How Multi National Corporations Avoid US Taxes

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We posted an earlier article on GE's ability to get a $4 billion tax rebate while earning over $10 billion. GE is not alone in this game. Most US multinationals play the same game. Microsoft, for example, has around $29 billion in earnings parked overseas. It does not pay US taxes on these earnings, unless they are brought back to the US, and it finds ways to avoid paying taxes in many of the overseas countries in which it sells its products.

This article, describes in more detail how multinational corporations avoid taxes by moving assets and profits to lower tax countries. This creates many problems. It shifts the US tax burden to domestic businesses and households. It also distorts business decisions because tax avoidance influences how and where they allocate their resources. It also affects tax policies in foreign countries. Ireland, for example became a magnet for US companies to locate their manufacturing in Ireland by offering low tax rates. US companies could transfer their products from Ireland at high transfer prices to subsidiaries in the eurozone and take the the profits in Ireland. The eurozone subsidiaries would pay lower taxes where the products were purchased. The value added was in Ireland. This, off course, led to the Irish boom, and eventually to the Irish bust, as prosperity in Ireland led to rising real estate prices, and demand for housing, which led to over development and risky banking practices funded by foreign borrowing.