New report suggests that overseas cash holdings mean US is losing out on an estimated $620 billion in tax revenue
The largest 500 U.S. companies would owe an estimated $620 billion in U.S. taxes were it not for the more than $2.1 trillion in offshore cash that most of the firms hold in foreign tax havens, according to a study released Tuesday.
The report (PDF), based on an analysis of company filings to the IRS and the Securities and Exchange Commission, was authored by the Citizens for Tax Justice and the U.S. Public Interest Research Group Education Fund.
It found that close to three-quarters of the 500 biggest companies by gross revenue utilize tax havens through foreign subsidiaries in countries with low tax liability, including Bermuda, Ireland, the Netherlands and the Cayman Islands.
“Most of America’s largest corporations maintain subsidiaries in offshore tax havens,” the report said. “At least 358 companies, nearly 72 percent of the Fortune 500, operate subsidiaries in tax haven jurisdictions as of the end of 2014.”
The study also found that in five of the commonly used tax haven countries — Bermuda, the Cayman Islands, British Virgin Island, Bahamas and Luxembourg — the reported profits of subsidiaries of U.S. companies were more than GDPs of the countries in which the firms were registered.
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Apple is by far the largest holder of offshore money not subject to U.S. taxes, with $181.1 billion. If those profits were taxed at U.S. rates, the company would pay $59.2 billion.
General Electric and Microsoft hold $119 billion and $108.3 billion in offshore cash holdings, respectively, coming in at second and third on the list.
Apple has consistently defended itself against claims of tax-dodging. Responding to a New York Times article in 2012 on the topic, the tech giant said it “pays enormous amounts of taxes, which help our local, state and federal governments.” In regards to deals between Apple and the Irish government, the firm has previously noted that it is bound by the same tax laws at other countries in the country.
Microsoft and General Electric have both argued in similar veins in recent years. In 2013, General Electric said it paid “billions of dollars in corporate income taxes to governments around the world, including U.S. federal income taxes, making it one of the highest payers of corporate income taxes.”
In 2011, a spokesperson for Microsoft said the company “complies with the tax laws of every jurisdiction in which we do business.”
Tuesday’s study found that 30 of the top 500 companies accounted for 65 percent, or $1.4 trillion, of the total accumulated profits.
Between 2008 and 2014, the study added, the amount of offshore cash holdings for American multinationals doubled.
“For many companies, increasing profits held offshore does not mean building factories abroad, selling more products to foreign customers, or doing any additional real business activity in other countries,” the study said. “Instead, many companies use accounting tricks to disguise their profits as ‘foreign,’ and book them to a subsidiary in a tax haven to avoid taxes.”
While not all companies voluntarily disclose how much they would pay in U.S. taxes if it were not for operating in foreign tax havens, the 57 that did, expected they would pay a combined $184.4 billion extra, meaning they were effectively paying on that money a 6 percent tax rate, far lower than the 35 percent corporate tax rate in the U.S.
“Congress has created loopholes in our tax code that allow offshore tax avoidance, which forces ordinary Americans to make up the difference,” the report said. “The practice of shifting corporate income to tax haven subsidiaries reduces federal revenue by an estimated $90 billion annually.”
correction: the headline should read "Top 500 US Firms Have Over 2 Trillion in Tax Havens" (not 200 Trillion)
Posted by: D | October 17, 2015 at 10:51 PM