Moreover, the rise of intangibles like intellectual property makes it even easier to relocate income-producing assets at will. Simply by assigning a valuable asset to a subsidiary in a low-tax environment, a company can make a massive shift in where taxable income comes from that has huge implications for total tax liability.
One world, one tax rate?
The best theoretical solution to the stateless income problem is also the most unrealistic one: setting a uniform global tax rate that would remove the incentive for companies to prefer one jurisdiction over another and the barriers to repatriating profits. Without such incentives, companies would presumably pay taxes wherever it made sense to do so rather than to produce tax savings.
Absent that solution, though, the IRS and other tax authorities in high-tax jurisdictions will have no choice but to fight big corporations under broad and somewhat vague laws challenging the true business purpose of tax-motivated moves to create stateless income. That will prove to be an uphill battle for the IRS unless Congress moves to create tighter laws on international tax enforcement. With that being unlikely in the current political environment, shareholders of companies like Apple Inc. (NASDAQ:AAPL), Starbucks Corporation (NASDAQ:SBUX), Forest Laboratories, Inc. (NYSE:FRX), Cisco Systems, Inc. (NASDAQ:CSCO), and Google Inc (NASDAQ:GOOG) probably don’t have much to worry about in the near future.
The article Stateless Income: What It Means for the Stocks You Own originally appeared on Fool.com is written by Dan Caplinger.
Fool contributor Dan Caplinger owns shares of Apple. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Apple, Cisco Systems, Google, and Starbucks. The Motley Fool owns shares of Apple, Google, and Starbucks.
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