A Caribbean tax holiday for U.S. businesses

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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.

Full story: A Caribbean Tax Holiday for U.S. Businesses – BusinessWeek