Global Financial Integrity

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Why Offshore Tax Havens Should Matter to Everyone


The Cayman Islands often function as tax havens for Fortune 500 companies.

Offshore tax havens impact everybody in the United States, raising the individual tax bills of each American citizen. In fact, every U.S. taxpayer had to pay approximately $1,259 extra on their tax bill this year due to lost revenue from offshore tax haven abuse.

According to a new joint-report by the U.S. PIRG Education Fund and Citizens for Tax Justice (CTJ) published this week, 70% of Fortune 500 companies in the U.S. hold subsidiaries in offshore tax havens as of 2013.

Under the current U.S. tax code, companies are allowed to indefinitely defer paying taxes on profits earned by their own foreign subsidiaries, until they decide to repatriate that money back to the U.S. parent company.  Unfortunately, many of these companies exploit this loophole by using accounting tricks—such as abusive transfer pricing—to artificially pretend that they are making all of their profits in offshore tax havens like the British Virgin Islands, Switzerland, and Bermuda, where the corporate tax rates are negligible.   By never officially repatriating these profits to the U.S. parent company, many multinational U.S. companies can pay little or no U.S. taxes for years on end, while recording billions of dollars in profits.

Of course, most multinational companies still pay some taxes—though far less than the official U.S. tax rate of 35%. On average, the companies studied paid only 12.6% in taxes in 2010 by exploiting these abusive loopholes in U.S. tax policy. However, according to The Fiscal Times, others got away with less.  Corporate giant Pfizer, for example, paid no corporate taxes in the U.S. between 2010-2012.

The most absurd aspect of large companies abusing tax havens is the collective $1.2 trillion hidden offshore, none of which is currently taxable by U.S. federal or state governments, but all of which costs U.S. citizens dearly.

Companies that use tax havens to avoid taxation are household names. They include some of the most prosperous and popular companies. Apple holds the most at $111.3 billion in offshore accounts and would owe the U.S. government $36.4 billion in taxes if the revenue was repatriated back to the United States. Microsoft holds $76.4 billion and Citigroup holds $43.8 billion in tax havens. Scroll down to read the full report.

Tax haven abuse facilitates corporate tax dodging. Large companies can simply get away with dubious and exploitative measures. This is not merely a highbrow business issue. It affects the products you purchase, the services you use, and the taxes you pay. Offshore tax havens affect everyone.

Of course, there is s a simple fix for this problem.  All we have to do is end the damaging policy which allows multinational companies to defer paying U.S. taxes on their overseas income.   Why isn’t Congress doing that?

For more on this stuff, check out the work of our friends in the Financial Accountability and Corporate Transparency (FACT) Coalition, including CTJ and U.S. PIRG.

Offshore Shell Games 2014

Image: Flickr / Some Rights Reserved by Dallas Event Photography