Earnings Stripping

The name of Cardi B's second album. It's also a trick companies use to avoid paying taxes.

The method involves paying a padded amount of interest to another company in order to lower its taxable earnings figure. The company takes out extra loans it doesn't need, so it has excessive interest payments to make, which cut into the amount of profit the authorities can tax.

You are CEO of MultiGlobalHyperTech Inc., a multinational corporation with operations in the U.S. Your U.S. subsidiary earned a profit of $1 billion. You have to pay U.S. taxes on that, but you really don't want to. So...you hatch an earnings stripping scheme.

Your U.S. subsidiary takes out a $5 billion loan from your Irish subsidiary. Corporate taxes are lower in Ireland. You make payments on the $5 billion loan out of the $1 billion in U.S. profits. Those payments have to be taxed as profit for the Irish company, but you end up saving money because of the low taxes there.