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| Tax out of their paycheck. |
Let me simplify and explain one way, which was told to me many years ago, 1974 I think, when I asked Jerry, my best friend and an officer for Reynolds & Company, (which, with progressions, morphed into Morgan Stanley)a simple question.
"Jerry I just came back from the Bahamas and I have a question for you. On Bay Street in Nassau there is a small building, it doesn't look much like an office building, and the walls of the outside of the building are covered with lots and lots of official company plaques. As a matter of fact there are so many of them you can hardly see the walls of the building. Those plaques show the names of some of our largest well known corporations."
"As I matter of act I think I did see a plaque for U.S. Steel."
Jerry, "Look I got some work to do so if you don't interrupt me, I'll explain it to you. But don't interrupt me. Goes like this, lets say a US corporation sells a $1million dollar shipment of their product out of the country to, say France. The entire shipment including, shipping, labor, material and all other operating expenses cost them a half million, ($500,000.00). Even you know if they don't include the $500.000.00 profit in their income statement, it is not subject to income taxes. Here is how they can do that because of a page in the tax code that was sponsored by lobbyists..
They form a Bahamian Corporation which becomes a subsidiary they own. It can be in a building on Bay Street with their plaque on the outside. That's the building you saw. Got it? Keep quiet. I'm in a hurry. They use this company as their foreign sales agent. Then they tell the French company, the one they have this deal with, that the deal will be with their sales agent corp., in Nassau. Next, they sell the shipment to the Bahamian.company who in turn sell it to the foreign buyer in France. The Nassau company pays $501,000.00 to the parent US company ($1.000.00 taxable profit) for the shipment and they (Nassau) bill and receive $1,000.000.00 from the French buyer. Don't talk.. All the work, shipping,etc., occurs as a normal transaction for each company, Result, the foreign sales agent makes $499,000.00 profit and since Nassau has no income tax."
"What happens to the money? The profit?"
"I knew you couldn't keep quiet. Why do you think some of the biggest banks in the world have branches in Nassau and the Cayman Islands? The money remains out of the US and if they invest it and earn interest, no taxes are paid on that either. Until the U.S. company can think of ways to bring it back in without paying U.S. taxes. Like say borrowing. If they do that they even have a chance of charging themselves interest which is of course tax deductible. Or their lobbyists can get a bill passed to allow returning the money to the US at some low rate. Now you can talk, I'm finished, but I do have to go."
"OK goodbye, thank you."
Its a different story now, much more sophisticated, they now build complete facilities, infrastructure and all, and call them foreign companies, even if they own or control it. That company, legally, for U.S. tax purposes, is in a foreign land using much cheaper labor further reducing costs. It can also lend money to the US company.. As an example you could take an entire business. Say computer manufacturing. Sell the whole shebang to a foreign company and change the name of the product. That should complete the picture. Now it looks like a product produced in the foreign country, say China, Korea, or India, which it is. But when it happened before it was recognized as a U.S. company.
So that's the story of what businesses in this country are doing and where its headed. Are they creating more jobs here?. No. Well a few new jobs, yes but all plant workers are in the foreign country.. More lobbyists are used to help stop regulations from stopping them and also to put new pages in the tax code. All with the full cooperation and endorsement of politicians who tell you how much they love the U.S.
P.S. Today its much simpler. Building new factories and superstructure in foreign countries with money 'earned' in the good old US makes good business sense. Patriotism? Just a word.
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