Re: #2.
Non-existent hypothetical.
Any corporation, foreign or domestic, must pay taxes to the USA on income/profit earned here. We have a gazillion rules on it in federal tax law (states have similar rules too).
Also, if a US corporation 'moves' (reincorporates) overseas a transfer tax is triggered. Basically US tax law treats that 'move' as a sale of the entire company for it's FMV and income tax is charged on that sale. You don't wanna move overseas to get out of US tax since it does the exact opposite.
Re: #3.
No, a subsidiary cannot charge $1 or whatever on sales to another subsidiary, they must charge the FMV. These are called 'Transfer pricing Rules" and have been around for decades. Otherwise, income/profit can be artificially transfered between countries to obtain lowest possible tax.
Guys, since income tax was introduced in 1913 people have trying various schemes to avoid it and we've been writing more laws to stop it. There's a reason the tax code is so huge and, no, it's not to make your own Form 1040 difficult to prepare.
Fern
I explained what I wanted to backwards in error. From what I know if the money is brought back to the US, they have to pay tax. However if the money stays foreign and locked up in whatever country and never comes, they delay paying taxes(meaning they don't have to pay).
Check out below for the full details and click on each picture. Can you explain why 83 of the 100 biggest US corporations have foreign tax heavens?
http://www.bloomberg.com/insight/lexapro.html
Every Fortune 500 company does this from Microsoft, General Electric, Johnson and Johnson, Pfizer, and many others(especially tech and health care companies.
"Asset transfer pricing" and creating subsidiaries in Ireland, Bermuda, or Cayman Islands is nothing new.
Also, you missed a "possibly"(I'm saying possibly here because you're the accountant expert and not me) important fact.
American companies(and citizens) are taxed on their "worldwide" income.
That's not the case in many developed countries.
Does BP and Shell pay US taxes on income earned from oil wells in Africa, Europe, and Asia? Exxon on the other hand has to pay taxes on *all* oil wells worldwide since they're incorporated here unless they use the strategy above used by many US Fortune 500 corporations of delaying taxes(which they do) by not bringing the money home and leaving it at a subsidiary.
In this case, the Ireland division of Microsoft pays 35% tax on US sales and 12% Ireland tax everywhere else(Europe, Asia, etc...) vs. paying a 35% tax on "worldwide" sales.
Like the "Lexapro" example shown in the link above, if they went even further and created a Bermuda division, they only have to pay a 35% tax on US sales, and 0% everywhere else...Until they decide to bring the money back that is.
More information of how corporations delay having to pay taxes below:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6qcwZCtO0_w
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=avJFFjW9I5Ag
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=axF8.RHSF9IM