Here I explain in 10 easy steps how US corporations shelter profits in "overseas" or "off-shore" accounts. Funny thing is, those profits are hiding in plain sight all around you! See here why...

Interesting article that details how US corporations can book some of its profits on US sales of goods/services into overseas (or "off-shore") subsidiaries and how those profits are NOT subject to taxation in the US.

Here how it works in 10 easy steps:

1. I produce a high tech product, oh, say, a Smartphone and I sell primarily in the US market.

2. I develop and patent a new technology that improves the Camera in my Smartphone and it will add tremendous value to the phone!

3. I set up a legal subsidiary (really just an office with a secretary) to my company in, oh, say, the Cayman Islands or some other country that is VERY friendly to foreign corporations.

4. I sell ALL THE LEGAL RIGHTS to my new technology to this foreign subsidiary for $1.00 (I get a little revenue from this transaction).  This technology won't produce all my profits, but it will produce a good portion of them.

5. The foreign subsidiary now "offers" to sell me the right to use the technology in my phone for, say, $11.00 (I GOTTA have it for my phone!!). 

6. I pay $11.00 for the technology, now an EXPENSE for me, and the foreign subsidiary of my company makes a profit of $10.00 ($11.00 in revenue minus the $1.00 they paid me).

7. I declare to the IRS the $10.00 in profit "earned" by my sudsidiary will "permanently" stay overseas (off-shore).  IRS says "fine", it is not subject to US taxation!

8. My subsidiary has $10 that they can now (1) invest locally or (2) get this (!), INVEST in the US, whether that be in US Stocks, Bonds (Govt or Private), or other financial or physical assets. Also, if I play my cards right, my subsidiary COULD put that money in a US bank (earning interest) and I could go to the same bank and get a loan for $10.00!! 

9.  So, I could end up borrowing my own money (earning and paying myself interest) on profits that were never taxed in the US.

10.  The point of this?  All those profits the media reports that are "hiding" in Foreign banks accounts are really, for the most part, here in the good ol' USA!

SWEET!!! This is a simplistic example, but read the whole article below and you will see the structure of my example holds some water.

Also, look at some of the biggest offenders--the maker of some of yours and mine favorite products/services.  Feel a little unclean now that you know this?

Firms Keep Stockpiles of 'Foreign' Cash in U.S.

There's a funny thing about the estimated $1.7 trillion that American companies say they have indefinitely invested overseas: A lot of it is actually sitting right here at home.

Some companies, including Internet giant Google Inc., GOOG +6.17%software maker Microsoft Corp. MSFT +1.47%and data-storage specialist EMC Corp., EMC +1.77%keep more than three-quarters of the cash owned by their foreign subsidiaries at U.S. banks, held in U.S. dollars or parked in U.S. government and corporate securities, according to people familiar with the companies' cash positions.

In the eyes of the law, the Internal Revenue Service and company executives, however, this money is overseas. As long as it doesn't flow back to the U.S. parent company, the U.S. doesn't tax it. And as long as it sits in U.S. bank accounts or in U.S. Treasurys, it is safer than if it were plowed into potentially risky foreign investments.

Gallup Poll that nicely illustrates the divide in the US as to who people blame for our various woes--Government or Corporations. Where do YOU fall in this poll?

Latest Gallup poll showing the differences between Republicans and Democrats regarding their respective view of Government and Corporations.   I modified the results to illustrate the extremes on both sides. An almost perfect Venn Diagram would overlap the silent majority---Independents, and implicitly identifies the REAL PROBLEM---Crony Capitalism.   This is where I reside. How about you???

Crony capitalism is a term describing an economy in which success in business depends on close  relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of dirigisme.^[1] Crony capitalism is believed to arise when political cronyism spills over into the business world; self-serving friendships and family ties between businessmen and the government influence the economy and society to the extent that it corrupts public-serving economic and political ideals.