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Boston, January 30th – Massachusetts taxpayers could save $79 million from a simple reform to crack down on offshore tax dodging, according to a new report, “Closing The Billion-Dollar Loophole: How States Are Reclaiming Revenue Lost to Offshore Tax Havens”, released today by MASSPIRG. The reform, which has already been proven effective in Montana and passed in Oregon, would require companies to treat profits booked to notorious tax havens as domestic taxable income.
“Last year, Massachusetts lost $991 million as a result of the abuse of offshore tax loopholes,” said Deirdre Cummings, MASSPIRG’s Legislative Director. “By modernizing our state’s tax code with this simple reform, we can keep millions of dollars in Massachusetts every year, while eliminating incentives for moving business offshore, leveling the playing field for Baystate businesses that compete with multinational corporations, and protecting regular taxpayers from picking up the tab for tax dodgers."
For years, some corporations that do business here in Massachusetts have dodged taxes by booking profits made in America to tax havens like the Cayman Islands, that levy little to no tax. For example, Bank of America, a company kept afloat by taxpayers during the financial meltdown maintains 311 subsidiaries in known tax havens.
“Small businesses like my own have plenty of challenges to becoming successful,” said Jeff Barry, President and Founder of Boston Organics, an organic food delivery company in Charlestown. “Having to pay more in taxes because others pay less should not be one of them.”
This simple loophole closing uses information that multinational companies already report to states. Montana and Oregon simply treat profits that companies book to notorious tax havens as if it were domestic taxable income. The reform could be introduced anywhere, but is readily available to the 24 states and District of Columbia that have already modernized their tax codes by enacting “combined reporting,” which requires companies to report on how profits are distributed among jurisdictions so that they are taxed based on how much business activity they do in those places. All told, closing this tax haven loophole could save the remaining 22 states including the District of Columbia over a billion dollars annually.
The $79 million saved would be enough to:
- Pay for placing 8,953 children in preschool classrooms for struggling families, cutting the current waitlist for child care assistance by as much as one-third.
- Provide 15,800 residents with job training this year necessary to provide high-demand skills for good-paying jobs that employers are seeking qualified workers for.
- Over 25 years it would pay for the entire MBTA’s Green Line Extension — a two prong expansion running from Lechmere Station into Medford and Somerville – which is projected to have a total weekday ridership of about 52,000.
"So many people are feeling the squeeze of long term unemployment, low wages, and/or seeing needed education, human services, and housing programs inadequately funded. That's why there's no excuse to allow big corporations to hide taxable income in offshore tax havens to shirk their responsibility to pay their taxes here like all average Americans and responsible businesses do. Let's act now to close this loophole and use the revenue to meet community and family needs here," said Lew Finfer, Director of Massachusetts Communities Action Network.
“Taxes are not just numbers in spreadsheets,” said Joseph Rotella, owner of Spencer Organ Company in Waltham. “Taxes provide the revenues that pay for roads, bridges, public safety, public schools, public transportation and other infrastructure and services my business and my customers count on. We need to stop the tax haven abuse that lets big corporations avoid paying their fair share and gives them an unfair advantage in the marketplace.”
To ultimately put an end to offshore tax dodging – which costs the federal Treasury $90 billion annually and state governments $20 billion annually – federal action is required. But Montana and Oregon have shown that states can do more than sit on their hands waiting for Congress to act. The Montana experience (Oregon’s law, which passed last year with strong bipartisan support, will first take effect this year) has shown that this reform is simple to implement, and can play a real role in closing the state budget gap.
As of 2012, at least 82 of the top 100 publicly traded corporations in the U.S. used tax havens, according to an earlier PIRG study American multinational companies collectively hold a staggering $1.9 trillion offshore.
Here are some increasingly notorious ways that some of America’s largest corporations drastically shrink their tax bill:
- Pfizer, the world’s largest drug maker, made 40 percent of its sales in the U.S. over the past five years, but thanks to their use of offshore tax loopholes they reported no taxable income in the U.S. during that time. The company operates 172 subsidiaries in tax havens and has $73 billion parked offshore which remains untaxed by the U.S., according to its own SEC filing. That is the second highest amount of money sitting offshore for a U.S. multinational corporation.
- Google used accounting techniques nicknamed the “double Irish” and the “Dutch sandwich,” according to Bloomberg News. Using two Irish subsidiaries and one in Bermuda, Google helped shrink its tax bill by $3.1 billion from 2008 to 2010.
- Citigroup – a bank that was bailed out by taxpayers during the financial meltdown of 2008 – maintains 20 subsidiaries in tax havens and has $42.6 billion sitting offshore, on which it would otherwise owe $11.5 billion in taxes, according to its own SEC filing. Citigroup currently ranks eighth among U.S. multinationals for having the most money stashed offshore.
According to Dan Bucks, the former chief of Montana Director of Revenue who administered the law for the state from 2005 to 2013, “Montana’s tax haven law brings a measure of tax justice to small businesses, farmers and ranchers, retirees and wage earners who already pay taxes on income they earn in Montana. Without the law, these Montanans would pay more to make up for taxes wrongly avoided by large corporations shifting their Montana income to tax havens.”
“Tax dodging is not a victimless offense. When corporations skirt taxes, the public has to make up the difference. That means higher taxes for average taxpayers or cuts to public programs,” added Cummings.
You can download the report here: http://www.masspirgedfund.org/reports/maf/closing-billion-dollar-loophole
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