US Firms Ask For Off-Shore Profits “Tax Holiday”

American corporate leaders who met with President Obama in the run-up to Christmas asking for a “tax holiday” if they repatriated money held in off-shore domiciles like Bermuda, have already found ingenious methods of avoiding the US taxman, Bloomberg is reporting.

The on-line business and financial news service says at the December 15 meeting leading executives claimed the estimated $1  trillion sitting in island accounts would stimulate the American economy and help to create new jobs if the White House allowed corporations to bring the money back on-shore without being taxed at the standard 35 per cent rate.

“What nobody’s saying publicly is that US multinationals are already finding legal ways to avoid that tax,” reports Bloomberg. “Over the years, they’ve brought cash home, tax-free, employing strategies with nicknames worthy of 1970s conspiracy thrillers — including ‘the Killer B’ and ‘the Deadly D’ … ‘Sophisticated US companies are routinely repatriating hundreds of billions of dollars in foreign earnings and paying trivially small US taxes on those repatriations’, said Edward D. Kleinbard, a law professor at the University of Southern California in Los Angeles. ‘They devote enormous resources first to moving income to tax havens, and then to bringing those profits back to the US at the lowest possible tax cost’ …”

And the corporations’ argument a new tax break for off-shore earnings would create a domestic stimulus “holds no water at all,” Joel B. Slemrod, an economics professor at the University of Michigan’s school of business and former senior tax economist for President Reagan’s Council of Economic Advisers, told Bloomberg.

“The fact that they have these cash hoards suggests that investment is not being constrained by lack of cash,” Mr. Slemrod told Bloomberg

Bloomberg cited the case of  Internet giant Google as an example of a US multi-nationals boosting earnings by shifting income out of America via transfer pricing, a system allowing them to allocate costs to subsidiaries in high-tax countries and profits to tax-neutral off-shore jurisdictions like Bermuda. Google Inc. cut its taxes by $3.1 billion in the last three years by moving most of the income it attributed overseas ultimately to Bermuda.

A follow-up meeting between the corporate executives and US Treasury Secretary Timothy Geithner has apparently been scheduled.

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