Tax Analysts Blog

Want a Tax Shelter? Just Do It.

Posted on Sep 11, 2013

Nike is iconic. It is the definition of American business success. The company shods everybody from the New York football Giants to the New York football Cosmos. The University of Alabama Crimson Tide and the Cal Poly Mustangs wear the swoosh. The company is famous for its famous endorsers -- Tiger, Michael, and Kobe. Sure, Lance Armstrong and Oscar Pistorius were on the payroll, and the company had some kind of weird relationship with Joe Paterno, but Nike is synonymous with athletic success. As the commercials tell you, wear Nike and be a winner.

What does Nike have to do with taxes? It turns out that Nike is very aggressive when it comes to sheltering profits overseas. My friends at the Citizens for Tax Justice released a report blasting the apparel giant for keeping many subsidiaries overseas for the sole purpose of avoiding U.S. taxation. Twelve of those subsidiaries are in Bermuda alone! The CTJ says that Nike has about $7 billion of profits parked offshore that are not being taxed by the United States or any other country. And, as you might expect, the CTJ believes that is wrong. But having foreign subsidiaries for the purpose of minimizing tax burdens is neither illegal nor immoral. In fact, it's really no different than any of you taking your home mortgage interest or charitable deductions. Nike's savings are just bigger. Rational people -- and corporations are people too -- will always try to keep more of their own money in their pockets. I have no problem with anyone minimizing their tax burdens legally.

What is fun about this is that Nike apparently named its tax shelters after its shoes. According to the CTJ, 10 of the Bermuda subsidiaries are actually named after Nike shoes: Air Max Limited, Nike Cortez, Nike Flight, Nike Force, Nike Huarache, Nike Jump Ltd., Nike Lavadome, Nike Pegasus, Nike Tailwind, and Nike Waffle. Yes, Nike has a shoe named the Waffle -- which was designed on a real waffle iron.

I have never worn any of those shoes. In fact, I still wear Chuck Taylor Converse low-tops. But naming tax shelters after shoes is great fun. In the state area, one of the great tax schemes involved Toys R Us, which used a subsidiary named after the company's mascot (Geoffrey the giraffe). I heard that a company once named a shelter after its tax attorney's mistress. It's probably safer to name shelters after shoes than mistresses.

Read Comments (3)

emsig beobachterSep 10, 2013

Ach, yes, the good folks at CTJ are enraged that large, multinational
enterprises, such as Nike, can organize their business affairs in such a manner
as to be able to pile up large amounts of retained earnings overseas through
amazingly complex transfer pricing arrangements and deferral of profits until
repatriated. However, the management of Nike, and their counterparts are within
their rights to hold these vast retained earnings in the economic dynamos of
the Cayman Islands, Bermuda, etc. -- they assisted, with the help of well
compensated lobbyists, to write those statutes giving them the right to hold
their profits overseas. Now, these captains of industry (the management of the
multinational enterprises) are waiting for the paragons of political rectitude
(Congress) to once again grant the multinational enterprises a "tax holiday"
which will allow them to repatriate a large share of these profits at no, or
very low tax rates.

I believe the CTJ's anger at the management of these enterprises is justified,
but for the wrong reason. Keeping large amounts of cash, or cash equivalents,
idle does no one -- neither governments nor shareholders -- any good. These
vast amounts of idle resources should be a signal to the shareholders that
their management has no productive use for these funds, other than purchasing
virtually riskless securities earning low rates of interest. The shareholders
should demand to have these funds returned in the form of dividends, have the
company buy back share of the stock to "maximize shareholder value" (I love
businessspeak)or go an M&A spree. I guess it's too much to ask of the "running
dogs of capitalism" (Congress) to reimpose the retained earnings tax.

Your friend,

Emsig Beobachter

Anonymous tax attorneySep 11, 2013

Well, naming shelters after sneakers is a welcome change from the way Wall St
named them after animals. Remember CATS? TIGERS?

And at least one accounting firm named some of their shelters after
Shakespeare's plays!

As for naming shelters after mistresses, that's not good. The French defenders
at Dien Bien Phu named their defensive positions after the mistresses of their
generals. As I recall, that didn't end too well for the French.

David brunoriSep 11, 2013

Anonymous,

Off topic. The best history of the Battle of Dien Bien Phu is Hell in a Very
Small Place by Bernard Fall. It is the most compelling nonfiction I have ever
read.

Submit comment

Tax Analysts reserves the right to approve or reject any comments received here. Only comments of a substantive nature will be posted online.

By submitting this form, you accept our privacy policy.

* REQUIRED FIELD

All views expressed on these blogs are those of their individual authors and do not necessarily represent the views of Tax Analysts. Further, Tax Analysts makes no representation concerning the views expressed and does not guarantee the source, originality, accuracy, completeness or reliability of any statement, fact, information, data, finding, interpretation, or opinion presented. Tax Analysts particularly makes no representation concerning anything found on external links connected to this site.