Microsoft's Foreign Earnings: Tax Strategy

2015 ◽  
Vol 30 (4) ◽  
pp. 297-310 ◽  
Author(s):  
Larissa S. Kyj ◽  
George C. Romeo
Keyword(s):  
Multinational Corporations ◽  
Transfer Pricing ◽  
Corporate Tax ◽  
Tax Havens ◽  
Tax Rate ◽  
Foreign Earnings ◽  
Microsoft Corporation ◽  
A Company ◽  
Foreign Corporation ◽  
The U.S

ABSTRACT The high corporate tax rate and the complexity of the U.S. tax code provide U.S. multinationals with the incentives and opportunities to shift income to foreign low-tax jurisdictions. In theory, U.S. corporations are taxed at the statutory rate of 35 percent on their worldwide income, but income earned by an active Controlled Foreign Corporation (CFC) is usually not taxed until it is repatriated to the parent company in the U.S. As a result, trillions of dollars in cash and investments sit in offshore companies, awaiting a repatriation tax holiday. Much of these earnings are held by technology companies. The case looks at Microsoft Corporation, a company with $60.8 billion in unrepatriated earnings as of 2012. The case considers tax havens, nonrepatriation of earnings, cost-sharing arrangements, and transfer pricing and is intended to expose students to the subtleties and complexities of corporate tax strategies. Although the case is set in 2012, the goal of the case is to demonstrate to the students the complex environment in which multinational corporations operate and is independent of any particular tax regime.

scholarly journals Abuses and Penalties of a Corporate Tax Inversion

2019 ◽  
Vol 7 (1) ◽  
pp. 5
Author(s):  
James Yang ◽  
Leonard Lauricella ◽  
Frank Aquilino
Keyword(s):  
Multinational Corporations ◽  
International Taxation ◽  
Internal Revenue Service ◽  
Tax Law ◽  
Corporate Tax ◽  
Tax Base ◽  
Tax Rate ◽  
Tax Savings ◽  
Treasury Department ◽  
The U.S

There is a serious problem in international taxation today. Many United States (U.S.) multinational corporations have moved abroad to take advantage of a lower tax rate in a foreign country. As a consequence, the tax base in the U.S. has been seriously eroded. This practice is known as “corporate tax inversion”. This paper discusses the abuses and penalties of this phenomenon. It is rooted in some deficiencies in the U.S. tax law. This paper points out that the U.S. has the highest corporate tax rate in the world. It imposes tax on worldwide income. It permits deferral of tax on foreign-sourced income until dividends are repatriated back to the U.S. As a result, it creates tax loopholes. This paper reveals six actual cases of corporate tax inversion. This practice has triggered the Congress to enact §7874, the Internal Revenue Service (IRS) to issue Notices IR 2014-52 and IR 2015-79, and the U.S. Treasury Department to promulgate TD 9761. This paper investigates some details of these penalties. This paper further demonstrates an example in determining the amount of tax savings by engaging in a corporate tax inversion. It also offers many strategies.

A Model of Multinational Income Shifting and an Application to Tax Planning with E-Commerce

2014 ◽  
Vol 36 (2) ◽  
pp. 27-53 ◽  
Author(s):  
Kenneth J. Klassen ◽  
Stacie K. Laplante ◽  
Carla Carnaghan
Keyword(s):  
Tax Planning ◽  
Investment Model ◽  
Income Shifting ◽  
Tax Rates ◽  
Foreign Investments ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Foreign Earnings ◽  
Joint Consideration ◽  
The U.S

ABSTRACT: This manuscript develops an investment model that incorporates the joint consideration of income shifting by multinational parents to or from a foreign subsidiary and the decision to repatriate or reinvest foreign earnings. The model demonstrates that, while there is always an incentive to shift income into the U.S. from high-foreign-tax-rate subsidiaries, income shifting out of the U.S. to low-tax-rate countries occurs only under certain conditions. The model explicitly shows how the firms' required rate of return for foreign investments affects both repatriation and income shifting decisions. We show how the model can be used to refine extant research. We then apply it to a novel setting—using e-commerce for tax planning. We find firms in manufacturing industries with high levels of e-commerce have economically significant lower cash effective tax rates. This effect is magnified for firms that are less likely to have taxable repatriations. JEL Classifications: G38, H25, H32, M41.

