One little-mentioned topic in the debate over how to solve the nation’s $16 trillion debt crisis is overseas profits and how companies are taxed on them. Because the current tax code allows corporations to defer taxes on foreign income—which Bloomberg estimates at $187 billion—many opt to keep it overseas indefinitely rather than pay the IRS, at a rate of 35 percent, to repatriate the money. Kimberly Clausing, an economics professor at Reed College, says the U.S. Treasury lost $90 billion (PDF) in 2008 due to multinationals legally avoiding tax payments by leaving money overseas.
Staffers on the Senate’s subcommittee on investigations recently found that Microsoft booked profits in three offshore subsidiaries, an accounting technique that according to the Senate investigators enabled the company to shave $6.5 billion off its tax bill over the past three years. The subcommittee also reported that HP had its overseas subsidiaries make loans to the parent company in the U.S., a way to move money back home without being taxed on it, the subcommittee said. My Bloomberg News colleague Jesse Drucker has reported that from 2007 to 2009, Google avoided paying $3.1 billion in taxes on foreign profits.
Source: Bloomberg Businessweek. Read full article. (link)