Corporations may dodge billions in US taxes through new loophole

A loophole in the new US tax law could allow multinational corporations such as Apple to avoid paying billions of dollars in taxes on overseas profits. (Reuters)
Updated 12 January 2018
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Corporations may dodge billions in US taxes through new loophole

WASHINGTON: A loophole in the new US tax law could allow multinational corporations like Apple to avoid paying billions of dollars in taxes on profits stashed overseas, according to experts.
Stemming from a republican overhaul of international business taxes, the loophole involves the tax rates — 15.5 percent or 8 percent — that companies must pay on $2.6 trillion in profits they are holding abroad.
By manipulating their foreign cash positions, a determining factor under the new law, a US multinational could potentially save money by shifting profits to the lower rate from the higher one, according to Stephen Shay, a senior lecturer at Harvard Law School.
The savings could amount to more than $4 billion in Apple’s case alone, he said.
An Apple spokesman declined to speak on the record about Shay’s analysis. US treasury department and internal revenue service officials did not respond to Reuters’ queries seeking comment.
“This is clearly the result of rushed legislation,” said Shay, formerly a top treasury department tax official.
The sweeping Republican tax law was president Donald Trump’s first major legislative triumph since he took office almost a year ago. Rushed through congress, and approved over the unanimous opposition of Democrats, it took effect this month, delivering tax cuts and tax code changes that large, US-based multinationals had sought for years.
One of those changes was a one-time tax break on about $2.6 trillion in profits that multinationals have socked away overseas in recent years under a “deferral” rule that let companies hold profits offshore tax-free, as long as the money was not brought into the United States, or repatriated.
There is no such deferral under the new law and accumulated overseas profits will now be taxed at either 15.5 percent for cash holdings or at 8 percent for more illiquid investments.
Both rates are far below the 35 percent rate that would have been charged on repatriated foreign profits before the law was passed, and below a new 21 percent corporate income tax rate.
To knock their taxes even lower, experts said, multinationals could have leeway to shift foreign earnings into the 8 percent tax bracket and out of the 15.5 percent bracket.
“Even before the legislation was unveiled in November, multinationals were planning to convert cash to non-cash assets, although it wasn’t entirely clear what would constitute cash for this purpose,” said Reuven Avi-Yonah, a leading tax expert at the University of Michigan law school.
The loophole that makes the bracket-shifting possible involves a formula for calculating how much foreign earnings are subject to the higher tax rate. The benchmark is a company’s foreign cash position, calculated as the greater of either the average of the past two tax years, or the cash balance at the end of the last tax year begun before Jan. 1, 2018.
Companies would pay the 15.5 percent rate on sums up to the calculated foreign cash position. Anything over that would get the 8 percent rate.
Shay said some multinationals could reduce their cash positions, and the amount of money subject to the higher rate, through legitimate distributions including dividend payments.
He estimated Apple could have as much as $289 billion in foreign cash at the end of its current fiscal year on Sept. 30. Averaged across the last two tax years, the figure would be $234 billion.
To avoid paying 15.5 percent on the higher of those two figures, he said, Apple could distribute some of its cash through dividends or other means. Reducing its 2018 position by $55 billion to the lower, two-year average would save the company more than $4 billion in taxes, according to Shay.
The new law says transactions meant principally to reduce taxes due on foreign profits can be disregarded by US tax authorities. But tax experts said this anti-abuse measure does not apply automatically and that corporate tax lawyers could argue it does not apply to legitimate corporate actions.


Iran falls to sixth biggest oil supplier to India as sanctions bite

Updated 54 min 20 sec ago
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Iran falls to sixth biggest oil supplier to India as sanctions bite

  • Tehran dropped two places to become only the sixth biggest supplier after New Delhi cut purchases due to the impact of US sanctions
  • The UAE, which was the sixth biggest oil seller to India in October, became the third-top seller to India in November

NEW DELHI: India’s monthly oil imports from Iran plunged to their lowest in a year in November with Tehran dropping two places to become only the sixth biggest supplier after New Delhi cut purchases due to the impact of US sanctions, according to ship tracking data and industry sources.
Last month, the US introduced tough sanctions aimed at crippling Iran’s oil revenue-dependent economy. Washington did, though, give a six-month waiver from sanctions to eight nations, including India, and allowed them to import some Iranian oil.
India is restricted to buying 1.25 million tons per month, or about 300,000 barrels per day (bpd).
In November, India imported about 276,000 bpd of Iranian oil, a decline of about 41 percent from October and about 4 percent more than the year-ago month, ship tracking data obtained from shipping and trade sources showed.
After abandoning the 2015 Iran nuclear deal, US President Donald Trump is trying to force Tehran to quash not only its nuclear ambitions and its ballistic missile program but its support for militant proxies in Syria, Yemen, Lebanon and other parts of the Middle East.
India’s imports from Iran in November, included some parcels that were loaded in October. In November, Iraq and Saudi Arabia continued to be the top-two oil sellers to India.
The UAE, which was the sixth biggest oil seller to India in October, became the third-top seller to India in November, knocking down Venezuela to fourth position.