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Stanley Works in New Britain, CT
7.19.02
Politics and Economy:
The Off-Shore Shell Game
More on This Story:
Overview

Behind closed doors in the nation's capitol Democrats and Republicans are arm-wrestling over the fate of corporate reform. All this in the wake of Alan Greenspan's testimony that the American economy is suffering from 'infectious greed,' on the part of a business community that threw governance to the wind and ethics to the wolves. One such practice under scrutiny is the practice of American companies moving their corporate headquarters off-shore — at least in name. NOW's piece, "The Off-shore Shell Game" looks at the efforts of one company that is trying to set up shop in Bermuda.

benefits of off-shore headquarters
OFFSHORE BENEFITS
You may not have heard about the Bermuda move, but you've heard of Stanley — it's the world famous tool and hardware maker — an American company that has called Connecticut home for almost 160 years. Now it wants to move its headquarters to Bermuda. The reason? To avoid an estimated 30 million dollars a year in U.S. taxes.
U.S. double tax policy
U.S. WORLDWIDE TAXATION
So how is it that a big company like Stanley can avoid taxes simply by changing its address to Bermuda? The answer begins with U.S. tax law and the practice known as "Worldwide Taxation."

"Well, the big difference is that the U.S. system taxes on a worldwide basis. So it doesn't matter where you're earning your income, we're going to tax it here in the U.S." --Pamela Olson, Acting Assistant Secretary Of The Treasury For Tax Policy

Off-shore headquarters inversion
CORPORATE HEADQUARTER INVERSION
There is, however a fiction behind these relocations: Companies often don't actually move any workers off-shore, or even set up an office there. Nothing really changes in business operations — except in name.

In many cases, the company gets a post office address, pays a fee to the Bermudan government but nothing changes in the company's business.

When a company establishes its headquarters overseas, it undergoes an inversion in which the off-shore company becomes the parent of the U.S. company. That allows it to avoid certain taxes in the U.S.



Interest Paid to a Related Party
SELF-LENDING

Or "Interest Paid to a Related Party" is a strategy in which the off-shore shell company loans money to the American subsidiary to get a tax deduction. As critics explain, "It's like you lent yourself money, charged yourself interest, and then wrote the interest off on your taxes."

Transfer of Intangible Assets
LICENSING YOUR NAME

In a process known as "Transfer of Intangible Assets, the American subsidiary pays the off-shore shell company for the use of the company's trade name.

Transfer Pricing
THE PAPER SHUFFLE

Yet a third scheme involves the paper shuffle of merchandise known as transfer pricing.

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