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Friday, October 14, 2016

Fortune 500 Companies & Tax Havens: A Study


A new report released this week by Citizens for Tax Justice (CTJ), the Institute of Taxation and Economic Policy (ITEP) and the US Public Interest Research Group (PIRG) posits that Fortune 500 (US-based) companies have stashed away close to $2.5 trillion in offshore accounts in an effort to reduce their tax burdens.

Clark Gascoigne, Deputy Director of the FACT Coalition whose membership includes CTJ, PIRG and ITEP, said, “There’s been a lot of talk this week about how the tax system is rigged and this report is Exhibit A. Multinational corporations are now holding $2.5 trillion offshore. To put that in context, it is an amount larger than the GDP of France. By shifting their profits to tax havens, the largest U.S. companies have been able to avoid more than $700 billion in taxes. These loopholes simply aren’t available to average taxpayers and small businesses, who can’t afford to hire the lawyers and accountants to move money through shell companies created in tax havens.”

The report titled “Offshore Shell Games 2016: The Use of Offshore Tax Havens by Fortune 500 Companies” ranks Apple at the top of the list of tax avoiders with approximately $214.9 billion kept offshore followed by Pfizer ($193.6 billion), Microsoft ($124 billion), General Electric ($104 billion) and IMB ($68.1 billion).

Top 30 companies with the most money held offshore
According to the report, “multinational corporations use tax havens to avoid an estimated $100 billion in federal income taxes each year” with 367 of the top 500 companies keeping 10,366 tax haven subsidiaries.
Furthermore, the top 30 firms “with the most money officially booked offshore for tax purposes collectively operate 2,509 tax haven subsidiaries,” the most popular destinations being the Netherlands. As a group, these 30 companies “account for 66 percent or $1.65 trillion” of the total figure for Fortune 500 companies.

Percent of Fortune 500 companies with 2015 Subsidiaries in 20 top tax havens
The study goes on to claim that “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.”
For instance, in the case of Citigroup and its 140 offshore subsidiaries, “the financial services company officially reports $45.2 billion offshore for tax purposes on which it would owe $12.7 billion in U.S. taxes,” implying that it “has paid only a 7 percent tax rate on its offshore profits to foreign governments, indicating that most of the money is booked in tax havens levying little to no tax.”

Profits reported collectively by American Multinational Corporations in 2012 to 10 notorious tax havens
This practice, says the report, is unfair: “multinational companies that depend on America’s economic and social infrastructure are shirking their obligation to pay for that infrastructure when they shelter their profits overseas.”

Suggested Measures to Eliminate Tax Avoidance in the US

So what needs to be done to combat tax avoidance?

The CJIT and its collaborators suggest the following measures:
  1. Do not allow American companies “to indefinitely defer paying U.S. taxes on profits they attribute to their foreign subsidiaries. In other words, companies should pay taxes on their foreign income at the same rate and time that they pay them on their domestic income.”
  2. Oblige companies “to publicly disclose critical financial information on a country-by-country basis (information such as profit, income tax paid, number of employees, assets, etc.,) so that companies cannot manipulate their income and activities to avoid taxation in the countries in which they do business.”
  3. Shut down “the inversion loophole by treating an entity that results from a U.S.-foreign merger as an American corporation if the majority (as op- posed to 80 percent) of voting stock is held by shareholders of the former American corporation.”
  4. Prevent these firms from transferring “intellectual property (e.g. patents, trademarks, licenses) to shell companies in tax haven countries and then paying inflated fees to use them.”
  5. “Reform the so-called “check-the-box” rules to stop multinational companies from manipulating how they define their status to minimize their taxes.”
  6. Reject the following: a) a “territorial” tax system; b) the establishment of “patent boxes,” and; c) “corporate integration proposals, which seek to lower taxes on capital by cutting corporate or capital gains and dividends taxes.”
Originally Posted by Mateo Jarrin

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