Getting greedy

A common thread amongst all people reading this blog is the greed for earning more - to make every rupee count for more & beyond. Corporations are no different. To squeeze out every dollar of profits from the scarce capital base is a prime priority for small and big firms alike. A recent news article described how Walmart exploited a tax loophole to save taxes .... Article

The modus operandi was simple -
1. Walmart transfers the asset to an REIT which is largely controlled by a subsidiary of Walmart (REIT means a Real estate Investment Trust). The Walmart store then pays a rent to the REIT, which is tax deductible (Taxes saved - 1)
2. The REIT in turn pays dividend of the Walmart subsidiary which is 99% of the rental received. The rule says, if an REIT transfers most of it's earnings to it's shareholders as dividend then no tax is deducted on the amount (Taxes saved - 2)
3. The subsidiary in turn, transfers the monies received to the parent. The transfer of income from the subsidiary to the parent involves no taxes. (Taxes saved - 3)

The taxes saved in question is an incredible USD 2.3 billion !!!