Google (Nasdaq: GOOG) is among a number of high-profile tech companies lobbying for a tax holiday to repatriate earnings from offshore. I'm wondering how much of a holiday Google needs from the 2.4 percent tax rate it is currently paying on its overseas earnings.
In October 2010, Yahoo Finance's Economics Editor Daniel Gross wrote an article skewering companies that managed to take advantage of tax breaks while lobbying for US tax reform. Here's an excerpt from the article:
This is all a little rich—and I’m not talking just about the executives. Yes, a temporary tax holiday might encourage companies to import dollars. After the 2004 Homeland Investment Act offered a special 5.25 percent rate for repatriated profits, 843 companies brought back $362 billion, according to the IRS. But it’s not clear whether the cash was used to hire workers and build plants—or to pay big salaries to top executives.
Bloomberg’s Jesse Drucker reported in October that do-no-evil Google managed to pay taxes on overseas earnings at a measly 2.4 percent rate by employing strategies that sound like titles of movies you wouldn’t want to catch your teenage son watching: the “Double Irish” and the “Dutch Sandwich.”
Companies view taxes as either a form of punishment or a system to be gamed to the max. In reality, taxes are the price of citizenship. Large companies like Google are like members of a country club who are content to reap all the benefits of membership—government support for computer-science research, in Google’s case—but who go to great lengths to avoid kicking in for landscaping.
Take General Electric, whose CFO has advocated for a tax holiday. GE gets huge benefits by virtue of its domicile in Fairfield, Conn. During the financial crisis, its GE Capital unit was a prodigious user of taxpayer-backed debt guarantees. GE’s infrastructure and energy units are major beneficiaries of stimulus funds and programs that assist the construction of alternative-energy facilities. And CEO Jeffrey Immelt will meet in India this month with President Obama, who will push his hosts to import more goods from companies like... GE.
You would think the company would go out of its way to make sure that the U.S. government has solid funding. You’d think wrong. As Chris Hellman wrote in Forbes earlier this year, “Last year the conglomerate generated $10.3 billion in pretax income, but ended up owing nothing to Uncle Sam.” In 2009 GE said its nonfinancial business would have owed taxes equal to about 26 percent of its pretax profits. But thanks to the (poor) performance of its financial-services units, GE was able to claim a net $1.09 billion tax benefit for the year.
Google, along with Adobe Systems Inc. (Nasdaq: ADBE), Apple Inc. (Nasdaq: AAPL), Broadcom Corp. (Nasdaq: BRCM), CA Technologies (Nasdaq: CA), Cisco Systems Inc. (Nasdaq: CSCO), EMC Corp. (NYSE: EMC), Microsoft Corp. (Nasdaq: MSFT), Oracle Corp. (Nasdaq: ORCL), and Qualcomm Inc. (Nasdaq: QCOM) are lobbying the US Congress for a tax holiday to repatriate more than $1 trillion in cash outside the country. These funds, they say, can be used to create jobs at home.
As I wrote elsewhere, the companies are doing what governments permit. The claims by companies are given sincere attention by government, because companies are powerful speakers. Why should government listen to its puny electorate, anyway? They don't seem to matter.
Government expenditures and revenues are in need of some adjustment, with many locked-in relief and wartime programs that stagnate the US financial picture. Corporate grievances about taxes, though, carry zero legitimacy as long as the tax burden on the majority of individuals in this country is not addressed as well. Companies take their business to foreign lands where their safe passage is guaranteed by not only American's hard-earned money, but the lives of its soldiers. Then they whine about not getting a free ride, and use the word 'repatriation' like we're supposed to be overjoyed to see them carry their share of the tax burden. If the people running these companies don't want to make their headquarters in the US, I for one will not be sad to see them change their citizenship entirely.
This is just unfair! I do understand government incentives for large corporations to encourage local investments etc. But these continued breaks for the rich with no tax holidays for ordinary Americans is unacceptable.
But that doesn't mean that companies should bargain for tax holiday to repatriate earnings from offshore. This shows the oppurtunistic nature of the companies. As pointed out in the article Google managed to pay taxes on overseas earnings at a measly 2.4 percent rate by employing strategies. I just wonder if 2.4% is such a big number?
"A stark example of the fundamental unfairness that is now so widespread was in The New York Times on Friday under the headline: “G.E.’s Strategies Let It Avoid Taxes Altogether.” Despite profits of $14.2 billion — $5.1 billion from its operations in the United States — General Electric did not have to pay any U.S. taxes last year."
The CEO of GE will be travelling with President Obama to India soon to talk about opening a new manufacturing facility there. Does anyone really think this tax holiday is going to do more than increase the padding in already fully lined pockets of the privelaged few?
Why should the wallowing and disappearing middle class shoulder the tax burden of the few who hold >60% of the wealth in the US.
If companies want tax breaks to bring operations back to the US, then they have to somehow prove that the money is being spent according to the deal and not to just show better profits so that upper level management gets a bigger bonus. I'm not sure who these companies think they are cheating, the US economy is struggling and unemployment is still high. If we continue going down this path, where will we end up? How is it fair that the consumer as well as the smaller business gets to pay higher taxes than the company that is hoarding cash while shipping employment overseas. Who doesn't see the inequity in this formula?
I believe the one-time infusion of cash won't do much to stimulate the economy, anyway. In order to create long-term investment and jobs, the overall tax program has to be rehauled. On paper, the corporate tax rate is something like 35%. In reality, loopholes make it lower. If the US could come to a happy medium, then compnaies wouldn't be so anxious to keep money overseas.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.