Transocean and the History of Tax Inversions

2018 ◽  
Vol 34 (1) ◽  
pp. 1-12
Author(s):  
Susan M. Albring ◽  
Randal J. Elder ◽  
Mitchell A. Franklin
Keyword(s):  
Multinational Corporations ◽  
Economic Impacts ◽  
Income Taxes ◽  
Tax Rates ◽  
Corporate Tax ◽  
Corporate Income Taxes ◽  
History Of ◽  
Jobs Act ◽  
The U.S ◽  
Over Time

ABSTRACT The first tax inversion in 1983 was followed by small waves of subsequent inversion activity, including two inversions completed by Transocean. Significant media and political attention focused on transactions made by U.S. multinational corporations that were primarily designed to reduce U.S. corporate income taxes. As a result, the U.S. government took several actions to limit inversion activity. The Tax Cuts and Jobs Act of 2017 (TCJA) significantly lowered U.S. corporate tax rates and one expected impact of TCJA is a reduction of inversion activity. Students use the Transocean inversions to understand the reasons why companies complete a tax inversion and how the U.S. tax code affects inversion activity. Students also learn about the structure of inversion transactions and how they have changed over time as the U.S. government attempted to limit them. Students also assess the tax and economic impacts of inversion transactions to evaluate tax policy.

Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning

2015 ◽  
Vol 30 (4) ◽  
pp. 311-327 ◽  
Author(s):  
Megan F. Hess ◽  
Raquel Meyer Alexander
Keyword(s):  
Real World ◽  
Ethical Issues ◽  
Tax Avoidance ◽  
Tax Planning ◽  
Learning Assessment ◽  
Class Discussion ◽  
Corporate Tax ◽  
Tax Havens ◽  
Multinational Organizations ◽  
The U.S

ABSTRACT This instructional case explores the ethical issues surrounding the corporate tax-planning and tax-avoidance strategies of multinational organizations. Drawing on the real-world experiences of SABMiller, one of the world's largest beverage companies, this case provides a launching point for students to consider the ethics of corporate tax planning. The ethics of multinational tax practices, especially the use of tax havens, has recently become the focus of media and legislative debate in both the U.S. and the U.K., and many well-respected companies, such as General Electric, Apple Inc., and Starbucks are now feeling the pressure to reform. In a post-case learning assessment, students demonstrated significant improvement in their understanding and indicated that they enjoyed discussing this controversial issue. The “Implementation Guidance” section and Teaching Notes offer guidance for in-class discussion of the ethical and tax issues in this case.

scholarly journals The Use of International Tax Planning in Subsidiaries from the Financial and ICT Sectors in the Czech Republic

2021 ◽  
Vol 24 (1) ◽  
pp. 182-196
Author(s):  
Vít Jedlička
Keyword(s):  
Global Economy ◽  
Transfer Pricing ◽  
Tax Avoidance ◽  
Tax Planning ◽  
Tax Burden ◽  
Effective Tax Rate ◽  
Tax Havens ◽  
Tax Rate ◽  
Dummy Variable ◽  
International Tax

Tax avoidance is an important element of management in the global economy. Managers use tax havens for reducing a company’s effective tax rate. The most common practices in international tax planning can be divided into three groups: loans and their related interest, royalties, and transfer pricing. The aim of this article is to find the determinants of the tax burden faced by foreign-owned subsidiaries. Therefore, a model was created for the tax burden, focusing on the special position of subsidiaries within international tax planning. For this purpose, taxes/outcomes was established as a new dependent variable. The panel data used include Czech companies that are owned by parent companies located in other EU countries. The model distinguishes EU tax havens from regular member states; sector dummy variables are also included. The regression model that was created did not confirm the assumed dependencies. Rather, it indicated other important determinants: profitability, the share of intangible assets, size, and the dummy variable for the ICT sector. Based on the regression results, the independent variables connected with known tax planning schemes have relatively low importance. The significance of these results can be seen in the subsequent conclusions. First of all, there is no difference between the subsidiaries’ tax burdens based on the parent company’s location. Corporations use international tax planning whether or not they are owned from a tax haven. The second significant conclusion indicates the importance of certain sectors and their attributes concerning the tax burden. Companies from the ICT sector are linked to a lower tax burden. On the other hand, the dependencies within the financial sector are not statistically significant. From the perspective of further research, it would be constructive to incorporate the subsidiary’s position within the group.

Transfer Pricing and Location of Intangibles - Spillover and Tax Avoidance through Profit Shifting

2020 ◽  
Author(s):  
Rebecca Reineke ◽  
Katrin Weiskirchner-Merten
Keyword(s):  
Empirical Evidence ◽  
Transfer Pricing ◽  
Home Bias ◽  
Tax Avoidance ◽  
Optimal Location ◽  
The Other ◽  
Profit Shifting ◽  
Tax Rate ◽  
Length Range ◽  
A Company

This study examines how spillovers affect a multinational company's choice of an intangible's location and the corresponding transfer price for using this intangible. Our model uses a company with a domestic division in a high-tax country and a foreign division in a low-tax country, where each division's activities generate spillovers on the other division's income. In contrast to previous studies, our analysis incorporates an intangible's optimal location when the company trades off tax minimization and efficient activities. By locating the intangible abroad, the company reduces its tax liability, whereas locating the intangible domestically yields more efficient domestic division activities. For a high spillover of the domestic division, the company locates the intangible domestically. Our model supports empirical evidence regarding intangibles' location that is interpreted as "home bias". Additionally, we show how variations in regulatory parameters-arm's length range and tax rate differential-affect the divisions' activities and the intangible's location.

