Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: Thomas A Watson who wrote (391265)	4/14/2003 5:39:32 PM
From: Cogito	Read Replies (1) \| Respond to of 769670

>>LOL, you speak of absurd and then use an example that will not be changed. If you generate income from a product created here and sell it anywhere it is taxed. But that is not impacted by Stanley Incorporated here or there. A company is like a citizen. If a company chooses become a citizen of another country, It pays no income tax on earned income earned in his own country. If I move to NH I don't have to pay CT state income tax. Unless I work in CT. If I sell in CT taxes must be paid. You as the typical supporter of the fleece bill don't even know what it is changing. Your example shows all your ignorance.<< Thomas - Perhaps I didn't make myself clear. Let's use your analogy. If I move to Canada and become a Canadian citizen, I will no longer have to pay U.S. taxes. Of course that makes perfect sense. But what these corporations are doing is more like this: Let's say I'm an author, who makes money from book sales, both in the U.S. and in Canada. I file some papers and become a Canadian citizen. But I don't move to Canada. I stay here and continue to enjoy the benefits provided by the U.S. Government, the protection of the U.S. armed forces, etc. But since I have papers showing I'm a Canadian citizen, I no longer pay U.S. taxes on the money derived from book sales in Canada. What these companies are doing is to make the fictional claim that they are foreign corporations, despite the fact that they still run their business and/or do their manufacturing right here in the U.S. In many cases, their chief "exports" are services. They provide services in other countries, but the people who perform those services abroad, and the services they perform there, are being supported by corporate infrastructures that are maintained here. You might think that since they are making money for services performed abroad, that money should not be taxable in the U.S. That's certainly a position for which there are valid arguments. U.S. tax law currently says that such income is taxable here, but you might believe that the law should be changed. Instead of trying to get that law changed, however, more and more companies have found a way to get around it. And perhaps, as you say, a corporate CEO has not only the right but the obligation to find a way around a law like that in order to maximize profits for the shareholders. The thing is, though that I'm not sure you are correct in believing that the income generated by a product manufactured here will always be taxed regardless of where that product is sold. I would have thought so, too, since the alternative does seem absurd, but sometimes things that seem absurd are true, especially where tax law is concerned. Let's consider the following scenarios. If Stanley Works, as an American corporation, makes tools, and sells them abroad, they will be taxed on the income they derive from the sales. But if a foreign company makes a tool and sells it abroad, of course that income will not be taxed. Right? But now it gets tricky. If Stanley Works opens an office in Bermuda, even if they don't have anything but a mail drop there, they can legally claim to be a foreign company. Since a foreign company's foreign sales are not taxed in the U.S., they won't have to pay taxes on the foreign sales of their tools. It doesn't matter if the tools are actually made in Connecticut, since it's a foreign company making them. What a great deal for them! They can stamp "Made in the U.S.A." on their products, but they don't have to pay U.S. taxes when they sell them abroad. Now perhaps this isn't the way it works. Maybe it's only the service companies that can exempt foreign income from U.S. taxes in this way. To be quite frank, I don't understand our byzantine tax code well enough to be able to tell you for sure. But Stanley Works is not a service company. They're a manufacturer of tools. Thus, there would be no benefit to them to reincorporating in Bermuda if it was only service income that would be tax exempt. For that reason, I suspect that your belief that my example was absurd may lead us right to the fundamental problem and the reason why this ever-more-common corporate practice should be stopped. For the record, when I used that example I was putting a question to you in an effort to find out what you thought about the issue. I was not saying that it was something to be changed. I hadn't even yet considered that the income from exported goods might be rendered tax exempt in this way. Thomas, again, I'm not claiming to know for sure that this is what's happening. I'm just trying to raise the issue for discussion. In that spirit, here's another hypothetical question: If, upon further investigation, you were to discover that in fact a U.S. corporation can make products here and export them, but pay no taxes on the income by claiming to be a foreign corporation, would you think they should be allowed to do so? This is one of those issues that isn't quite as simple as it might seem at first glance. - Allen