Why US companies can earn $51 billion in the Cayman Islands even though its GDP is only $3B

Why US companies can earn $51 billion in the Cayman Islands even though its GDP is only $3 billion.

“The foreign subsidiaries of US corporations made $94 billion in Bermuda in 2010, the latest year we have data for. That’s incredible work, since only $6 billion of goods and services were produced on the island that year. What does that tell us? It tells us that something fishy is going on.”

American tech company could establish a shell corporation in Bermuda to make a large loan to its computer service subsidiary in Germany. The interest payments made on that loan would be tax deductible in Germany, which has a corporate tax rate above 20%. But the interest payments received on that loan would be taxable only in Bermuda, which has a zero corporate tax rate.

Alternatively, an American drug company could license patents from its Bermuda subsidiary to its German subsidiary. The licensing fees paid on those patents would be deductible in Germany, which would reduce its taxes there. But the licensing fees received by its Bermuda subsidiary would be subject to no corporate taxes in Bermuda or in the U.S.
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