How do foreign holding companies work? U.S.-based MNCs are able to generate huge tax savings through the use of foreign holding companies with no operations or employees at the top of its foreign operations. In the case of Apple, its Irish holding companies serve as a group of finance companies, and Apple Inc., the U.S.-based parent of the whole group, pays U.S. tax only on the investment earnings in the U.S. (Sheppard 2). What is interesting is that these tax haven foreign tax jurisdictions permit the holding companies to pay no tax to any government. In the case of Apple, the principal company that is under the Irish holding companies holds the contracts with Apple’s Chinese manufactures, which in turn own the inventory that is produced.
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Nonfinancial U.S.-based MNCs hold a combined $1.7 trillion in cash overseas; just the international pieces of Apple’s stash amounts to nearly $215 billion (Kanter, Scott 1). The table below illustrates Apple’s foreign-based company tax savings during 2011 & 2012:Evidence that supports such loopholes in U.S. tax codes is proven by the fact that out of $35 billion in sales revenue reported from 2011-2012, Apple was able to avoid paying taxes on 36% of its total revenue from foreign base companies. This information was released based on an investigation by the United States Committee on Homeland Security and Government Affairs. The investigation refers to a hearing regarding “Offshore Profit Shifting and U.S. Tax Codes” that explains how some U.S.-based MNCs are able to evade paying the U.S. corporate tax rate of 35% on all global …show more content…
tax code is found in the use of transfer pricing. Multinational corporations with headquarters in the United States can use transfer pricing to shift profits between foreign subsidiaries which may provide lower or no tax jurisdiction in comparison to the U.S. Sec. 925 of the U.S. tax code. This permits income from the performance of related and subsidiary services to be treated as a separate type of income. Additionally, the amount of taxable income which foreign sales corporation (FSC) may derive for any taxable year shall be determined under the arrangement between the FSC and its related supplier, and shall be computed in a manner consistent with the rules under the transfer pricing (“Transfer pricing rules for FSCs”). Tax code Sec. 925 permits MNCs with headquarters in the United States to perform income shifting between subsidiaries through the use of transfer pricing. Furthermore, it allows the process of shifting ownership in subsidiaries to tax haven countries like Ireland to evade high U.S. corporate taxes rates on all foreign
Nonfinancial U.S.-based MNCs hold a combined $1.7 trillion in cash overseas; just the international pieces of Apple’s stash amounts to nearly $215 billion (Kanter, Scott 1). The table below illustrates Apple’s foreign-based company tax savings during 2011 & 2012:Evidence that supports such loopholes in U.S. tax codes is proven by the fact that out of $35 billion in sales revenue reported from 2011-2012, Apple was able to avoid paying taxes on 36% of its total revenue from foreign base companies. This information was released based on an investigation by the United States Committee on Homeland Security and Government Affairs. The investigation refers to a hearing regarding “Offshore Profit Shifting and U.S. Tax Codes” that explains how some U.S.-based MNCs are able to evade paying the U.S. corporate tax rate of 35% on all global …show more content…
tax code is found in the use of transfer pricing. Multinational corporations with headquarters in the United States can use transfer pricing to shift profits between foreign subsidiaries which may provide lower or no tax jurisdiction in comparison to the U.S. Sec. 925 of the U.S. tax code. This permits income from the performance of related and subsidiary services to be treated as a separate type of income. Additionally, the amount of taxable income which foreign sales corporation (FSC) may derive for any taxable year shall be determined under the arrangement between the FSC and its related supplier, and shall be computed in a manner consistent with the rules under the transfer pricing (“Transfer pricing rules for FSCs”). Tax code Sec. 925 permits MNCs with headquarters in the United States to perform income shifting between subsidiaries through the use of transfer pricing. Furthermore, it allows the process of shifting ownership in subsidiaries to tax haven countries like Ireland to evade high U.S. corporate taxes rates on all foreign