So basically, dropbox makes a public announcement to tell the world (and the shareholders) they're now engaging in tax evasion in Europe to make better profit.
I'm guessing he's actually referring to tax avoidance. Not sure how long it will last though as the UK is going be clamping down on this http://www.bbc.co.uk/news/business-20559791
"better profit" but only in the eyes of accountants, for a while.
The money you've paid less tax on is still offshore. If you want to bring it back to your country then you have to pay tax on it (minus what you've paid already overseas) so it's not just a simple scheme to minimise tax. If you need the money to maintain cash flow then you've got no real choice but to pay full whack on it to get it back into the US.
What many US companies are doing is hoarding huge piles of it overseas in the hope that the US will have another tax amnesty (like 2004) and they can bring it back in to the US without paying as much tax as they would have had they just paid it in the US in the first place.
Here's a simplified example based roughly on real figures.
Take a US company that makes a $1bn profit in a year. They would have to pay 35% tax on that if they kept it in the US.
Using a Double Irish Agreement and paying a $1bn fee to those foreign entities in Ireland/Cayman Islands they make $0 profit in the US and pay $0 corporation tax. In Ireland they pay 12.5% tax on that money, so Ireland get $125m.
Meanwhile the cash sits overseas and the US company can't use it. If they wanted to bring it back to the UK they'd need to pay a $225m tax bill (35% tax on $1bn minus what is paid overseas); it's unsurprisingly more complicated than that but we'll leave it simple. It's also earning interest overseas but we'll ignore that for this example.
What they can do is bung this $225m on the balance sheet as a future tax liability, since if the worst happens and they run in to cash flow problems they'd have to bring all of the original money back into the US and pay remaining tax on it. Ironically, this means they can offset even more profits against this liability.
Anyway, they wait until the US has a tax amnesty for bringing back money from overseas (last one in 2004) and then pay a fraction of the tax they would have originally. The current campaign is for an amnesty rate of just 5.25%
technically it's not illegal, but completely immoral. Imagine if I channelled all my PAYE taxes through an offshore company, who would pay for our health system, infrastructure etc.
They're not expanding to Ireland. That's the point. Now they route all transactions from non-US customers through the Irish subsidiary and keep their money over there. They pay up 15% or whatever the tax rate is instead of the 35% over here. They keep the profits there waiting for a tax holiday, then move the money back when that happens. They can probably even claim the 15% as a foreign tax credit during the tax holiday.
Pretty simple. :)
While not illegal, it's a little bit dodgy. But it's what everyone does these days, so why not?
I'm not suggesting that is why Dropbox are moving to Ireland. I'm saying that if that was the reason as brought up by the OP then they should be aware of current events in the UK where companies like Amazon are making billions of pounds in the UK and paying virtually no tax - even though they use our roads and infrastructure to conduct their business.
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So basically, dropbox makes a public announcement to tell the world (and the shareholders) they're now engaging in tax evasion in Europe to make better profit.
Hopefully they'll have a better story for the european authorities later on, not like starbucks, amazon or google: http://www.taxresearch.org.uk/Blog/2012/11/13/starbucks-goog...
Tax evasion is illegal. I doubt this is illegal, as that would be an incredibly dumb move, so it's not tax evasion.
> (and the shareholders)
Well of course they are telling their shareholders: they must be rejoicing with the news!
Makes you wonder why we don't lower our corporate tax rate in the U.S. Hell, both presidential candidates this election cycle agreed on that.
I'm guessing he's actually referring to tax avoidance. Not sure how long it will last though as the UK is going be clamping down on this http://www.bbc.co.uk/news/business-20559791
"better profit" but only in the eyes of accountants, for a while.
The money you've paid less tax on is still offshore. If you want to bring it back to your country then you have to pay tax on it (minus what you've paid already overseas) so it's not just a simple scheme to minimise tax. If you need the money to maintain cash flow then you've got no real choice but to pay full whack on it to get it back into the US.
What many US companies are doing is hoarding huge piles of it overseas in the hope that the US will have another tax amnesty (like 2004) and they can bring it back in to the US without paying as much tax as they would have had they just paid it in the US in the first place.
Here's a simplified example based roughly on real figures.
Take a US company that makes a $1bn profit in a year. They would have to pay 35% tax on that if they kept it in the US.
Using a Double Irish Agreement and paying a $1bn fee to those foreign entities in Ireland/Cayman Islands they make $0 profit in the US and pay $0 corporation tax. In Ireland they pay 12.5% tax on that money, so Ireland get $125m.
Meanwhile the cash sits overseas and the US company can't use it. If they wanted to bring it back to the UK they'd need to pay a $225m tax bill (35% tax on $1bn minus what is paid overseas); it's unsurprisingly more complicated than that but we'll leave it simple. It's also earning interest overseas but we'll ignore that for this example.
What they can do is bung this $225m on the balance sheet as a future tax liability, since if the worst happens and they run in to cash flow problems they'd have to bring all of the original money back into the US and pay remaining tax on it. Ironically, this means they can offset even more profits against this liability.
Anyway, they wait until the US has a tax amnesty for bringing back money from overseas (last one in 2004) and then pay a fraction of the tax they would have originally. The current campaign is for an amnesty rate of just 5.25%
How much is this used, and on what scale?
If you believe the numbers in this article: http://news.yahoo.com/apples-phantom-taxes-hide-billions-pro... then Apple has $74bn in cash accounts overseas.
... or, at one point, they say "fuck it" and go invest in the tax-friendly haven of the day in some burgeoning Asian market.
There's nothing illegal about minimizing your tax burden using lawful techniques.
technically it's not illegal, but completely immoral. Imagine if I channelled all my PAYE taxes through an offshore company, who would pay for our health system, infrastructure etc.
So, any company expanding from the US to Ireland is "completely immoral", because it's Ireland?
They're not expanding to Ireland. That's the point. Now they route all transactions from non-US customers through the Irish subsidiary and keep their money over there. They pay up 15% or whatever the tax rate is instead of the 35% over here. They keep the profits there waiting for a tax holiday, then move the money back when that happens. They can probably even claim the 15% as a foreign tax credit during the tax holiday.
Pretty simple. :)
While not illegal, it's a little bit dodgy. But it's what everyone does these days, so why not?
no.
I'm not suggesting that is why Dropbox are moving to Ireland. I'm saying that if that was the reason as brought up by the OP then they should be aware of current events in the UK where companies like Amazon are making billions of pounds in the UK and paying virtually no tax - even though they use our roads and infrastructure to conduct their business.
Avoidance, but it's still shitty and wrong.