Paul L. Caron

Wednesday, April 8, 2020

WSJ: Companies Save Billions In Taxes By Shifting Assets Around Globe

Richard Rubin (Wall Street Journal), Companies Save Billions in Taxes by Shifting Assets Around Globe:

Multinational corporations are devising new strategies to keep their taxes low, saving billions of dollars by navigating around attempts by the U.S. and European countries to tighten the tax net.

Companies that prospered for years with low tax rates are learning how to keep them that way, even as political pressure builds to tax them more. They are doing so by moving intangible assets such as patents and trademarks between subsidiaries and across borders.The moves don’t fundamentally change a company’s operations or pretax profit, but they can generate significant new deductions that can offset income for years or ensure that income gets taxed at lower rates.

More than a dozen major U.S. companies—including ViacomCBS Inc., Gilead Sciences Inc. and Activision Blizzard Inc. —have disclosed such maneuvers, reporting total future tax savings of at least $13.6 billion, according to a review of recent securities filings that companies completed prior to the coronavirus pandemic.

Before the U.S. and Europe changed their tax laws over the past few years, American companies had a cut-and-paste model for global tax planning. They transferred intellectual property—or the rights to use it—to foreign subsidiaries.

Because taxation is tied to places where value is created, companies could reduce their tax bills by moving those assets, and the profits they generated, to subsidiaries outside the U.S. or other high-tax countries. In many cases, those subsidiaries ultimately reported their profits in places without corporate taxes such as Bermuda or the Cayman Islands. ...

Tax professionals caution that the international tax system remains in an unusual state of flux, making it difficult for companies to make the forecasts needed for long-term decisions. Countries are still trying to craft new rules on where corporate profits are taxed, and U.S. tax rules and low rates could change quickly if Democrats retake Congress and the White House in 2020.

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