The use of tax havens in day to day corporate life has grown to be almost mainstream these days. To the small businessman and the private investor, the use of tax havens still probably seems a little shady.

This shouldn’t be the case any more as the use of tax havens to reduce tax or just defer it for a while is now accepted practice all over the world with many of the largest Australian accounting and audit firms having departments advising major corporations how to structure their operations offshore.

Tax havens have a strong appeal for many multi-national companies established in foreign countries because of the advantages they offer for the legitimate reduction or deferment of taxation on certain profits earned offshore. Profits harboured in a tax haven enable working capital to be used in the cheapest way possible.

Traditionally, the tax haven has been used as a central point for handling paperwork and preparing and processing international trade documents. Many companies utilise tax havens for the passage of title of goods, so these transfers can proceed without the need for mountains of regulations and fees.

Tax havens are also popular as places to administer patent, trademark and royalty agreements. Because of the intangible nature of patents, trademarks and royalty agreements, they are easily moved from one jurisdiction to the other and the cost of doing this is very low in tax haven jurisdictions.

For instance, if a company with branches and subsidiaries overseas is a resident of a country with strict foreign exchange regulations, it may not want to repatriate the profits simply because if it did, it may have problems being able to transfer the funds back out if it wanted to reinvest them offshore. To solve this problem, it establishes a foreign intermediate holding company in a tax haven, not for tax reasons, but to avoid the foreign exchange control problems that its own country has imposed.

By simply interposing a tax haven company in a corporate structure does not result in the reduction of onshore taxes in most cases, but it may allow tax deferral. Eventually, the parent company will receive the income and when it does it will be taxable and possibly without the benefit of foreign tax credits that may have been available had the profits been repatriated from a tax treaty country. Most tax havens don’t have tax treaties with major countries such as Australia, which prevents the favourable use of lower withholding taxes that would have been available had the country been a signatory to a tax treaty.

Offshore Licencing and Patent Holding Companies

Royalties or licence fees can be, in certain circumstances, can be feed of tax obligations by using an offshore licensing company. For instance, the owner of a patent can incorporate an offshore licensing company and assign the rights to that offshore company. In turn the offshore company then has the right to licence the patent to a foreign subsidiary. By having the royalties paid to the licensing company in a tax haven, profits are effectively shifted from the foreign subsidiary to the offshore patent owning company, which pays little or no tax on the royalties that it receives.

Income from other intangible rights, such as trade marks, copyrights, know how and franchising rights, can be earned without incurring withholding or income tax if a tax haven company is established to sublicence other companies in various countries. Tax savings can be made also on patent royalties by combining tax havens.

Australia only deducts 10% withholding tax on Dutch companies. Therefore, if a tax haven company was established in the Netherlands Antilles with a Dutch subsidiary, and licences its Dutch patents to the Dutch company, the Dutch company, in turn, can licence to the Australian manufacturer.

The Australian company can then pay the Dutch subsidiary patent royalties incurring only 10% tax. The Dutch company can then pay the royalty to the tax haven company (which is the patent owner), thereby avoiding Dutch withholding taxes on dividends. The Dutch company is not taxed in the Netherlands, and the tax haven company avoids any further taxation. Total tax is 10%.

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Why would somebody want to buy Ford Stock? In this currently tumultuous environment, you would think the impulse would be to take less risk, not more. The way that people are still looking at this situation however, is that since the price is low, then obviously it’s a good deal. Right?

Right???

Well, if you’re into taking risks and not necessarily seeing a return from it, then by all means go. However, there are many reasons to take a second look at why you would want to buy Ford stock before you take that plunge. For one, just because the stock price has been knocked down to levels previously unthought of, doesn’t mean now is the time to go unjudiciously scooping up deals. While the stock market is a voting instrument in the short run, it is definitely a weighing instrument in the long run. It weighs the long term prospects for what a proper valuation of the stock is based on its fundamental business prospects and potential. A long-term trend reading of Ford’s stock chart shows that this steady devaluing of its stock isn’t a new occurrence, but is something that has been consistent with Ford over the last 8 years.

What this steady devaluation of Ford’s stock (and thereby investor’s confidence in its prospects) is portraying the decreasing ability of Ford to pay DIVIDENDS. For a large blue-chip stock, being able to pay dividends is the ultimate test of the company’s profitability and strength. If you look at the median gain in stocks over the last 50 years which is approximately 9% a year, fully 4-5% of that growth is through the payment of dividends. When you consider that inflation has been averaging about 3-4% over that same 50 year period, if you take out the ability to pay a solid dividend, the prospects for return from a blue-chip company is roughly zero.

Read more Here: Don’t Buy Ford Stock!

Take this concept and place it into Ford’s current business model and prospects and you will find a company that is seriously hindered in its ability to pay dividends for a long time. Even if they are in the strongest financial position of any of the Big Three (so they claim), their massive debt load which continues to grow is going to prove an anchor to any future growth prospects. The reason for this is that if Ford does manage to again turn a profit, those profits are going to go towards paying off that debt load – not dividends. Hence, the stock owners are going to get the scraps of Ford’s business for the extent of the foreseeable future of the auto industry in the United States.

When you piece this massive debt load together with the still lack of quality products and high labor costs when compared to Honda and Toyota, it becomes almost impossible to see how Ford can dig itself out of its rut. My advice to you – Don’t buy Ford stock! If you see yourself as a market timer or gambler when it comes to stocks, then by all means go for it. However, if you’re investing for the long run, then do yourself a favor and stay away from Ford stock.

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What is the major holdup with the Big Three Auto Industry? Are they ever going to find a way out of their current malaise? Is now the time to speculate on buy Ford or GM stock? These are the questions people are asking quite frequently these days, as the companies upon which so many people have based their livelihoods over the last century flounder and struggle to stay in business.

For many investors, these questions arise as they look to potentially invest in one of the Big Three companies in the Auto Industry segment. The main reason that they’re looking at these stocks this way is because Ford and GM stock can be bought at a very low price. The question arises however, is it low enough? While a purchase may be in order for sentimental reasons, like remembering the industry where you worked for 20 years, the Big Three Auto Industry as an investment is a terrible idea right now.

Bargain hunters invariably want to buy low and sell high. Looking at the price of GM stock, which hit its peak at $38 dollars two years ago and is at $1.50 or so today, you can see that the range in which the stock has traded is quite large. Many people will look at this and think that once we’re out of this economic funk, GM can easily return to $38 a share or even more. Unfortunately, the chances of this actually happening are nearly zero.

Big Three Auto Industry

Why am I giving such a horrible prognosis for the Big Three’s stock values? It takes some serious digging into the history of the Auto Industry to really be able to evaluate what the root causes are. However, if you simply look at a chart of GM’s stock over the past 10 years, you will see that each rally GM has made out of its bottoms have failed to bring it to a new high, while the lows have just kept getting lower. This shows the inherent weakness in GM’s ability to continue to pay dividends – the factor which has made them such a bellwether blue chip over the past 50 years. Moreover, as Ford and GM take on more and more debt in this economic hailstorm just to stay in business, their ability to pay dividends may be forever damaged. Buying the Big Three right now and expecting them to rebound to their previous glory is as bad an idea as buying a Chevy Vega.

However, looking at the stock market as a whole, not all of the fields are as dim as the Big Three Auto Industry’s. Without a doubt, there are many, many valuable stocks out there that have been damaged by this decline, even though their overall business models remain quite good. Read more here about how to Buying Stock Online With Confidence even in this recession. This article will show you how to find excellent values that are poised to profit, no matter what the overall market is doing!

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