As the swell of post,September 11 patriotism continues, members of Congress and the media are shocked to discover that more than a few U.S. companies have reincorporated abroad to avoid paying taxes on their foreign income.
For most of the chief financial officers in our poll on this question, however, reincorporating abroad presents no ethical or moral dilemma (Institutional Investor, February 2002). Fully 80 percent of those surveyed say they do not view such a move as unpatriotic.
When asked which of their paid advisers had suggested such action in the previous 12 months, 60 percent said their accounting firm had brought up the idea; 40 percent said their investment bank suggested it.
Only 28.9 percent of respondents felt their company’s board would consider it part of their fiduciary duty to cut taxes by moving offshore. A larger number, 32.6 percent, believed that their company’s shareholders would view reincorporating abroad to cut taxes as a fiduciary responsibility.
But 38.3 percent of CFOs say that they themselves see reincorporating abroad to save on taxes as a part of their job responsibilities.
More than 80 percent of those surveyed say that corporations should not be prohibited from registering offshore to avoid taxation. But among the 19.6 percent who thought such action should be stopped, 60 percent said that Congress should take action. Sixty percent also favored using the Internal Revenue Service to block reincorporation overseas by making it too expensive for companies. Twenty percent were in favor of punishing investors for such a move, while 10 percent said the press should make an issue of the moves and the motives for them, as Institutional Investor did in February and others did more recently when toolmaker Stanley Works reincorporated offshore.
Interestingly, among the majority who are against prohibiting companies from reincorporating abroad, 60 percent say it is the fiduciary duty of management to find ways to reduce taxes , a significantly higher percentage than those who see it as their own job to do so by registering offshore. Forty percent say that registering abroad makes it easier to do business in some foreign countries. More than 25 percent say that what a company chooses to do is no one else,s business.
The Corporate Patriot Enforcement Act of 2002, introduced by Representative Richard Neal, a Massachusetts Democrat, is awaiting passage. Its aim is to prevent corporations from avoiding U.S. income tax by reincorporating in a foreign country. But 71 percent of the CFOs responding say that such a law would be unenforceable. And perhaps for most chief financial officers that is the bottom line: Why make a fuss about what, in the end, you can,t prevent?
Would members of your company’s board think that it is their fiduciary duty to reduce taxes on overseas income by moving offshore?
Yes 28.9%
No 71.1
Would your company’s shareholders think that it is your fiduciary duty to reduce taxes on overseas income by moving offshore?
Yes 32.6%
No 67.4
Do you think that it is your fiduciary duty to reduce taxes on overseas income by moving offshore?
Yes 38.3%
No 61.7
Do you think it unpatriotic for U.S. companies to reincorporate offshore to cut their tax on overseas income?
Yes 20.0%
No 80.0
In the past 12 months, have any of the following talked to you about reincorporating offshore?
Investment bank 40.0%
Law firm 0.0
Accounting firm 60.0
Management consulting firm 0.0
Should corporations be prohibited from moving offshore to reduce taxes?
Yes 19.6%
No 80.4
If yes, how should it be done?
Congress should prohibit such moves 60.0%
The Internal Revenue Service should make such moves extremely expensive to the corporation 60.0%
The IRS should make such moves extremely expensive to institutional shareholders 10.0
The IRS should make such moves extremely expensive to all shareholders 10.0
The press should make an issue of the moves and motives for them 10.0
If no, why not?
It’s no one else’s business 25.7%
It’s the fiduciary duty of management to find ways to reduce taxes 60.0
There are no specific benefits that accrue only to U.S. companies 14.3
There are no services that would not be offered to a company registered abroad 5.7
Being a U.S. corporation invites attack 0.0
Being a corporation registered abroad makes it easier to do business in some countries 40.0
Democratic Representative Richard Neal of Massachusetts recently announced the introduction into the House of the Corporate Patriot Enforcement Act of 2002. Its goal: “To prevent corporations from avoiding the U.S. income tax by reincorporating in a foreign country.” Do you think that such a law can be enforced?
Yes 28.9%
No 71.1
The results of CFO Forum are based on quarterly surveys of a universe of 1,600 chief financial officers. Because of rounding, responses may not total 100 percent.
