Tag Archives: irish tax planning

Saving Taxes as the U.S. Goes to the Trump International Tax Plan

Will it be protectionism or something more dramatic?  International Tax Planners are shifting their client’s tax strategy now getting ready 2018.

Small Business Tax Planning. Try very hard to pay the least in taxes

Small Business Tax Planning. President Trump states “I fight very hard to pay as little tax as possible.”

Here is what’s happening.   First,  President Trump is proposing a 15%  U.S. business income tax rate.   The goal is to keep American businesses from going offshore.    The downside is this lower tax rate will apply only to corporations (excluding S-corporations).   When a corporate distributes its profits, it is called a dividend.   The shareholder pays tax on the dividend income.

 Budgets concern are big since Big Business killed the Trump important duty on countries that apply a duty on U.S. goods (which is Europe, the UK, Canada, Australia, China and most of Latin America).

 Second, small business will have a five percent higher tax rate .  Small business uses S-corporations and LLC’s.  They avoid the dividend tax that apply to publicly traded businesses.    It will effect my work load because at a 20 percent tax rate,  small business owners have little need for tax planning.  At last, I get to  slow down and smell the roses.

International businesses are starting to re-organize and eliminating cross-border joint production and cost sharing programs.

Currently, the average U.S. tax rate for international  publically traded corporations is 14% .   They get a unique tax savings with the foreign tax credit law.  The IRS  reimburses a domestic corporation the taxes paid by it or a subsidiary to a foreign government.    With the current high-income tax rate, the full amount of the foreign taxes were reimbursed.

But, with President Trump’s tax plan, the reimbursement will be reduced because the income tax rate is reduced to fifteen percent.   For example, if a foreign government tax rate is 30% and the U.S. business has a $1,000 of foreign income, the foreign tax is $300.   If the U.S. tax rate is 35% then the U.S. tax of $350 is reduced by the foreign tax of $300.   The net amount is paid to the IRS.

With President Trump’s tax law, the U.S. tax will be $150 (15% of $1,000).   The foreign tax will reduce only $150 of U.S.  taxes.    As a result, tax planners will want to avoid having plants, employees and “permanent establishments) in foreign countries unless their tax rate is less than 15%.

Currently, only Ireland and Canada fits a tax rate less than 15% and has the capacity to manufacture.  Both countries have good tax treaties with the U.S. 

What about tax havens like the Cayman Islands?  They are too small for manufacturing or productions.

Tax havens are ideal for the internet business and for firms that stream content.   But, where good electricity for big equipment is required, they are not the best choice.

Summarizing 2018 foreign tax planning

Cross-border multi-national businesses are gearing up for all in one production within the U.S. for their American customers.  With the British Exit from the Europe,  these firms are going to be all in one within the EU  or the British colonies.  As a result, three separate free trade zones will develop (the U.S., the EU, and the British Colonies, (the U.K., Australia, New Zealand and Canada with its new 9% tax rate).

International tax strategies are now being developed for each of the three free trade zones.

Latin America countries, China and the rest of Asia will find their markets are changing.   They will be caught fall out from  President’s Trump isolation protective tax laws.  American international firms will find the overall tax costs too high in these countries and their market to weak.

Tax planning is not so much about today’s tax laws.  Tax planners closely look at the economic and political trends.  These trends shape future tax bills and tax planning is only for the future, not the present or the past.

The Wall Street Journal “Think Tank” blog’s headline today is Donald Trump’s Foreign Policy Is ‘America Only,’ Not ‘America First’.     The import duty to keep out foreign products and the lower corporate tax rate to keep American businesses in the Country is an “American Only” tax program.

tax planning, avoid taxes, small tax business,

President John Kennedy (Democrat) is the most respected president of last century. The President and Supreme Court Justice Hand agreed that patriotism does not mean paying more than your legal share.
Supreme Court Justice Holmes said tax planning means you get as close to that legal line as possible

Cross-border tax planners have noted this and are shifting their tax planning into three economic segments- the United States,  the European Union and the British Commonwealth.

If you need help with your international tax planning, then please call me, Brian Dooley, CPA, MBT, at 949-939-3414. 

