The Global Corner – What Would You Do?

Jerry Smith
Riverstar International
January 14, 2013

It seems that everyone is concerned about government taxes and it is not limited to the U.S.  Some may have been following the story of the French actor, Gerald Depardieu, who has decided to claim citizenry in Russia. First, he was going to Belgium to escape the onerous French taxing of 75% of his income.  Now, even Brigitte Bardot is in on the act, but that is another French story.

When individuals or corporations move themselves or their money to some out-of-country location to avoid higher taxes imposed by their native governments, many question the extent of their loyalty to their own country.  On the flip side, the taxpayer might equally ask, What is the loyalty factor of my government to its own citizens’ collective economic well-being?  This seems to be one of the great divides at the top levels of the U.S. government these days.

A good case in point is a South Carolina company that recently set up a business in the UK. By forming a UK Limited Liability company, the profits that would accrue to this new operation would be taxed at a maximum rate of 20% on the first $480,000 in profits. If operating in the U.S., the same tax rate would be 34% when profits exceed $335,000. Hence, a tax savings of $67,200 would be effectively available to this small company.

The writer of this column is by no means a tax expert, but taxes to a small business are as important as its sales revenue……every dollar counts!  

As the bar graph below shows, our corporate tax percentage is even higher than France’s rate. Granted, the 75% that Mr. Depardieu would be taxed as an individual in France is somewhat below the highest tax rate for an individual in the U.S. (41%) for 2013. However keep in mind that the new 2013 tax rate represents a 6% jump from 2012 (35%) or a 17% increase.

 
Of course, when one considers the other tax increases–payroll tax up by 2% to 12.4%, Dividend and Capital Gains taxes both up by 8.8% to 23.8% (a hefty 53% increase), not to mention varying state and local tax increases–the motivation of businesses to seek the very best tax relief venues seems completely reasonable.  The continued raising of taxes on businesses might prompt the analogy of BMI (Body Mass Index) or ratio of muscle/lean (our tax base) to fat (government spending) and come to the conclusion that our government is grossly obese.

Small to medium size businesses have fewer choices to move operations out of country, but when it comes to paying fewer taxes based on creeping upward taxing…..what would you do?

Jerry Smith is an export trade consultant. For more information concerning this article, contact: [email protected]