial tax savings.
With any system of taxation, it is possible to shift or re-characterize income in a manner that reduces tax. However, internationally, it’s not as simple as simply transferring money from company to company,. Transfer pricing rules come into play. (We don’t recommend those approaches.) But if you have a valid business purpose, everything becomes possible. Agreements among governments (treaties) often provide a framework of what is subject to taxation, and what is not. In addition, most tax treaties provide for at least a skeleton mechanism for resolution of disputes between the parties.
Most countries in the world levy income tax on both individuals & businesses. Many countries have tax treaties with the United States that govern how the country will tax U.S. based companies or citizens. However, there are a number of tax havens that either don’t tax income or tax it more leniently than other world governments. These are know as ‘Tax Havens‘ World systems of taxation vary widely, and there are no broad general rules. Plus We mix & match 200 countries with different tax rates for overall tax savings. We do the same thing multinationals do.
This has led to a cottage industry of foreign tax shelters of overseas business income.
We explore tax saving opportunities provided by differences in tax rates among 200 countries. There are a wide variety of tax rates & methodologies among nations that can be mined for tax savings. We explore maneuverability opportunities related to international commerce.
How U.S. tax reform rewards companies that shift profit to tax havens. This is the approach we basically use. Nothing tricky here. But, you don’t ‘want to make a mistake, or (2) leave money on the table. This is nowhere for lesser talents to be fiddling around.
Most of the Global 5000, including Apple, Google & Caterpillar elected to do something different. Why the did that when the strategy immediately above works like a charm, who knows. They aren’t talking. They utilize different foreign tax shelters that have kept them continuously in hot water. Caterpillar absolutely pushed the envelop to far. Apple got it right but the EU retroactively changed the rules and came after them. Apple sat down the the Irish government and signed a contract that what they intended to do was legal. But the EU recently got involved and sued Apple & Ireland for back taxes. And as everyone knows, governments win 90% of the time. Apple has been all over the news recently because of their Double Irish & a Dutch Sandwich tax strategy. This is a transfer pricing strategy.
This points out two primary lessons.
One. Don’t push the envelop. Stick with the tried & true approaches that have proven successful for years, and are even shored up in recent tax reform. Two. Don’t be a multinational.
International taxation can become a massive competitive advantage. Consider Apple. Although they are litigating right now, Apple was on the verge of bankruptcy when Steve Jobs returned in 1997. He laid off 2/3 of the staff and cut cut costs to save Apple. I don’t know if he was responsible, but that is about the time the Double Irish tax strategy was implemented. From then until 2011, 14 years later, they were continually profitable until Apple became the most valuable company in the world. They have continued profitable and most valuable company until this day. Apple even became the first trillion dollar company for a bit in 2018.
I believe Apple is getting screwed by the EU. But that’s not uncommon. Dolce & Gabanni similarly got screwed, but they won in court. Hopefully Apple will too.
The EU is deadly opposed to any favorable tax treatment for businesses or individuals. However, the primary tax device among EU countries are the Value Added Tax, which is somewhat like a sales tax that is levied against anything sold in the EU. Income tax is not a significant business tax in the EU. So it’s generally not a problem for companies. However, Apple specifically used the Double Irish tax strategy to avoid US taxes, not EU taxes. Then ten years after the fact, EU brought a tax avoidance case against Apple. From what I can tell, they are attempting to force Apple into double taxation. Although Apple has delayed bringing overseas profits back home because of high US tax rates, they are still subject to US tax. If the EU is also allowed to tax the same profits, that will make Apple subject to double taxation. The Wall Street Journal doesn’t thing Apple can win the case. The case in ongoing.
We are experts at helping businesses immigrate into the U.S.where they have to deal with a more complex tax environment. No other country has the complexity of 50 different state income taxes. Plus sales tax is an oddity in the world, but each state, city & various special taxing districts in the United States can levy sales tax on a sale. This is easily handled, but it can be daunting to a foreign company not expecting the complexity.
We help foreign companies immigrate to the US. Turmoil in other countries, notably South Africa, combined with our current tax atmosphere is making the US look very appealing. Especially if they are doing business internationally. US taxation from sales tax to state Income tax and Federal income tax leaves them shaking their heads. Many don’t have an international tax strategy in place either. These companies can save a tremendous amount of headaches and taxes by using Ellis to navigate US tax issues. If you refer them to us, we will take good care of them. And in the process you can increase your influence as a trusted adviser or savvy businessman.