Opinion

Nicholas Wapshott

Can I invert myself and not pay taxes?

Nicholas Wapshott
Aug 13, 2014 16:05 UTC

The Pfizer logo is seen at their world headquarters in New York

The hot tax-dodging business trend of the summer is inversion. A U.S. company buys a company in a country with a lower corporate tax rate, relocates its headquarters there and funnels its income through the new head office. As long as it does not repatriate profits, the self-exiled company can avoid paying U.S. corporate taxes.

The United States is the only country that taxes its citizens on their worldwide income.  Wherever you earn money, the Internal Revenue Service wants a slice of it. But if, as the 2012 Republican presidential nominee Mitt Romney said and U.S. Supreme Court justices ruled in Burwell v Hobby Lobby and Citizens United v Federal Elections Commission, corporations are people, shouldn’t the converse be true? Why can’t all Americans relocate their places of domicile abroad and dodge taxes just like a company?

If only it were that easy.

Let’s take it one step at a time. There has been considerable alarm at U.S. companies’ rush to the exits. Under a fiduciary duty to maximize dividends and share prices for stockholders, businesses are seeking to avoid the 35 percent federal corporate income tax they are liable for here. Many American business leaders believe high corporate tax rates put their companies at a competitive disadvantage with the rest of the world. As do many business-leaning, tax-hating and federal government-loathing politicians.

A general view of the Internal Revenue Service Building in WashingtonIf you add local and state taxes, U.S. corporations pay tax on their income at a nominal rate of 40 percent, far more than many other countries. Britain, for example, has a similar economy but its top corporate tax rate is just 21 percent. Germany, which also has a successful, mature economy, levies its companies at nearly 30 percent. While few U.S. companies end up paying this nominal rate, since they offset various expenses, exemptions are much the same in comparable economies. This disparity tends to beggar American businesses and discourage domestic investment, which means fewer U.S. jobs.

Hence the clamor to relocate. Eight major companies are planning to nominally move — though not actually transfer their bricks-and-mortar businesses — to low-tax countries in the next 12 months, joining about 41 U.S. companies who have already done so since 1982. All they have to do is buy a foreign company at least 25 percent their size and, on paper at least, they become a foreign entity — and avoid the U.S. corporate tax.

The analogue titans’ last gasp against the digital giants

Nicholas Wapshott
Aug 4, 2014 18:46 UTC

amazon-hachette

Amazon’s bullying of the book publisher Hachette and the uninvited bid by Rupert Murdoch’s 21st Century Fox to swallow rival TimeWarner has caused some economists and commentators to ask, why are such aggressive moves not attracting the attention of the Justice Department’s trust-busters? Both moves are textbook examples of how monopoly power can abuse — or so they would have seemed not long ago.

At stake are the benefits that consumers and employees alike enjoy from the proliferation of competing companies operating in a free market. For markets to work freely and fairly, there must be enough companies competing; when the critical mass of businesses sinks below a certain number, monopolies occur, which is bad for consumers. When that happens, governments in mature societies intervene to prevent over-consolidation and protect people from exploitation.

This isn’t socialism; it is how the free market is meant to work. It is the ordered way of doing business advocated by free-market gurus like Friedrich Hayek, who believed the integrity of free enterprise was paramount to ensure that prices are arrived at fairly.

I’m Ronald Reagan! No, I’m Reagan! No, over here, I’m the real Reagan!

Nicholas Wapshott
Jul 22, 2014 06:00 UTC

 Rand Paul introduces U.S. Senate Republican Leader Sen. McConnell to crowd of campaign supporters after McConnell defeated Tea Party challenger Bevin in state Republican primary elections in Louisville

Did anyone hear the crack of a starting pistol? Nor me. But the race to become the Republican presidential nominee in 2016 is on.

Of course Reince Priebus, the GOP chairman, has been trying to keep the contest under close control since the party’s 2012 presidential primaries became a cable comedy sensation.

Perhaps he should have told the prospective candidates. The most eager wannabes, keen to take an early lead, have jumped the gun. Though it is too early to tell how the race will unfold, let alone who will win, we are already getting a taste of the themes, the policies and, above all, the complexion of the primaries to come. If the vituperative mood of the opening salvoes is anything to go by, we are in for fireworks.

Nothing pacific about it: Japan pushes back on China

Nicholas Wapshott
Jul 15, 2014 06:00 UTC

Members of Japan's Self-Defence Forces' airborne troops stand at attention during the annual SDF troop review ceremony at Asaka Base in Asaka

China is on the march. Or, to be precise, China has made a strong push, militarily and otherwise, into seas nearby, setting off alarms among its neighbors. Now Japan has pushed back, announcing it will “reinterpret” its pacifist constitution so it can be more militarily aggressive in responding to China’s persistent territorial expansionism.

Japan’s actions, however, have also raised alarms. A century ago, Japan set out on a destructive path of conquest, and many still remember firsthand the brutality with which Japanese troops occupied the region — from Korea and the Philippines, through Manchuria and China, Vietnam and Thailand, all the way to Singapore. Though China is now threatening peace, the memory of Japan’s savage adventurism adds to the general unease.

If Japan’s prime minister, Shinzo Abe, is to persuade countries nearby that his intentions are honorable, there are actions he can take to show that Tokyo has learned the lessons of the past and truly reformed. If he does not, his latest political maneuver is likely to set his neighbors’ nerves on edge, adding to the prospect of warfare between two or more of the nations on the East and South China Seas.

Rupert Murdoch’s troubles are far from over

Nicholas Wapshott
Jul 1, 2014 06:00 UTC

News Corporation CEO Rupert Murdoch leaves his flat with Rebekah Brooks, Chief Executive of News International,  in central London

The acquittal of Rupert Murdoch’s favorite executive, the flame-haired Rebekah Brooks, on charges of phone hacking and destroying the evidence might have marked the final act in one of the most bruising and expensive chapters in the history of News Corp.

