Where's the moral case for tax havens? ... Big Pharma and News Corp are among the major beneficiaries of tax havens ... US encourages repatriation of profits with the incentive of a 5.25 percent tax rate ... Will Rupert join Buffett's bandwagon and pay more tax? ... Barry Lane investigates
Gekko: dedicated to the upward surge of mankindIn Oliver Stone's Wall Street, Gordon Gekko said:
"The point is, ladies and gentlemen, that greed ... is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms - greed for life, for money, for love, knowledge - has marked the upward surge of mankind."
But Gonzo Greed?
I had one of those distinctly déjà vu moments when I read in The Age the other day that the US Internal Revenue Service was investigating how Google managed to pay income tax at half the rate it should and that Google along with Cisco Systems, Pfizer, Apple and Microsoft were lobbying Congress for a tax break to bring home profits parked in tax havens in Ireland, the Netherlands and Bermuda.
In 2004, Dubbya signed into law the American Jobs Creation Act the object of which was, not surprisingly, to create investment and jobs in the US.
Multinational US corporations had their tummies tickled to repatriate some of the billions of dollars of profits sunning themselves in tax havens like the Cayman Islands and Bermuda.
On May 5, 2009, the New York Times reported that in 2004, the US Treasury Department estimated that American multinationals earned $700 billion in foreign income on which they paid tax of $16 billion or 2.3 percent.
The caress offered by Congress to their biggest contributors was a concessional repatriation tax rate of 5.25 percent if the profits were brought back by 2006. Compared with the going rate of 35 percent - a nice little discount, I'm sure you'll agree.
On July 24, 2007, the New York Times reported that from 2004 to 2006 corporates brought home about $300 billion, in the process avoiding about $90 billion in tax.
Big Pharma was the largest beneficiary of Congressional largesse with Pfizer leading the pack bringing back $36 billion.
How many jobs were created? Not all that many, actually. Pfizer, for example, sent 8,000 employees on a permanent vacation in 2006 and proposed sending a further 10,000 on perpetual leave in 2007.
And investment? Well, even after repatriating $36 billion, Pfizer still had at least $30 billion overseas to "invest" in the acquisition of competitor Wyeth in 2009.
When avoiding tax at any rate is as simple as setting up a subsidiary company in a tax haven, assigning various property rights to it and then watching the tax-free profits roll in, why wouldn't any self-respecting Gordon Gekko clone do just that?
On December 29, 2010, Bloomberg reported that:
"Merck & Co Inc., the second-largest drugmaker in the US, last year brought more than $9 billion from abroad without paying any US tax to help finance its acquisition of Schering-Plough Corp, securities filings show. Merck is also appealing a federal judge's 2009 finding that Schering-Plough owed taxes on $690 million it had earlier brought home from overseas tax-free.
The largest drug maker, Pfizer Inc., imported more than $30 billion from offshore in connection with its acquisition of Wyeth last year, while taking steps to minimize the tax hit on its publicly reported profit.
Disclosures in Switzerland and Delaware by Eli Lilly & Co. show the Indianapolis-based pharmaceutical company carried out many of the steps for a tax-free importation of foreign cash after its roughly $6 billion purchase of ImClone Systems Inc in 2008."
Companies associated with former Australian media mogul, Rupert Murdoch, are no slouches in the tax avoidance department either.
On March 18, 1999, The Economist reported:
"In the four years to June 30 last year, News Corporation and its subsidiaries paid only A$325m ($238m) in corporate taxes worldwide. In the same period, its consolidated pre-tax profits were A$5.4 billion. So News Corporation has paid an effective tax rate of only around 6 percent. By comparison, Disney, one of the world's other media empires, paid 31 percent. Basic corporate-tax rates in Australia, America and Britain, the three main countries in which News Corporation operates, are 36 percent, 35 percent and 30 percent respectively.
Finding out the specifics of News Corporation's tax affairs is difficult because of the company's complex structure. In its latest accounts, the group lists roughly 800 subsidiaries, including some 60 incorporated in such tax havens as the Cayman Islands, Bermuda, the Netherlands Antilles and the British Virgin Islands, where the secrecy laws are as attractive as the climate."
Paul Vallely from The Independent thinks that there is no moral case for tax havens. On August 28, 2011 he wrote:
"Tax havens epitomise unfairness, cheating and injustice. They replace the old morality embodied in the Golden Rule of reciprocity – that we should do as we would be done by – with a new version that insists that those who have the gold make the rules."
Vallely noted that Rupert's companies had upped their patronage of tax havens from 60 in 1999 to 152 now.
Buffett at the buffetWhatever happened to the notion propounded by Justice Oliver Wendell Holmes that paying tax was the price one paid for living in a civilised society?
It seems that the message has got through to some of the uber rich.
Warren Buffett has said that it's about time he and some of his pals started paying a bit more into the public purse.
It'll be interesting to see if Rupert boards the Buffett bandwagon. Somehow, I think not.
Will Congress join in a tango with Big Capital for another mutual tickle and scratch? You betcha, because without money from Big Capital none of those worthy servants of the people will get re-elected.