Can Someone Explain The Whole Tax Incentives For Offshoring Business?

[Ravenseye]

I'm not sure I totally understand what people are talking about when we say we want to eliminate the tax breaks for companies that offshore business. What tax breaks?

I spoke with a few people, MBA's, who told me the only tax break they were aware of was (I forget what they called it) a reciprical tax arrangement with foreign companies. Basically they said that if Company A made widgets in the U.S. they get taxed at lets say 20% hypothetically for easy math. Then they close that factory, and open a factory in Country X. Country X taxes then at 15%. Then the U.S. only taxes the company 5% on the goods. If Country X taxed them 25% the U.S. wouldn't tax Company A at all. The same thing happens for other companies. If a German owned company here pays 20% in tax, but at home in Germany they'd be taxed 40% then Germany only taxes them 20%.

Now the only thing they could figure out that people were talking about was this. They basically said there was no real way to do this because then other countries would also recind the agreements. The foreign owned companies here would bail , becuase say the German Company wouldn't want to pay the 20% tax here, plus the 40% tax at home.

That made sense to me.

My question is are we missing something? If so what? If not, how would recinding these agreements make any sense? Wouldn't they cost us more jobs, and make us more isolationist from the rest of the world?

Please explain.

[papau]

1. There is a deferral of tax until the earnings are brought into the US

But Bush is putting through a one year 5% max tax on such earnings brought back to the US - in lieu of the usually 33%.

In any case - it is the deferral that is under the gun of outsourcing benefits reduction.

A play within that is to get a nominal service fee in some country to be called an equivalent to a income tax in the US - so we - the IRS - in effect pays some of your overhead overseas. (this is under the tax offset provisions your friends made mention of)

The big game is the royalty/patent game where we suck all US earnings out from under the IRS by moving the income offshore where it is not taxed. There is a section of the code - 482 - that runs one paragraph - that tries to stop this - but Bush is not "enforcing" that code at this time.