Reply #23: This will most likely be revenue neutral

[joeglow3]

A few months ago, our VP asked me to look at the impact a number of the proposed tax changes would have (I work in the tax department). Since I do not work on international taxes (I do primarily Federal), I went to the international group to talk to them. For those who do not know, the provision Obama is talking about is the deferral of taxes on un-patriated income. Here is a quick summary of how it works:

If I manufacture a good in the US and sell it to China, I will most likely have a Chinese company set up that will be able to employ salespeople in China, familiar to their customs. I have to do what is called a transfer pricing study that is an outside study showing what I would have to sell this product for if my sub. In China were not related to me. This then tells me the revenue that the US company must recognize. The Chinese company then sells the product in China and the remaining revenue is taxed in China. The US company does not pay any taxes on the Chinese company’s profits until the money is sent back to the US. Thus, if the money is reinvested in the Chinese company, a company is able defer paying US taxes until said time it is sent back to the US
They raised a couple interesting points:
1. Is this the reason companies are shipping jobs overseas? Most likely it is due to rock bottom wages and absolutely NO environmental laws.
2. Most all other countries in the world have the same provision in their tax codes. Thus, there would be the risk that in the long term, companies would begin to move their headquarters overseas.
The belief of many international experts (per one person I was talking to) was that Obama would decrease the corporate tax rate as an offset to this. This would allow the companies to be in essentially the same competitive position they are currently in as it relates to the global market.

Thus, those companies with a higher percentage of their income coming from overseas would see their taxes go up, while those that do the majority of the business in US would see theirs go down.

Anyway, this is my 2 cents that I have learned about this.