Thursday, January 18, 2018

Companies Don't Have To Bring Money Back From Overseas

It really makes me wonder how Americans are so easily duped. Who cares about corporate taxes. If rates are higher-- no problem. It's all quite simple really.

Suppose a American company's separately registered foreign subsidiary leaves a billion dollars overseas. It's American counterpart needs five hundred million dollars here in the states. All they have to do to bring it here is borrow the money from themselves in that country. There are several advantages (besides being able to move money home tax free).

First is why bother with seeking bank approvals. Their foreign enterprise is able to loan it to themselves at lower rates then banks domestically could regardless the risk. Thus shareholders are benefited by below market rates. Secondly repayment of the loan's interest (to themselves) enables them to deduct this from their taxes here in the United States. If taxes go up all they need to is increase the interest rate they charge themselves. This scheme works whether a company has many shareholders or is wholly owned by a wealthy individual. Thus there is a incentive to continue leaving some of their loot in other countries.

The only reason any company might move their money back here is if the tax rates become higher overseas. What happens in the future remains to be seen. Some countries have already responded by lowering their corporate taxes to match ours. I wouldn't expect a huge surge suddenly to begin washing up on the shores of the U.S.

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