Could a company like Coca-Cola decide to move to the Philippines and stop paying USA taxes?

Answer 1

Not anymore!

It used to be just that they could pay the tax and get out as Lewis Y suggests, but in 2004, Congress passed Section 7874 of the Internal Revenue Code, which prevents just the idea you suggest.

Section 7874 says that if you are a US company and you "invert" to become a foreign company and you have at least 80% of the same shareholders you had before the inversion, you will still be treated as a US corporation for all purposes of the Internal Revenue Code unless you have “substantial business activities” in the country you moved to. (There are other, milder, penalties if you have at least 60% but fewer than 80% of the same shareholders you had before.) Thus, moving to true tax havens is not really possible anymore . . . though a company may be able to move to a more favorable jurisdiction if they have operations, assets, and sales in that country.

Interestingly, there will be an article on this topic in next week's Tax Notes International, and there was an article in the July issue of the Journal of International Taxation.

Answer 2

Kind of, Sort of, and NO. First, there is a huge tax on all US assets moved abroad.

Secondly, they would still have to pay taxes on their US earnings.

We get into shadow pricing here, but that is little complex. Basically, it means the shelter corp overcharges the overseas company for some assets. So if Coke were charging for the trademark and licensing fees, that asset would be heavily taxed if it were transferred abroad.

If IRS finds shadow pricing, the company is assessed all back taxes and penalties and interest. They also amass huge legal fees

Thirdly, they would lose the protection of the US Government from nationalization or seizure of assets.

Coke is big, but I think even they use OPIC(overseas private investment corporation, a US Govt entity) to protect some of their foreign assets. That wouldn't be available to them if they were based overseas.



BTW, Stanley Tools gave up on their scheme to move to Bermuda, because the IRS was going to prosecute. IRS does have authority to pursue CRIMINAL PROSECUTION, that could result in jail time..

http://www.law.wayne.edu/McIntyre/text/in_the_news/stanley_stays2.pdf

Answer 3

They'd have to move every last facility they own in the United States to the Philippines and change their corporate charter from a US company to a Philippine company in order to avoid US income taxes. However, they'd still be hit with some US import fees, I would imagine.

Answer 4

Yes!
If I remember right Stanley tools moved their "headquarters"
to the Bahamas.Just a small office with one employee!
When the IRS tried to give them a hard time about this they
were ready with lawers.
Their statement was this "If we were treated fairly we would not have made the change,but since you have only ground your
heel into th back of our neck,demanding more and more money,
we chose to take this action.If you continue to give us headaches
about this we will go on the internet and tell the nation how to do the same"
The IRS backed off!!

Answer 5

Nope, domestic and foreign companies still have to pay IRS taxes as long as they have income from operations in the US. However, they might able to less the tax burden by having overseas operations.

Answer 6

yes .. many companies do that sort of thing .... there is actually a tiny little rich country in Europe called Lichtenstein that is famous for having many many huge companies that are headquartered there for tax reasons. Most only really have post office boxes there so they can be "official".

Answer 7

I think the Philippines are a United States territory so that wouldn't work

Answer 8

Nope

Answer 9

Yes companies do it all the time

Answer 10

They don't need to.
http://www.aflcio.org/corporatewatch/ns09222004.cfm