scholarly journals ANALISIS KOREKSI FISKAL UNTUK MENGHITUNG PPH BADAN PADA PT. EMPAT TUJUH ABADI JAYA

2018 ◽  
Vol 13 (02) ◽  
Author(s):  
Mesias Ridel Tulandi ◽  
Harijanto Sabijono ◽  
Sonny Pangerapan
Keyword(s):  
Accounting Standards ◽  
Financial Statements ◽  
Assessment System ◽  
Financial Accounting ◽  
Corporate Tax ◽  
Self Assessment ◽  
Tax Rate ◽  
Income Statement ◽  
Tax Reporting ◽  
A Company

PT. Empat Tujuh Abadi Jaya is a company that is a taxpayer in the form of a body that has responsibility to calculate, deposit and report the tax payable that must be paid to the state based on self-assessment system that gives full trust to the taxpayer in reporting corporate tax. But there is a problem that will be faced in the payment of taxes. This is due to the fact that the financial statements in particular the income statements are different from the commercial profit referring to the Financial Accounting Standards while the fiscal profit refers to the applicable Taxation Law. This difference is simply in the presence of income and expenses recognized as income or expenses by the company but is not recognized by the tax and in the filling as the company does not pay attention to the fiscal correction in tax reporting. For that company must pay attention to fiscal correction / fiscal reconciliation so that the amount of corporate tax payable can be equal to tax. The purpose of this study is to determine the fiscal profit derived from the results of fiscal correction in commercial financial statements to determine the tax payable body. In this study, earnings obtained after the fiscal correction in the financial statements of Rp201,112,732.00 and profit before the fiscal correction of Rp181.510.720,00 for the calculation of corporate taxes using tarif 17 paragraph 2a with tarif 25% Act No. 36 of 2008 Tax The income of the company must pay the tax before it is made Rp45.377.680,00 for the corporate tax rate less attention to the Article 31 E fare with 50% discount from the normal tarif of 25% gross turnover Rp4.8.000.000.000,00 or below and up to Rp50. 000.000.000,00 billion got a discount. Gross circulation of PT. Empat Tujuh Abadi Jaya shall not exceed 4.8M amounting to Rp4,669,400,000.00, so the Company is permitted to use the rate of article 31 E.Keywords: Tax due, Income Statement, Fiscal Correction.

GlaxoSmithKline Plc.: International Transfer Pricing and Taxation

2007 ◽  
Vol 22 (4) ◽  
pp. 749-759
Author(s):  
Mahendra R. Gujarathi
Keyword(s):  
Multinational Corporations ◽  
Intangible Assets ◽  
Transfer Pricing ◽  
Tax Credits ◽  
Internal Revenue Service ◽  
Internal Revenue ◽  
The U.S

This comprehensive case intends to develop your understanding of the complexities involved in the international transfer pricing and taxation of intangible assets. The backdrop for the case is GlaxoSmithKline's $5.2 billion settlement in 2006 with the U.S. Internal Revenue Service. You are required to provide possible rationales for the positions advocated by the Company as well as the IRS. You are also required to present calculations under different transfer pricing methods, identify the most appropriate method, compute Foreign Tax Credits for different scenarios, and suggest possible strategies for multinational corporations to reduce the odds of negative settlements with tax authorities.

scholarly journals Profit shifting in Brazil and the impact of tax havens

2021 ◽  
Vol 32 (85) ◽  
pp. 95-108
Author(s):  
Alex A. T. Rathke
Keyword(s):  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Profit Maximization ◽  
Profit Shifting ◽  
Tax Havens ◽  
Tax Rate ◽  
Pricing Rules ◽  
Robust Least Squares ◽  
High Level ◽  
The Impact

ABSTRACT We investigate tax-induced profit shifting in Brazil and the impact of tax havens on the shifting behavior of firms. Profit shifting research in Brazil is virtually non-existent, although the shifting incentives in Brazil are prominent. Our research fills this gap with evidences in the novel Brazilian context. Profit shifting is a tax-minimization strategy where multinational enterprises perform intra-firm transactions to allocate taxable profits to low-tax locations. Brazil combines a remarking set of profit shifting incentives, especially a high corporate tax rate, extremely complex tax system, and distinguished transfer pricing rules. Further researches may leverage from the shifting incentives in Brazil, since it provides opportunities to investigate additional factors that affect the shifting behavior of firms. We analyze 989 transaction-by-country observations for the period of 2010-2017. Baseline analysis follows the robust least squares approach with controlling covariates. Linear estimate model derives from the conventional Cobb-Douglas production function, to analyze the impact of shifting incentives on profit maximization. We find that Brazilian firms have a high level of intra-firm transactions with related parties located in low-tax countries, especially with tax havens. It represents a strong evidence of profit shifting behavior in Brazilian firms.

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