We will help you “fight very hard to pay as little tax as possible.”

 

Cloud Continues to Disrupt Business – 1,000s of Robots Laid Off

International tax planning compares last century's tax laws to this century's business. Then , it exploits the differences.

International tax planning compares last Century’s tax laws to this Century’s business. Then, it exploits the differences.

Using your knowledge the 1990s and the beginning of this Century will cause you to pay more in taxes and it can put you out of business.

You have to compete with the future. Blockbuster’s demise is old news from the beginning of this century.   Just ten years later, the killer of Blockbuster is dying.   Redbox has closed (laid off) 1,000s of it robotic DVD rental kiosks in the U.S.

 In 2015, it closed all of its DVD rental kiosks in Canada.   Netflix and other video streamers are slaying the king of the DVD rental kiosks. Redbox’s $1 a night became too expensive. Netflix is $10 a month, and you can watch as many hours as you want with 50,000 choices.   With Redbox, you had to rush to the kiosks to return the DVD.

American international tax laws were written and were designed for a 1930 economy.

Offshore tax planning compares the out of date concepts in our tax laws to 21st Century business. Then, it exploits the differences.  Your tax planner must forget last century’s tax planning and learn this century’s.  Even the first ten years of this century is partly obsolete.  

If this was 2005, you would not have a smartphone. Yep, no apps.  I don’t know about you, but I use my iPhone and iPad for business more than I use my landline and my computer combined.   

Great tax planning sees the trends and changes.

With the iPhone came the  streaming of music.  If the computer server hosting the music was located in the Cayman Islands, the income would be foreign source income and not U.S. source regardless of the location of the customer.

Look at banking.   Are ATM’s the next to be laid off?  Do you want to deposit your checks like this,  in the dark watching over your shoulder?

Internet businesses can decide who is going to tax them just by using the cloud.

Internet businesses can decide who is going to tax them just by using the cloud.

Or like this- At home with a smartphone app where it is safe. By changing your business, you not only survive, but you can also completely shift your tax profile.

For example, if you distribute a product, spend some time learning about 3D printing or using a fulfillment center.   If you have an e-commerce business,  consider streaming your product versus providing a mp3 file or a pdf file.  Internet tax planning starts with shifting the source of the income.

For some, it is merely a move to Nevada or Texas to escape California or New York taxation.  For others, it is outside of the U.S., such as Canada (yes, it is an internet tax haven) or Ireland.  By the way, California tax planning and New York tax planning just became more important.  State income taxes are no longer deductible. 

If you want to brainstorm your idea and dream about your future, then call me, Brian Dooley, CPA, MBT, at 949-939-3414 for a free one-hour consultation with you and your CPA,

Report on Google Industrial Age Offshore Tax Plan

SMOKE STACK INDUSTRIAL AGE

Google may be one of the best or even the best E-commerce business, its international tax planning was old fashioned and clunky. However, its tax advisers were industrial age (also known as the “second wave”) thinkers.

This blog will explain the efficiency of third wave (also known as the “cloud”) tax planning.

As Alvin Toffler states The illiterate of the future are not those that cannot read or write. They are those that cannot learn, unlearn, relearn.”

While Google is a third wave company, its tax advisers missed the more efficient third wave approach. We will explore this approach after we study the Google’s methods. Cloud tax planning requires one to forget last century’s tax strategies.

Google’s Irish company (Google Ireland Ltd.) is located in Dublin. The Company has a substantial presence employing 1000s. This Company earns most of the non-U.S. advertising revenue. This is not Subpart F income ( income currently taxed to a “U.S. Shareholder”), which means the income U.S. tax deferred.

To reduce the Irish taxable income, this company pays a royalty (on the intellectual property obtained from the Google U.S. of $5.4 billion to Google Netherlands Holding BV. Google Netherlands Holding BV has no employees. Google Netherlands Holding BV pays most of its income to the Bermuda Company.

The Dutch Government promotes this structure by allowing a Dutch income tax deduction for the management fee paid to the Bermuda company. The Dutch Government receives a small tax and employees it citizen maintaining these Dutch holding companies.

