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Top Corporations and Tax Havens

[ 0 ] Jun. 16, 2014 | SBO Editor

tax havens

More than 70 percent of Fortune 500 companies booked profits to offshore tax havens in 2013, with just 30 companies accounting for 62 percent of money in tax havens, according to “Offshore Shell Games,” a report released today by Citizens for Tax Justice and the U.S. PIRG Education Fund.

“The loopholes in America’s corporate tax have grown so outrageous that our policymakers should be embarrassed, said Steve Wamhoff, CTJ legislative director. “The data in this report demonstrate that a huge portion of the supposedly ‘offshore’ profits are likely U.S. profits manipulated so they appear to be earned in countries like Bermuda or the Cayman Islands where they won’t be taxed. Policymakers should close the loopholes that make this manipulation possible.”

Every year, offshore tax loopholes used by U.S. corporations cost $90 billion in lost federal tax revenue. The new study shows that while most very large companies use tax havens, a smaller subset are most aggressive about using offshore tax havens to avoid taxes.

Tax Havens

Key report findings:

  • At least 356 Fortune 500 companies operate subsidiaries in tax haven jurisdictions, as of 2013. All told, these companies maintain at least 7,736 tax haven subsidiaries. The 30 companies with the most money booked offshore for tax purposes collectively operate 1,297 tax haven subsidiaries.
  • Approximately 30 percent of the companies with tax haven subsidiaries had subsidiaries in Bermuda and/or the Cayman Islands. The profits that American multinationals collectively claim to earn in these island nations’ totals 1,643 percent and 1,600 percent, respectively of each country’s entire yearly economic output.
  • The 30 companies with the most money booked offshore for tax purposes collectively hold nearly $1.2 trillion overseas. That is 62 percent of the nearly $2 trillion that Fortune 500 companies together report holding offshore.
  • Only 55 companies disclose the amount they would expect to pay in U.S. taxes if they didn’t report profits offshore for tax purposes. All told, these 55 companies would collectively owe $147.5 billion in additional federal taxes, equal to the entire state budgets of California, Virginia, and Indiana combined. The average tax rate the 55 companies currently pay to other countries on this income is a mere 6.7 percent, implying that most of it is booked to tax havens.

A sample of companies the study highlighted include:

  • Nike: The sneaker giant reports having $6.7 billion booked offshore, on which it would otherwise owe $2.2 billion in U.S. taxes. That means the company pays a mere 2.2 percent tax rate on those offshore profits, suggesting nearly all of the money is held by subsidiaries in tax havens. Nike does this in part by licensing the trademarks for some of its products to 12 subsidiaries in Bermuda to which it must pay royalties. Its Bermuda subsidiaries actually bear the names of their products such as “Air Max Limited” and “Nike Flight.”
  • Pfizer, the world’s largest drug maker, operates 128 subsidiaries in tax havens and currently books $69 billion in profits offshore, the third highest among the Fortune 500. Pfizer recently attempted to acquire a smaller foreign competitor so it could reincorporate on paper as a “foreign company.” Pulling this off would have allowed the company to use its supposedly offshore profits in the U.S. tax-free.
  • Citigroup reported operating 427 tax haven subsidiaries in 2008 but disclosed only 21 in 2013. Over that time period, Citigroup more than doubled the amount of cash it reported holding offshore. The company currently pays an 8.3 percent tax rate offshore, implying that most of those profits have been booked to low or no tax jurisdictions.

 The report concludes that to end tax haven abuse, Congress should end incentives for companies to shift profits offshore, close the most egregious offshore loopholes, strengthen tax enforcement, and increase transparency.

“Offshore Shell Games” is available at:http://ctj.org/ctjreports/2014/06/offshore_shell_games_2014.php

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Category: Features