Tyler Hurst swiped his debit card at a Walgreens pharmacy in central Phoenix and kicked off an international odyssey of corporate tax avoidance.
Hurst went home with an amber bottle of Lexapro, the world’s third-best selling antidepressant. The profits from his $99 purchase began a 9,400-mile journey that would lead across the Atlantic Ocean and more than halfway back again, to a grassy industrial park in Dublin, a glass skyscraper in Amsterdam and a law office in Bermuda surrounded by palm trees.
While Forest Laboratories Inc., the medicine’s maker, sells Lexapro only in the U.S., the voyage ensures most of its profits aren’t taxed there -- and they face little tax anywhere else. Forest cut its U.S. tax bill by more than a third last year with a technique known as transfer pricing, a method that carves an estimated $60 billion a year from the U.S. Treasury as it combines tax planning and alchemy.
Among the US luminaries using this strategy are Google, MSFT, Oracle, and Pfizer.
“If multinationals cannot be prevented from shifting profits to low-tax jurisdictions, then it becomes impossible to maintain the domestic corporate tax base,” said Reuven S. Avi- Yonah, director of the international tax program at the University of Michigan Law School in Ann Arbor. If that bleeding can’t be stanched, “we might as well abandon the income tax.”
The interview (I beleive it's Hurst) also notes that in theory, when the funds are repatriated, the government gets their cut. In reality it doesn't. Except when we do something like the 2004 American Jobs Creation Act that granted amnesty and a 5% tax rate (instead of the 35% rate). It enabled companies to bring back three hundred billion dollars at a laughable tax rate. They didn't create jobs so much as they bought back their own stock. In 2005, HP brought back $15B under this act even as it laid off 14,000 workers.