Corporations Owning Corporations

seem to recall that at one time it was illegal for corporations to own other corporations. I think this grew out of the abuses where A owned part of B and B owned part of A.

I think the two Phillips Electronics firms were involved in this type of trick.

If corporations were prohibited from owning other firms and if firms could not set up subsidiaries in other countries, perhaps the incentives to bad behavior would be reduced.

The most obvious present difficulty has to do with tax avoidance. Firms incorporate in tax havens and shift profits to these subsidiaries, many of which are nothing more than mailboxes.

As to the objection that firms need access to international markets to achieve efficiencies of scale and risk minimization, there is nothing in my idea that prevents them selling in other markets. If they want to invest in these regions they can do so through traditional means such as by lending money (through bonds or commercial paper) to their partner firms. They could even structure the rate of return to include a profit add on in addition to the nominal interest rate so that they could participate in the foreign firm's profitability.

It is just because big multinationals are so immune to local control that makes them so anxious to establish "independent" subsidiaries.

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Subsidiaries

This also has a lot to do with bad trade deals. Public Citizen talking about the many tax havens in Panama which house corporate subsidiaries in order to avoid taxes, regulations.

We had earlier a CEO claiming that if the US removes the tax incentives to offshore outsource US jobs then they would simply reincorporate (move their headquarters) abroad and no longer be a "US" corporation.

We also have a lot of front groups which are just US subsidiaries of foreign corporations and governments, set up to lobby Congress.

I just found a website Tax Justice USA
seemingly devoted to the topic of offshore havens.

Good intel so far!

Joseph Stiglitz video on tax havens offshore.

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utopian

I know my ideas are utopian, however moving the base of operations to a tax haven wouldn't make any difference. Take Stanley tools which did this a few years ago. The manufacturing stayed where it was (some combination of the US and Asia).

Stanley, Bahamas would not own Stanley, USA. It could lend the USA firm money, but the USA firm would still be incorporated here. The owners would have to be local. This is not as radical as it sounds, many third world countries (and China) restrict the degree of foreign ownership. As far as I know China still requires 51% domestic ownership.

My suggestion would only change things in that foreign investors would not be able to own stock, just lend money. I guess there is nothing to stop the foreign firm from lending money at some artificially high rate so that the local firm shows no profits and escapes taxes, but I'm sure some smart legislators could close this loophole.

I'm concerned with governance, not taxes.

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