Friday, May 8, 2009

Corporate Tax Programs or Games

Corporate Tax Programs or Games

With Obama’s recent announcement to stop tax breaks for companies that move their production and services off shore, I thought it would be appropriate to mention a few of the programs he may be referring to.

In my corporate days, we went through many different tax programs or games. It was accepted and considered “not smart” to ignore them. The mantra that started the annual tax meetings was “A dollar is a dollar is a dollar”.
1. PR Tax Add back: This was the best one because you get to keep the low/no taxed profit in the USA as long as you met the rules for production in Puerto Rico.
2. FSI. Foreign Source Income: With this little beauty, you “sell” your cut parts or components at a marked up profit to your sewing contractor or yourself under another legal entity. You get credit for exporting and selling USA products.
3. And then there were CFC’s or Controlled Foreign Corporation. Basically you aren’t required to pay tax on some of the profit if you leave it outside of the US. On the surface that seems to be a reasonable and straight forward procedure. In reality, it can be anything but simple. You weave a web of foreign corporations and profit splits and Comparable Uncontrolled Prices or CUP to figure out how to make that portion of the untaxed profits grand and move it around in your other countries.
4. And you can work a lot of these programs at the same time with the same physical goods and services.

5. And most of the time, the title or ownership of the physical product would transfer to the mother US Corporation at the continental shelf. I always liked that because it seemed so creative.

all for now!


The Underwear Maven

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