In the discussion thread: An Easy Way to Squeeze a Lot of Taxes from Corporations That Try to Hide Their Profits Offshore [View all]
Response to xchrom (Original post)
Mon Sep 2, 2013, 08:55 AM
alc (1,000 posts)
8. it's not that easy
Foreign profits are made by entities much closer to independent franchises than to divisions of a US company. They pay license fees to the US company for the name/formulas/patents and have restrictions on what they can do, but are legal corporations under a non-US government.
For example, we see "Coca-cola Company". But it's actually 100s of corporations such as (I'm making up the entities but it's how most global corporations are organized)
* Coca-cola US, Inc
* Coca-cola Japan, Inc
* Coca-cola Tokyo Bottling Company, Inc
The first owns most of the stock in the 2nd which owns most of the stock in the 3rd. There doesn't even have to be a stock ownership relation just naming agreements. The second two pay licensing fees to the first for names and patents. The second one makes no profit. The third one can keep all of it's profit.
Japan insists that the last incorporation exists if coke is to be bottled in Tokyo (a legal local entity for law suits and to tax). Japan would be pretty pissed if the US started trying to tax Japanese companies.
The Tokyo company has a few options with it's profits.
* Leave them in a Japanese bank
* Loan them to another company. Any company could get the funds but it will likely be a sister company (i.e. Coca-cola Istanbul, Inc) or a company that can facility Coke's business (e.g. an independent "Beverage Distribution Services Turkey, Inc"). This helps the Coke brand grow in another country as Coke competes with non-US country in the international market.
* Give the profits to the Japan company which may give them to the US company if it wants.
For the US government to collect taxes, it would need to collect it based on stock ownership, not corporate profit. That's a HUGE change, not a simple change and the affects go way beyond this 3 corp example above. Corporations can respond by reducing/modifying sock ownership - in some countries the US company can't legally be the majority stock holder any how.
The other place this comes into play is on mergers which will be happening as many regional companies start competing in new markets with 2 billion+ consumers. First, if coke pays US taxes on it's global profits, it will have less global money to invest in emerging markets. Second, all of the major soda companies are probably going to combine until 2 or 3 are left (it happens in most markets that many brands die or merge until a few are left). Profits and taxes will be a huge factor in deciding which legal entity remains as headquarters after the merge.
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|Half-Century Man||Sep 2013||#10|
it's not that easy
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