April 4, 2016
By: Bobby Casey, Managing Director GWP
There are a lot of people who resent the rich out there. The excitement behind Bernie Sanders has reached a fever pitch. Hate the rich for not paying their fair share!
When you ask what these class warriors mean by that, they site things like tax avoidance and going offshore.
We’ve said it before and we’ll say it until everyone gets the message: don’t resent the rich, EMULATE them.
Here is a wonderful example: There was this young girl who is married with a house. She went on Turbo Tax to get an idea of what she was going to either get back or owe for last year. It said she owed $3,000! She decided to see a CPA. When all was said and done, the feds actually owed her $2,000.
I asked her if she understood NOW why wealthy people and corporations hire teams of CPAs and lawyers to comb through the codes and find every possible deduction and write off they can? She nodded in total empathy.
This is obviously a tiny example. But once you realize you don’t HAVE to pay the taxes, why would you do it anyway? Republicans and libertarians are more open about their disdain for taxes. Democrats take all the write-offs, and complain that they aren’t rich enough to have to pay taxes.
I hate taxes. I’m not even remotely ashamed to admit it. It’s theft straight up. I relentlessly pursue any and all legal options to avoid them when and where I can; then I turn around and share that information with you!
Over 75,000 pages of tax code, and you are as eligible as anyone to use what applies to you. But why limit yourself to ONLY the US tax code? It’s no secret that the US has one of the highest corporate tax rates. Pretty much ANYWHERE else is going to give you a better deal on corporate taxes. Why continue to subject yourself to a regime that punishes your productivity and success?
When gas prices got really high, people were looking online for the lowest priced gas around them. They would drive a little bit out of their way if it meant filling up their tanks for a few dollars less. People wouldn’t do that for a few cents, but a few dollars they would. Once it becomes worthwhile, people commit.
Look at the exodus of people leaving California for Texas. For the most part, the jobs that exist in California also exist in Texas (not all, but many). If you can teach in California, you can teach in Texas right? If you can sell insurance in California, you can sell in Texas. Sure you make a few adjustments to accommodate the laws and ordinances, but the principles are generally the same. Why are people leaving California for Texas? Lower cost of living and no income tax. Plain and simple.
People even choose different domestic corporate structures based on the various privacy benefits they offer! So even if they have a physical structure in California, it can be owned by a corporate structure in Delaware. You can have a house in Washington that is owned by a corporation in New Mexico. This happens regularly, and Americans aren’t as upset by it.
So why are liberals and conservatives alike so shocked when people and businesses go from interstate to international? Politicians love to shame businesses for going offshore, saying they are not “economic patriots”, or calling them “corporate deserters”. Everyone from Obama to Trump to Sanders has taken some poke at the multinational corporations.
Private individuals and corporations just can’t seem to get a break! We’re always such a disappointment to the nanny state and yet so eager to seek out their approval. Not too different than a cunning adolescent, however, we start to play our friends’ houses off one another to our parents in order to find the most leniency.
OH, I’m going to Sam’s house and spending the night…
Yeah, well, I did go to Sam’s and then we went over the Dan’s…
Dan’s parents told us it was okay to go to Rick’s house…
Rick’s parents let him drink, watch R rated movies, and bring over girlfriends to their house.
You know your parents would never let you go to Rick’s if you asked, so you pick the safest friend who fake-lefts to Dan’s, and you’re right into Rick’s house. Is it worth it? If it wasn’t would they bother doing it?
Teens find a way, don’t they? And so do corporations. They don’t want to pay a penny more in taxes than they have to. And that’s exactly why they don’t. They play countries off of each other… just like the 15 year old scenario explained above.
Does it get complicated? Sure. Is it worth it? Well, if it wasn’t would they still do it?
A lot of man hours and resources are poured into filing taxes… or more specifically avoiding them. While this is an economic black hole in many respects, that old adage holds true: you gotta spend money to make money. In the case of taxes and fees, you gotta spend money to save money.
Here’s an example: (Source: ForeignPolicy.com)
“Andersen Consulting saw benefits—fewer taxes, cheaper labor, less onerous regulations — beyond borders and restructured internally to take advantage of them. By 2001, when it went public after adopting the name Accenture, it had morphed into a network of franchises loosely coordinated out of a Swiss holding company. It incorporated in Bermuda and stayed there until 2009, when it redomiciled in Ireland, another low-tax jurisdiction. Today, Accenture’s roughly 373,000 employees are scattered across more than 200 cities in 55 countries. Consultants parachute into locations for commissioned work but often report to offices in regional hubs, such as Prague and Dubai, with lower tax rates. To avoid pesky residency status, the human resources department ensures that employees don’t spend too much time at their project sites.”
“ExxonMobil, Unilever, BlackRock, HSBC, DHL, Visa—these companies all choose locations for personnel, factories, executive suites, or bank accounts based on where regulations are friendly, resources abundant, and connectivity seamless. Clever metanationals often have legal domicile in one country, corporate management in another, financial assets in a third, and administrative staff spread over several more. Some of the largest American-born firms — GE, IBM, Microsoft, to name a few — collectively are holding trillions of dollars tax-free offshore by having revenues from overseas markets paid to holding companies incorporated in Switzerland, Luxembourg, the Cayman Islands, or Singapore.”
These are basically stateless corporations. This shouldn’t make you angry. This should inspire you! The larger, wealthier individuals and corporations have paved the way for others.
When I bemoan taxes, people often tell me how no matter where I go, I’ll be paying something. While there are about 20 nations that have no official income tax, it is true that at some point I’ll be paying somehow into the system of that state. If that’s true, then one strategy is to try and avoid them all. The other is to adopt them all. By trying to avoid them all, my options are very limited. By trying to adopt them all, every country is on the table for how they can be most beneficial to me and my business(es).
Maybe you still have a small to mid-sized business or the nature of your business is such that much of this is not practical or feasible. Ok, but that doesn’t mean ALL of it isn’t applicable, right? Can your company go digital on any level? Can the white collar portions of your corporation be outsourced or “redomiciled”? Think of ways to decentralize your business. Maybe it can’t be all of it, but some of it might just make more financial sense to have elsewhere. Inverting any portion of your corporation can still be a tremendous benefit.
Just like diversifying your investments can prevent you from losing everything in a financial or economic event, so can diversifying your business locations offer some protection if there happens to be a political event. For example, the US had its financial crisis of 2008. US congress passes Dodd-Frank to cap banks so they don’t become too big or such a liability.
“Yet while the law crushed some smaller financial institutions, the largest banks — with operations spread across many countries — actually became even larger, amassing more capital and lending less. Today, the 10 biggest banks still control almost 50 percent of assets under management worldwide.”
Needless to say, while I resent having to bail these irresponsible actors out, I do see value in the way in which they diversified their locative holdings. I don’t appreciate the crony aspect of this example, but it does nonetheless illustrate the benefits of multi and metanationalism.
Personal benefits aside, the larger picture is also very promising. The idea that when each person and business serves their own best interests, you can wind up with a stronger force than governments is wonderful! The Foreign Policy article linked above rightly states that the law of supply and demand is overtaking the law of national sovereignty.
Like I said, the same rules that these large corporations use to their advantage can be your rules too. Stop resenting these pioneers, and start emulating them. Let’s figure out a way to internationalize you and your business(es)! Click here to set up a consultation.