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Boston, October 6 – Tax loopholes encouraged more than 72 percent of Fortune 500 companies – including 8 companies head quartered in Massachusetts – to maintain subsidiaries in offshore tax havens as of 2014, according to “Offshore Shell Games,” released today by MASSPIRG Education Fund, and Citizens for Tax Justice. Collectively, the companies reported booking nearly $2 trillion offshore for tax purposes, with just 30 companies accounting for 65 percent of the total, or $1.35 trillion.
As the discussion of tax reform heats up, in Congress, on the campaign trail, and in state legislatures, this report provides important details about a major problem with the current tax system. The report estimates that based on the low tax rate being paid on these offshore profits, most of which are in tax havens, we could reap $620 billion if corporations were to pay the full rate on those profits.
“When corporations dodge their taxes, the public ends up paying,” said Deirdre Cummings of the MASSPIRG Education Fund. “The American multinationals that take advantage of tax havens use Massachusetts roads, benefit from our education system and large consumer market, and enjoy the security we have here, but are ultimately taking a free ride at the expense of other taxpayers.”
"All too often, corporations’ offshore cash isn’t offshore at all—it’s right here in the United States,” said Robert McIntyre, director of Citizens for Tax Justice. “Corporations are using skilled tax attorneys to make it appear on paper that their U.S. profits, and their U.S.-based cash, are being earned, and kept, in foreign tax havens. The tax code makes this scam possible. Incredibly, Congress is considering pouring salt on the wound by giving companies a special low tax rate to ‘repatriate’ profits that, in many cases, are likely already here.”
Last year, offshore tax loopholes used by U.S. corporations cost Massachusetts $600 million in state tax revenue. That money would be enough to pay for tuition, room and board at UMASS Amherst next year for 23,370 students, or provide weekend and evening bus service for all 15 Regional Transit Authorities (RTA) in Massachusetts for the next 10 years.
“Small businesses already face plenty of challenges, we should not ask them to compete in a rigged marketplace favoring a few corporate giants that can afford to exploit our tax code in this manner,” said Representative Josh Cutler (Duxbury), Chief House sponsor of An Act closing a corporate tax haven loophole, HB 2477 and SD 1699, to prevent some of the tax haven abuses. “Let’s promote innovation and creativity in the marketplace, not in our tax code.”
“I think these companies ought to pay what they owe. The rest of us don’t hide our money in the Cayman Islands or another tax haven. We pay our fair share,” said Massachusetts Fair Share Director Nathan Proctor. "It’s not fair that some companies play a rigged game, and don’t have to follow the rules the rest of us do."
MASSPIRG Education Fund’s 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.
Key findings of the report include:
- The 8 companies headquartered in Massachusetts maintain at least 237 tax haven subsidiaries holding $38.5 billion in profits offshore.
- At least 358 Fortune 500 companies operate subsidiaries in tax haven jurisdictions, as of 2014. All told, these companies maintain at least 7,622 tax haven subsidiaries. The 30 companies with the most money booked offshore for tax purposes collectively operate 1,225 tax haven subsidiaries.
- Bermuda and Cayman Islands remain the most popular tax haven jurisdictions. About 60 percent of companies with any tax haven subsidiaries registered at least one in Bermuda or the Cayman Islands.
- The reported earnings of these Cayman Islands subsidiaries is not just implausible, it’s impossible. American multinationals collectively claim that earned profits in Bermuda and the Cayman Islands equal to 1,643 percent and 1,600 percent respectively of each country’s entire GDP or yearly economic output.
- Only 57 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 57 companies would collectively owe $184.4 billion in additional federal taxes, equal to the entire state budgets of California, Virginia, and Indiana combined. The average tax rate the 56 companies currently pay to other countries on this income is a mere 6.3 percent, implying that most of it is booked to tax havens.
Companies that were highlighted by the study include:
- Walmart publicly reported operating zero tax haven subsidiaries in 2014 and for the past decade. Despite this lack of reporting, over the past decade Walmart’s accumulated offshore profits have grown from $6.8 billion in 2005 to $23.3 billion in 2014, and in reality the corporation operates 75 tax haven subsidiaries.
- American Express officially reports $9.7 billion offshore for tax purposes on which it would otherwise owe $3 billion in U.S. taxes. That implies that American Express currently pays only a 4 percent tax rate on its offshore profits to foreign governments, suggesting that most of the money is booked in tax havens levying little to no tax. American Express maintains 23 subsidiaries in offshore tax havens.
- Pfizer, the world’s largest drug maker, operates 151 subsidiaries in tax havens and officially holds $74 billion in profits offshore for tax purposes, the fourth highest among the Fortune 500.
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, and increase transparency.]
“Offshore Shell Games” is available for download here.
Top 30 Biggest Tax Dodgers is available here.
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MASSPIRG Education Fund works to protect consumers and promote good government. We investigate problems, craft solutions, educate the public, and offer meaningful opportunities for civic participation. www.masspirgedfund.org
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