A Caribbean Tax Holiday for U.S. Businesses

[WhiskeyGirl]

Greg Hennessy designs software in New York, where his $2 million-a-year company, SWAT, is based. His customer credit-card payments go to a bank in Panama, where his business is incorporated. As a result, he pays taxes at Panama's bargain-basement rates, far lower than what he'd owe in the U.S. "So far," he says, "it's been excellent."

Red Ball, a company in Phoenix, runs Web sites selling collectibles, software, and assorted other goods. It routes its nearly $15 million in card revenue to the tropical island of Nevis, where Red Ball is incorporated. Gregg Larry, who heads the company, says: "Sure, we get to pay less income tax, but it's not about tax evasion."

These two tiny companies illustrate a growing trend. At a time when the Obama Administration is preparing for a bitter battle with big multinationals over closing arcane tax loopholes, legions of mostly small retailers and service providers are minimizing their U.S. tax bills by sending credit-card receipts to Panama, Nevis, Aruba, the Cayman Islands, and other business-friendly havens. The IRS estimates that $100 billion a year in revenue is escaping U.S. sales and income taxes in this manner.

Hennessy, the software designer, says that while he benefits from this discrepancy, he nevertheless follows the rules. "I comply with all tax laws," he says. "I prefer to have my bank account in Panama, where it's safer than in the U.S., at least from frivolous lawsuits." Red Ball's Larry said he got fed up with paying high processing fees at home: "I just got sick of it." It's cheaper to send receipts to Nevis, he adds.

In the US, the bank fees can be more than 8%.  In other nations, banks fees are limited by law, I've read as low as $.33%.

http://www.businessweek.com/magazine/content/10_08/b4167046022885.htm

What about all those money transfers from the US to offshore accounts in Mexico, Caribbean, and SA?  Billions a month...