Michael Kors and Apple are acting legally and advantageously by moving some of their income tax liabilities out of the United States. Is this a good trend? Is it equitable? Consider smaller companies without the resources for such sophisticated tax advice. What about profit-comparable companies which suffer higher taxes because their revenues come from physical sales? Is it equitable to countries which provide the infrastructure for high-tech development? What about the countries that now can collect taxes from businesses that have little physical presence other than an office with a mailing address? If there are inequities, what might bring them back into balance?
In today’s world, a corporation is generally free to choose its “nationality”—that is, its home country, the country in which it will establish its legal existence or, using U.S. terminology, the country in which it will incorporate. That nation’s laws will govern the relationship between the entity and its owners—that is, the corporate governance rules it must follow—as well as the accounting standards with which it must comply. If incorporated outside of the United States, it will only become subject to U.S. securities laws if it chooses to list its securities on a U.S. exchange. Unlike other countries, the United States taxes U.S. corporations on their worldwide income, not just the income earned in the United States. Thus, if a business incorporates outside the country, it may avoid significant U.S. taxes, substantial U.S. regulation, and the extraterritorial application of U.S. laws.