Reducing Taxes

As a businessman, you have an obligation to keep costs as low as you can while ensuring that you meet the needs of your customers, your employees and your shareholders. One of the costs of any business is taxes. Cisco Systems is an example of an organization that effectively keeps its taxes low by funneling business to its foreign operations. Bloomberg has an excellent article documenting how Cisco does it. It's quite complex but basically it uses sophisticated legal and accounting maneuvers to move money around its foreign operations until it eventually is parked in the country that requires the least taxes.

By moving profits overseas, Cisco does not have to pay U.S. taxes on this international business until, if ever, it moves the foreign profits back to the States. This technique has enabled Cisco to halve its U.S. tax bill for a fair number of years.

Now Cisco and others want to bring home these profits, but at a substantially lower tax rate than the normal 35% corporate rate; that rate is 5.25%. Their argument is that it will result in increased jobs here. However, the legislation they are trying to get passed does not mandate that the funds be spent on hiring people. In 2004 the companies were able to convince the government that they should be able to bring back foreign money at a lower tax rate. However, the money was not used to create jobs or invest in new processes; it was used to buy back their stock.