By: Corry Hunter, CPA
The United States corporate tax rate is tied for second highest in the world, along with several others at 35%. Canada, our neighbor to the North, has a 26% corporate tax rate.
This is why a corporate board of directors would decide to shift profits to subsidiaries offshore to countries with brackets as low as Ireland’s 12.5%.
Keeping an extra 22.5% by having your income taxable only in Ireland can do wonders for your share price. See Apple or Google’s stock chart…
However, there is a downfall to all of this. A person’s motive behind investing in a company is to make money. You could sell the stock, but you would miss out on any future growth. The only other option is to wait for the company to issue a dividend. But, if the profit is in Ireland, they cannot pay their shareholders a dividend. The shareholders live in the U.S. where the company lacks the profit to pay a dividend (hence no tax).
This is where President Trump’s plan with a 0% tax on repatriation comes in. It has been suggested before, but has always failed to pass. Repatriation allows cash to come back to the parent company so they can invest in the U.S. or pay a dividend to the shareholders. In either case, I’m not a fan.
Ask any economics professor and they will tell you the large influx of cash is great for our economy. On the fairness of a 0% repatriation tax, however, I disagree.
We need to fix the root of the problem, the corporate tax rate. We need to be competitive. How many multinationals will jump through hoops to save money if our tax rate is 15% compared to Ireland’s 12.5%? The majority will realize that having cash here in the U.S. means you can build and grow in the U.S. If a corporation has motivation to keep their cash here, we will keep our jobs here, and there will be profit for all.
When you consider corporate tax rates and the related revenue they generate for the U.S., remember, 15% tax on $1M in U.S. profit is $150k in tax revenue. That is more than 35% tax of $100k in U.S. profit ($35k tax) if Ireland’s profit is $900k ($112,500 tax revenue for Ireland).
For more information call Osborne Rincon CPAs at 760-777-9805.