Another American company has decided to expatriate for tax reasons. This process has been going on for decades, with companies giving up their U.S. charters (a form of business citizenship) and redomiciling in low-tax jurisdictions such as Bermuda, Ireland, Switzerland, Panama, Hong Kong, and the Cayman Islands.
The companies that choose to expatriate usually fit a certain profile (this applies to individuals as well). They earn a substantial share of their income in other countries and they are put at a competitive disadvantage because of America’s “worldwide” tax system.
More specifically, worldwide taxation requires firms to not only pay tax to foreign governments on their foreign-source income, but they are also supposed to pay additional tax on this income to the IRS – even though the money was not earned in America and even though their foreign-based competitors rarely are subject to this type of double taxation.
In this most recent example, an energy company with substantial operations in Asia moved its charter to the Cayman Islands, as reported by digitaljournal.com.
Greenfields Petroleum Corporation…, an independent exploration and production company with assets in Azerbaijan, is pleased to announce that the previously announced corporate redomestication…from Delaware to the Cayman Islands has been successfully completed.
Because it is a small firm, the move by GPC probably won’t attract much attention from the politicians. But “corporate expatriation” has generated considerable controversy in recent years when involving big companies such as Ingersoll-Rand, Transocean, and Stanley Works (now Stanley Black & Decker).
Statists argue that it is unpatriotic for companies to redomicile, and they changed the law last decade to make it more difficult for companies to escape the clutches of the IRS. In addition to blaming “Benedict Arnold” corporations, leftists also attack low-tax jurisdictions for “poaching” companies.
Libertarians and conservatives, by contrast, explain that expatriation is the result of an onerous tax system that imposes high tax rates and requires the double taxation of foreign-source income. Expatriation is the only logical approach if companies want a level playing field when competing in global markets.
I cover this issue (and also explain that the Obama Administration is trying to make a bad system even worse) in the video below.
My recommendation, not surprisingly, is that politicians fix the tax code. Unfortunately, politicians prefer the blame-the-victim game, so they attack the companies instead of solving the underlying problem (and then they wonder why job creation is anemic).
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I find it interesting that “a balanced approach” does not include raising import tarrifs on offshore corporations to the point where making it here becomes attractive again. Surely, there should be severe consequences for redomiciling a corporation in order to avoid taxation. Instead, we offer “shared sacrifice” as reward for staying here.
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[…] MITCHELL: When an American Company Redomiciles to the Cayman Islands, What Lesson Should We Learn? “The companies that choose to expatriate usually fit a certain profile (this applies to […]
International Liberty will be one of the many casualties of the coming crash
in the global economy; The Cayman Islands will be conquered by one of its
neighbors, and the tax rates, and other laws, imposed on the expatriate
companies by the new government will make them wish they had stayed
in the U.S. and helped reform its government.
Generalize much?
Many “leftists” aren’t exactly nationalists, and some conservatives aren’t libertarian corporate tools.
I’m not an expert on this issue, but I’d imagine that not too many Japanese firms would be willing to expatriate. Their gov’t would clamp down on them and many Japanese would consider their *executives themselves* to be Benedict Arnolds. I’d imagine those executives would generally be shunned by those unlucky enough to share citizenship with them, as would their little helpers. Maybe we need a few changes to the laws, but we definitely need more shunning of turncoats (and their little helpers).
PVL- on August 20, 2011 at 2:13 pm
GE is still largely a domestic company, generating more that 50% of its revenues and profits from the U.S. (this includes exports – which are huge). Once GE obtains more that 50% of their revenues and profits from overseas, such as manufactured goods made overseas and sold overseas, etc., I would not be surprised that they would change their legal domicile. This has been going on for over 30 years. The tax system in this country is one of the principal reasons the middle class is disappearing.
And the New York markets and exchanges have lost IPOs to foreign listings, so our capital markets business disappears due to tax and regulatory compliance/complexity. When information and capital flows at a mouse click, geographic domicile no longer matters. As Instapundit says, “we’re in the best of hands.”
Tax burden is only part of the equation. Proper tax planning a-la-General Electric can deal with that issue. The amount of paperwork required to maintain compliance, however, is time consuming, costly (oddly enough people expect paid to do that sort of thing) and comes with tremendous liability. In fact, getting the numbers wrong (like the CBO does on a daily basis) has been criminalized and will land the company’s officers in jail. It’s far too risky not only for corporations operating internationally, but also for the international corporations they do business with.
This overreach is costing Americans jobs at a time when the lower value of the dollar makes American consulting services an absolute bargain in the international marketplace.
Where will Boeing go?
[…] When an American Company Redomiciles to the Cayman Islands, What Lesson Should We Learn? (via International Liberty) Posted on August 19, 2011 by genomega1 The companies that choose to expatriate usually fit a certain profile (this applies to individuals as well). They earn a substantial share of their income in other countries and they are put at a competitive disadvantage because of America’s “worldwide” tax system. Another American company has decided to expatriate for tax reasons. This process has been going on for decades, with companies giving up their U.S. charters (a form of business citizenship) and redomiciling in low-tax jurisdictions such as Bermuda, Ireland, Switzerland, Panama, Hong Kong, and the Cayman Islands. The companies that choose to expatriate usually fit a certain profile (this applies to individuals as well). They earn a substantial sha … Read More […]