Bermuda has no income tax. To make this plan work, I assume that the IRS agreed (in the private letter ruling) that the income earned by the Bermuda company is not Subpart- F income.

The bad news is that Google has to use this profit to grow its non-American business. If this profit is used for a U.S. activity it is immediately taxed (under section 956)

Saving and Deferring Income Taxes in the 21st Century require your tax planners to unlearn last century’s methods and learn about cloud tax law. Spend 40 minutes with me and learn the future of tax planning with this video of my presentation from the CPA’s Society 2011 International Tax Conference.

Third Wave Cloud Tax Planning

For my example I am going to assume that Google is a private business owned by a husband and wife (which is my typical client).

They go to the IRS and get a private letter ruling allowing the transfers of the intangibles to a foreign corporation, Google Isle of Man, Ltd. This Company has an office in Douglas, Isle of Man and employees thousands. This company handles all of the non-American business.

This Company has its computer farm in the Isle of Man. This location handles all of the American and non-American processing. Google employees around the world maintain the computer software, writing new programs and handling customer telephone calls.

Pay per click ads are displayed throughout the world but primarily in the United States.

The executive offices are located in the United States.

Based upon these facts, none of the income earned is United States source.[2] Further none of the income is Subpart F income. Income earned by Google Isle of Man, Ltd. is not taxed until the income is distributed or invested in United States property occurs.

We read about Nat King Cole[3]. His trusts may still exist and the income may still be deferred. Eventually his trusts will end and the deferral will stop. Under English law, a trust can last approximately 100 year. Under Nevada law, a trust can last 365 years.

So, assuming the same facts as above, except instead of using an Isle of Man company, we use a Nevada Limited Liability Company (LLC). Also, the husband and wife formed an inheritance trust in Nevada at the time they started the business.[4] The trust agreement has a flee clause, which causes the trust to be a foreign trust for tax law.

The trust was started with part gift and part loan. The money from the loan was used to start the Google LLC.[5] The money from the gift was placed into bank’s savings account.

As above, Google LLC has its operations in the Isle of Man. As in the above example, Google LLC has banking worldwide. Its executives live and work in the United States. Most of its banking functions are in the United States.

Subpart F income is not a concern because there is no foreign corporation. Google LLC is earning only foreign source income because the source of the income is the location of the computer.

A single member domestic limited liability company is disregarded for American tax law. Its taxable income is earned by the inheritance trust. As a foreign trust, the inheritance trust has no US taxable income. The inheritance trust pays no income tax.[6]

The portion of the inheritance trust funded by the gift is a grantor trust. The income from the bank savings account is reported on the tax return of the husband and wife.[7]

Prudent entrepreneurs legally protect their assets. One of the best methods is an Nevada trust owning a Nevada limited liability company (LLC). For those few concern with estate taxes, with cautious drafting and with an IRS ruling, the Nevada trust’s assets will not be subject to estate taxes for 365 year.

If you would like to brainstorm your tax planning ideas, then please call me, Brian Dooley CPA, at 949-939-3414 for a free one hour consultation.


[1] Ireland has many income tax treaties that lower withholding taxes.

[2]Piedras Negras Broadcasting Co., and/or Cia Radio Difusora De Piedras Negras, S.A. vs. Commissioner of Internal Revenue (43 B.T.A)

[3] Estate of Nathaniel Cole vs. Comm’r of IRS (32 T.C.M. 313, 1973). This case is what is known as memorandum case. The court issues this type of case when the law is clearly understood but the facts need to be discovered.

[4] To avoid the throw back rule, the trust is a “simple trust” under the IRC

[5] For this example, we are assuming that the loan was a “qualified obligation” under section 679

[6] When the trust distributes money to its beneficiaries, they will pay tax. Since the trust is a simple trust the income tax throw back rules will not apply.

[7] The IRS may not accept the tracing method but will want to use a pro-rata allocation. As we discussed, the courts allow a debt to corpus ratio in excess of 100 to one. Our loan to gift ration can be 100 to one. As a result, the IRS would attempt to allocate 1% of Google LLC’s income to husband and wife. This point is negotiated with the IRS during the private letter ruling process.