It hasn’t turned out that way.

The $85 million that Murdoch paid to help keep his protégée out of jail has done little more than stoke the fires of resentment against his company in Britain. It also reminded U.S. federal authorities of the likelihood that similar crimes have been committed in America.

With convictions secured in Britain for bribing public officials, there is already enough evidence for U.S. authorities to pursue News Corp. under the Foreign Corrupt Practices Act. Which may be why the FBI requisitioned 80,000 emails from News Corp.’s New York headquarters.

U.S. power: Waging cold wars without end

Nicholas Wapshott
Jun 26, 2014 06:00 UTC

U.S. President Barack Obama addresses troops at Bagram Air Base in Kabul

Suddenly, it seems, the world is at war.

In Iraq, armed and angry militants of the Islamic State of Iraq and Syria (ISIS) are at the gates of Baghdad. In Pakistan, government forces are mounting a ferocious campaign against the Taliban in North Waziristan. In Syria, the civil war drags on. These are “hot wars” involving the clashing of troops and weapons. Having escaped such “hot” conflicts in Iraq and Afghanistan, these are the sort of war Americans have made it plain they are not prepared to fight.

But there are other wars going on. In Yemen, a forgotten war against an al Qaeda outcrop continues, largely fought with lethal U.S. drones. In Ukraine, Moscow is undermining the Kiev government by stealth. Russian President Vladimir Putin, anxious not to press his luck after successfully snatching Crimea from Kiev, is like a fox sliding through the hen coop, careful not to set off the alarm. He is being countered by targeted sanctions imposed by the United States and the European Union. These are “cold wars” — a contemporary variation on the 40-plus years of  Cold War fought to a standstill by the United States and the Soviet Union.

vietnam -- soldiersThe very nature of war has changed since the hauling down of the Berlin Wall in 1989. As the Cold War raged with often imperceptible intensity, the two sides mounted “hot wars” by proxy in minor theaters — the most prominent and punishing for the United States being Vietnam, a “cold war” first fought with teams of U.S. advisers, war materiel and money that became “hot.”

Democracy is on the ropes. So what are we going to do about it?

Nicholas Wapshott
Jun 17, 2014 19:15 UTC

child holds her father's hand at a polling station in Kabul

Democracy is taking a bashing. On almost every continent, attempts to extend the right of people to choose their own government is running into deep trouble. In Iraq, Egypt, Ukraine, Russia, Afghanistan, Pakistan and many other countries, democracy is being overwhelmed by despotism and despair.

A commonly heard response is that Western democracy is not for everyone, that what works in our society does not automatically work elsewhere. Another is to suggest that we should not try to spread democracy to the rest of the world; it is none of our business.

Both views are mean and short-sighted. If the United States abandons democracy in the rest of the world, not only is the rest of the world sunk but tyranny will soon be heading our way as voting laws here become more restrictive.

Whether GM or banks, some companies are still too big to jail

Nicholas Wapshott
Jun 10, 2014 06:00 UTC

U.S. Attorney General Eric Holder speaks at a news conference at the Justice Department  in Washington

Attorney General Eric Holder is in the middle of a prosecuting binge against some of the world’s biggest companies. Washington’s attempt to bring such large corporations to justice is long overdue.

Tea Party and Occupy Wall Street protesters were furious that financial executives who brought the world to the brink of penury in 2008 paid no price for their reckless behavior. The anger became widespread when the U.S. justice system seemed incapable of bringing culpable individuals and companies to account.

Now a number of large firms are finally being forced to face the music and this notion of whether a company can be “too big to jail” is being tested. Last month, General Motors agreed to a fine of $35 million for failing to respond soon enough to faulty vehicle ignitions that contributed to the deaths of 74 drivers.

VA scandal is no mark against big government

Nicholas Wapshott
Jun 3, 2014 06:00 UTC

U.S. military veterans listen in the audience during a House Veterans' Affairs Committee hearing on the Phoenix VA Health Care System wait list, on Capitol Hill in Washington

For some, the veterans hospitals scandal is a human tragedy pure and simple. Those who loyally served their nation in uniform, putting their lives on the line, were shunned when they sought medical help.

For others, however, the troubles at the Department of Veterans Affairs have provided what one pundit called “A gift from God.”

For those commentators, the scandal confirmed their worst fears. The logic runs like this: The VA provides a government-run health service; the failures of the VA are a disgrace; ipso facto, all government-run health systems are a disgrace; proving that all government-run bodies are a disgrace. So all government should be sharply reduced — if not abandoned altogether.

The healthy route for Hillary Clinton: Release your medical records

Nicholas Wapshott
May 20, 2014 22:10 UTC

hillary!!

So Karl Rove has cast doubt on former Secretary of State Hillary Clinton’s health. He may have been off when he claimed that the presumed 2016 Democratic presidential candidate spent 30 days in the hospital — she was only kept in for three — but he has clearly drawn political blood.

The Clintons went into full defense mode. Though every presidential candidate in modern times has provided a full account of their health, and if Hillary Clinton decides to run, she too will have to hand over her full medical file — including an explanation of the blood clot between her skull and her brain caused by a fall, a full account of why she fell, what treatment she received, how well she recovered and whether there are any lasting effects. It’s par for the course.

The Clintons being Clintons, however, are keeping mum about the substance of Rove’s accusation. As if it were somehow bad manners to raise health as an issue. Health is, should and will be an issue, just as the health of whoever emerges as the champion from the GOP presidential primaries will be pounced on, prodded and pored over.

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