Case Study - Transcript from an analyst call with the founder of a global logistics company⁶
“We pay our taxes according to the local tax regulations in each of those countries. We don’t enter into glamorous-sounding arrangements to exploit arcane loopholes involving myriads of strange islands in exotic locations.
We repatriate the earnings from our overseas subsidiaries into the United States and declare our full share of taxable income, and rely on whatever foreign tax credits we are allowed by the Internal Revenue Code for earnings already taxed in jurisdictions with which the United States has tax treaties to address double taxation.
When we instituted this policy back in 1993 and began to accrue a full US tax rate on all worldwide income, it seemed to us that we spent an inordinate amount of time fending off “Gaggles” of accountants and “Prides” of lawyers trying to foist upon us all the latest and greatest tax avoidance schemes. From that experience, we came to understand why, where and how so many companies are able to construct wildly intricate tax avoidance schemes by structuring their affairs in such a way that they pay no tax anywhere…or as close to no tax as they can get.
The difference between the exorbitant amounts of money required to pay the “Gaggles and Prides” to perpetuate the byzantine and complex, wildly intricate, tax avoidance schemes and the amount of taxes you’d pay if you just did straight forward, reasonable tax computations isn’t worth the anxiety of what will happen when laws or interpretations change.
Of course the “Gaggles and Prides” revel in these changes in taxation rules. Once in their clutches, you’re trapped. Each new change or new interpretation provides new opportunities, cast as necessities, for them to layer even more new wildly intricate schemes on top of old wildly intricate schemes, each change geometrically requiring larger “Gaggles and Prides.”
Before you know it, your tax department has turned your company into a “Rube Goldberg Tax Machine” whose procedural tentacles have crept into every nook and cranny of your business operations. This complicates and convolutes your business’ operational aspects beyond recognition to the business people who are actually attempting to service your customers.
With every single business decision now overshadowed by tax ramifications than no one but the “Gaggles and Prides” understand, you can find yourself in the tax business first and the customer service business second. We think it would be terribly difficult to actually maintain focus on the vital non-taxation parts of your business (i.e. the product development, sales and customer service purpose for which the Company actually exists).
Not to be outdone, the Government reacts to these “Rube Goldberg” tax avoidance schemes by passing more complex and more comprehensive laws. This in turn requires more and more government tax auditors and examiners. The “Gaggles and Prides” react by bolting more “wheels and pulleys” onto the already ridiculously complex “Rube Goldberg Tax Machine” that was once your company…and thus you see the vicious circle of regulation and complexity that global taxation has become.”