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 isnot limited to the U.S.  Some may have been following the story of theFrench actor, Gerald Depardieu, who has decided to claim citizenry inRussia. First, he was going to Belgium to escape the onerous Frenchtaxing of 75% of his income.  Now, even Brigitte Bardot is in on theact, 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 nativegovernments, many question the extent of their loyalty to their owncountry.  On the flip side, the taxpayer might equally ask, What is the loyalty factor of my government to its own citizens’ collectiveeconomic well-being?  This seems to be one of the great divides at thetop 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, theprofits that would accrue to this new operation would be taxed at amaximum rate of 20% on the first $480,000 in profits. If operating inthe 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 thissmall company.

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

As the bar graph below shows, our corporate tax percentage is evenhigher than France’s rate. Granted, the 75% that Mr. Depardieu would betaxed as an individual in France is somewhat below the highest tax ratefor an individual in the U.S. (41%) for 2013. However keep in mind thatthe 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 upby 2% to 12.4%, Dividend and Capital Gains taxes both up by 8.8% to23.8% (a hefty 53% increase), not to mention varying state and local tax increases–the motivation of businesses to seek the very best taxrelief venues seems completely reasonable.  The continued raising oftaxes on businesses might prompt the analogy of BMI (Body Mass Index) or ratio of muscle/lean (our tax base) to fat (government spending) andcome to the conclusion that our government is grossly obese.

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

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