The Tax Havens are loving this Christmas. Meanwhile, the IRS is scared to death.
Staples’s $649 3-D printer is coming your way, and the IRS is not happy. Just as your state’s sales tax collector most likely is dreading the fiscal consequences of the new technology.
Shoes, bicycles, and guns are just a few of the items that can be “beamed” into your home. Scientists have already used 3-D printing to arrange human embryonic stem cells, according to an article in Science World Report. Artificial organs and tissues via 3-D printing may soon be next. The applications of 3-D printing have barely scratched the surface.
As an expert on international tax planning, my mind is spinning with ideas on how 3-D printing will impact tax strategies. The ancient tax laws of the United States are already severely behind on the times. The IRS code was designed in 1939 and has had no major changes to address the technological advances in commerce. Cloud business and e-commerce businesses are ages ahead of the tax code.
U.S. international tax laws are based on the shipping of tangible goods. If the foreign manufacturer has an office in the United States, then the IRS gets to tax the manufacturer’s U.S. profit on his U.S. sales.
Now consider for a moment the fundamental shift in business if 3-D printing became commonplace. What if retailers could sell without having an office in the United States? What if they could “beam” their products to their customers?
Mega tax savings through technology? Yummy.
A Sweet Deal
Let’s take cookies as an example. We all love Mrs. Fields cookies. Let’s say that Mrs. Fields placed its server in the popular tax haven known as the Isle of Man; an island situated between Great Britain and Ireland. The server belongs to their business entity based there.
You’re a loyal customer living in Los Angeles, which is 5,175 miles away from the Isle of Man. So you visit the Mrs. Fields website and order a dozen of your favorite chocolate chip walnut cookies. Within 30 minutes, your 3-D laser printer spits out a warm batch of mouthwatering cookies. They taste fresh out of the oven.
Now this is perfect for you. You get “home-baked” cookies without ever breaking a sweat. Meanwhile, the Isle of Man company just earned U.S. source income tax-free.
The 3-D Printing Economy: Supply and Demand . . . and Competition
The sale price of goods and services is based upon supply versus demand. However, with product beaming, the supply is infinite. The seller saves money as the cost of products drop.
When a computer located outside the U.S. provides services, the income is foreign source and not U.S. taxable. With 3-D printing, the service sends commands to the end user’s 3-D printer—regardless of where they’re located.
In the 3-D printing economy, competition may ultimately become infinite, too. Theoretically, I could start Brian Dooley’s Cookies in the Isle of Man. All I would need is the right software and boom! My cookies could be the next Mrs. Fields. (I can tell you that I make the best Irish Oatmeal cookies, and my prices will always be half those of Mrs. Fields.)
As 3-D printing becomes a dominant technology in multiple industries, what’s to stop U.S. businesses from transferring all their business to tax havens? Absolutely nothing.
More 3-D Printing Applications
Here are just a few more exciting developments in 3-D Printing:
- NASA beams tools, such as adjustable wrenches, to the space station. 3-D Printers can also use plastic, cement, and metals to make their product.
- Nokia has published the files necessary for people to 3-D print their Nokia Lumia 820 cases on this link. You merely go to the website and print a new case in the color you want.
- Here’s a video of a group who made a working bicycle with a 3-D printer.
The Future of 3-D Printing and Tax Strategies
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Every day, there are new experiments on 3-D printing and for me, new ways to consider the impact on tax planning. Most business owners and their tax advisors aren’t taking advantage of the incredible tax saving opportunities in e-commerce and cloud-based businesses.
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