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| Meet Me In St. George’s | |||||||
| American companies can save on taxes by incorporating in Bermuda. Our columnist thinks it’s a good idea | |||||||
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| March 11 — The Gersh Kuntzman Co. is relocating to Bermuda. Following the lead of dozens of American corporations, I’ve decided to move the corporate headquarters of my writing, editing and snack-food-testing company from Brooklyn to the tax-free island nation of Bermuda. |
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| I’M OBVIOUSLY NOT the first American conglomerate to think of this. The New York Times recently detailed how scores of U.S. companies are reincorporating in Bermuda to avoid taxes. It’s so easy to do, the Times said, that it’s amazing that we have any corporations left in this country. “Moving” to Bermuda will save Stanley Works, a 159-year-old Connecticut toolmaker, $30 million a year in taxes. Tyco, the New Hampshire industrial conglomerate that’s now Bermudan as far as the IRS is concerned, saved $400 million in corporate taxes last year alone. And for less than $30,000 in fees to the Bermudan government, Ingersoll-Rand will save $40 million and Cooper Industries will save $54 million on their U.S. corporate tax bills. | |||||||||
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That much gravy, I reasoned, is worth the indignity of wearing plaid shorts to business meetings. After all, The Gersh Kuntzman Co.—a multimillion-lira conglomerate—had a pretty good year last year. In fact, I earned far more in payments from various magazines, newspapers and Web sites, than I could possibly hide on my 1040 form. Before I became a “success,” you see, I could make all of my income miraculously disappear in a spate of “legitimate” tax deductions such as “unreimbursed business costs,” “professional organization or union fees” and “miscellaneous expenses: stationery, pens, office equipment and Chinese lunch specials.” During lean years, it often costs me more in business expenses than I make in income. For a freelance writer like me, practically everything is deductible, from my magazine subscriptions to my phone to even my cable TV bill. How else can I stay current on societal trends and daytime drama plots that so often inform my writing? I once earned $100 for a travel magazine story about Italy—but had laid out $2,000 on the trip over there. Deduction! And last year, I was paid a mere $10,000 to write a book—”Hair! Mankind’s Historic Quest to End Baldness,” thanks for asking—but spent nearly that much in travel expenses to promote it. Deduction! Sometimes, though, I wonder why I even bother writing if it nets me so little money. I know the IRS wonders the same thing. But with The Gersh Kuntzman Co. having a good year, I needed a more sophisticated way of dodging my fiduciary responsibilities to the American people. And that Times article gave me an idea: If Stanley Works could incorporate in Bermuda and avoid taxes, why not The Gersh Kuntzman Co. (motto: “Hack For Hire … No Deadline Too Tight, No Topic Too Formulaic, No Editor’s Question Too Inane”)? Apparently, there’s only one downside: Some people are spreading the malicious rumor that it’s somehow un-American to dodge your taxes. Even accountants who help companies relocate offshore worry about the appearance of abandoning America. “Is it the right time to be migrating a corporation’s headquarters to an offshore location?” asked Kate Barton, a partner at the accounting firm of Ernst & Young, in The Times article, alluding to the demands of patriotism after September 11. In the end, though, “a lot of companies feel that ... the improvement on earnings is powerful enough that maybe the patriotism issue needs to take a back seat.” I agreed with Barton—I mean, we’re talking about money here!—but I wasn’t sure how potential employers would feel if they discovered that The Gersh Kuntzman Co. had relocated from a Brooklyn tenement to a Bermuda bungalow. So I called my publicist, George Shea, to devise a strategy that would anticipate the inevitable attacks on my loyalty to the red, white and blue. Shea, whose other clients include that most American of products, Nathan’s Famous hot dogs, crafted the perfect response to the pusillanimous pundits of patriotism. “If anyone asks, you should say, ‘My relocation to Bermuda is part of an overall strategy that will actually enhance America’s stature overseas,’” Shea said. “In fact, I believe that your move to Bermuda will do more for Brooklyn-Bermuda trade than any government-sponsored activity.” Shea suggested that I further insulate myself from “the cynics and hand-wringers” by giving my company an unquestionably patriotic name, such as “GershCo U.S.A. No. 1!” |
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That much gravy, I reasoned, is worth the indignity of wearing plaid shorts to business meetings.
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Properly insulated, I called up the Bermudan Ministry of Finance. There, Assistant Financial Secretary Ifor Hughes immediately tried to dispel the implication in the Times article that it’s so easy to incorporate in Bermuda. “It’s not a perfunctory thing,” Hughes said. “There are formal procedures that one must go through.” The first step, Hughes said, was the completion of two forms—conveniently known as “Form 1” and “Form 2”—that were so simple that I was convinced he had erroneously sent me applications for a St. George’s dog license and a Hamilton parking permit. Next, Hughes took exception to the suggestion that American companies do not need to have a presence in Bermuda. “The company must have an office here,” he said. The reason is to ensure that the company’s books, list of officers and minutes of our annual meetings are available to any Bermudan who wants to look at them. That sounded like a deal-breaker for me—I can’t afford a Bermuda office and a secretary—until Hughes admitted that said office “needn’t be staffed by the company’s employees.” Turns out, for a small fee, there are dozens of Bermuda law firms that would “run” my Bermuda “office” for me. Bruce Murray, managing director of a company called Quorum Limited, told me that for a mere $4,000, his firm would handle all my local affairs. “We would serve as your Bermuda office,” he explained. “It’s just a formality so that you are officially contactable in Bermuda. And we keep all your books here.” What Murray was describing sounded like my Bermuda “office” would be a thin manila folder near the back of some drawer labeled AMERICAN COMPANIES, G-L. “Yes, we have a lot of filing cabinets here,” he admitted. Despite his eagerness to secure my business, Murray threw the first wrench into my plans. Apparently, even if The Gersh Kuntzman Co. is located in Bermuda, any salary paid by the company to the American citizen known as Gersh Kuntzman would be subject to normal U.S. income taxes. Incorporating in Bermuda would allow GershCo U.S.A. No. 1! to avoid corporate income taxes, but my salary would still be taxed. As we say in New York: ”[Expletive deleted].” I quickly called my accountant, who just happens to be my brother, and he confirmed that the IRS would ride me for every penny, no matter where my corporation was based. But what if GershCo U.S.A. No. 1! only paid me a nominal salary, and I charged all my expenses back to the company? Only my nominal salary would be taxed, right? “You could do that,” he said. “But that’s the [extremely wise] thing you’re doing now by [judiciously] deducting your [wholly legitimate] business expenses on your [completely scrupulous] tax forms.” So unpack the Bermuda shorts and the sunscreen, honey, we’re staying put. Now, where did I put that damn Schedule C? Gersh Kuntzman is also a columnist for The New York Post. His Web site is at http://www.gersh.tv © 2002 Newsweek, Inc. | ||||||||
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Perspectives
