Offshore Shell Games 2016: The Use of Offshore Tax Havens by Fortune 500 Companies

Source: Richard Phillips, Matt Gardner, Kayla Kitson, Alexandria Robins, Michelle Surka, Citizens for Tax Justice, Institute on Taxation and Economic Policy, U.S. PIRG Education Fund, October 2016

From the summary:
U.S.-based multinational corporations are allowed to play by a different set of rules than small and domestic businesses or individuals when it comes to paying taxes. Corporate lobbyists and their congressional allies have riddled the U.S. tax code with loopholes and exceptions that enable tax attorneys and corporate accountants to book U.S. earned profits to subsidiaries located in offshore tax haven countries with minimal or no taxes. The most transparent and galling aspect of this is that often, a company’s operational presence in a tax haven may be nothing more than a mailbox. Overall, multinational corporations use tax havens to avoid an estimated $100 billion in federal income taxes each year.

But corporate tax avoidance is not inevitable. Congress could act tomorrow to shut down tax haven abuse by revoking laws that enable and incentivize the practice of shifting money into offshore tax havens. By failing to take action, the default is that our elected officials tacitly approve the fact that when corporations don’t pay what they owe, ordinary Americans inevitably must make up the difference. In other words, every dollar in taxes that corporations avoid must be balanced by higher taxes on individuals, cuts to public investments and services, and increased federal debt.

This study explores how in 2015 Fortune 500 companies used tax haven subsidiaries to avoid paying taxes on much of their income. It reveals that tax haven use is now standard practice among the Fortune 500 and that a handful of the country’s wealthiest corporations benefit the most from this tax avoidance scheme.

The main findings of this report are:
– Most of America’s largest corporations maintain subsidiaries in offshore tax havens. At least 367 companies, or 73 percent of the Fortune 500, operate one or more subsidiaries in tax haven countries. ….

– The most popular tax haven among the Fortune 500 is the Netherlands, with more than half of the Fortune 500 reporting at least one subsidiary there. ….

– Approximately 58 percent of companies with tax haven subsidiaries have set up at least one in Bermuda or the Cayman Islands — two particularly notorious tax havens. ….

– Fortune 500 companies are holding nearly $2.5 trillion in accumulated profits offshore for tax purposes. Just 30 Fortune 500 companies account for 66 percent or $1.65 trillion of these offshore profits. ….

– If we assume that average tax rate of 6.2 percent applies to all 298 Fortune 500 companies with offshore earnings, they would owe a 28.8 percent rate upon repatriation of these earnings, meaning they would collectively owe $717.8 billion in additional federal taxes if the money were repatriated at once. Some of the worst offenders include: Apple, Citigroup, Nike ….

– Some companies that report a significant amount of money offshore maintain hundreds of subsidiaries in tax havens, including the following: Pfizer, PepsiCo, Goldman Sachs ….

– The proliferation of tax haven abuse is exacerbated by lax reporting laws that allow corporations to dictate how, when, and where they disclose foreign subsidiaries, allowing them to continue to take advantage of tax loopholes without attracting governmental or public scrutiny. ….

– Congress can and should take action to prevent corporations from using offshore tax havens, which in turn would restore basic fairness to the tax system, fund valuable public programs, possibly reduce annual deficits, and ultimately improve the functioning of markets. ….