Most definitely. If you are a multinational that sells crap in Singapore, you will move as much income to that subsidiary as possible, and the same thing goes for Ireland.
The cost shifting is done by "charging" subsidiaries based on the tax rates.
Say you are a company that buys, say vacuum motors (or whatever) from the US (or China or whereever) at 100 bucks a pop, then installs and assembles them into vaccuum cleaners or whathaveyou and sells them in Singapore.
Your subsidiary has to "pay" some price for that vaccuum when it is transferred.
The REAL cost of the vacuum cleaner is, say $150. You have your US subsidiaries pay the majority of that cost, but no extra profit to the subsidiary, say $150 for that, and then simply "sell" (transfer) the good at that price to the Singapore subsidiary, who then sells it for $200.
The US subsidiaries barely recoup their costs, and by accounting fiat, your Singapore subsidiary "bought" the vacuum for the real cost of the vac cleaner of $150 and takes all the profit on it, to be taxed at the Singapore rate of 0%.
Since this profit, because of the way tax laws work, has nominally been already taxed by that country, it is then exempt from taxes on the US holding corporation.
Shifty isn't it?
One of course, is limited by the amount of profit that can be reasonably had selling vaccuums to Singaporians though.
A few years ago, BigPharma and other US muli-nationals had about $300B in profits parked offshore.
The Repugs offered them an amnesty tax rate of only 5%, instead of standard corp tax rate, if they would repatriate the profits, in return for those corps' job creation.
The corps saved 10s of $Bs in taxes.
Anybody seen those corps create any jobs over dubya's term? BigPharma has cut 1000s of jobs.
They got rid of a lot of Pharmacuetical reps (good riddance), and they have seen some major pressure on their net income from the coming patent expirations.
The same transfer pricing works in reverse...you set up a company in Singapore that buys vacuums from a subsidiary manufacturing company in China for example and then sells it to the company in the US for sale to US consumers.
China sale to Singapore for $10 - China recognizes $10 income
Singapore sale to US for $100 - Singapore recognizes $90 income
US sale to end consumer $150 - US recognizes $50 income
Without the Singapore en y the US should be recognizing $140 income, but since Singapore is there, the majority of the income is recognized at the lowest rate.
Yup. That is the way it works at present.
The IRS does look at these transactions in audits, though. You can't be too obvious about such subsidiary transactions.
Supply side policies can be very effective in goosing an economy and guiding positive outcomes. But so can, at times, Keynesian policies.
The problem is the 'trickle down' mantra and 'tax cuts foreva' mantra, which are senseless, completely political slogans that muck everything up. The right way is a policy mixture.
Yeah, there are guidelines and audits...but you always allocate the highest price possible to goods coming into the US and thus the least amount of income.
The thing is a lot of times, in order to set up these companies you have to have X amount of employees etc. in the country or some other physical presence. These are jobs (and add'l personal income tax collected by the Fed) that could stay in the US if the corporate tax weren't so high.
You could say that about ANY level of taxation.
At some point though, you lower taxes so far that your infrastructure, both in human capital as well as physical capital, starts to decay. You also miss out on simple things like basic research of the type that created, say, the Internet or so many other things.
Many conservatives seem to think or at least imply that money given to the government disappears out of the economy altogether with no real benefit to the average person on the street.
That is patently false.
Agreed that there has to be some level of tax. But I think BECAUSE of the internet it is much more viable to do these types of things. 10-15 yrs ago you couldn't communicate as easily with the other side of the world so these types of subsidiaries weren't always as viable. People would send manufacturing overseas because that was a repe ive procedure that didn't need a lot of oversight. Now, many companies are sending IT jobs and director level R&D jobs overseas for example. Sure there were faxes and long distance lines, but those are no comparison to attaching a do ent to an email or instant messaging, etc.
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