October 21, 2017

Fortune 500 Companies Hold a Record $2.6 Trillion Offshore

The limited disclosures made by a handful of Fortune 500 corporations show that corporations are brazenly using tax havens to avoid taxes on significant profits.

Posted on 04/4/17
By Jay Rover | Via ViewsWeek
Cayman Island is a known destination for offshore accounts. (Photo by Michael Hicks, CC License)

Cayman Island is a known destination for offshore accounts. (Photo by Michael Hicks, CC License)

Major U.S. multinational corporations are stockpiling profits offshore to avoid U.S. taxes, says a report by Institute on Taxation and Economic Policy. ITEP is a Washington-based non-profit, non-partisan research organization that works on federal, state, and local tax policy issues.

 

Congressional hearings over the past few years have raised awareness of tax avoidance strategies of major technology corporations. Names of mega corporations such as Apple,  Microsoft, pharmaceutical giant Amgen, apparel manufacturers Levi Strauss and Nike, the financial firm American Express, banking giants Bank of America and Wells Fargo, and lesser known companies such as Oracle and Symantec have been accused of using offshore tax havens.

 

“All told, Fortune 500 corporations are avoiding up to $767 billion in U.S. federal income taxes by holding more than $2.6 trillion of “permanently reinvested” profits offshore. In their latest annual financial reports, 29 of these corporations reveal that they have paid an income tax rate of 10 percent or less in countries where these profits are officially held, indicating that most of these profits are likely in offshore tax havens,” noted the report.

 

According to ITEP, offshore profits that an American corporation “repatriates” (officially brings back to the United States) are subject to the U.S. tax rate of 35 percent minus a tax credit equal to whatever taxes the company paid to foreign governments. Thus, if an American corporation reports it would pay a U.S. tax rate of 25 percent or more on its offshore profits, this indicates it has paid foreign governments a tax rate of 10 percent or less.

 

ITEP says 29 American corporations have “indirectly acknowledged” paying 10 percent or less in foreign taxes on the $639 billion they collectively hold offshore.

 

The following table shows the disclosures made by these 29 corporations in their most recent annual financial reports.

 

Tax haven 1

 

Overall, the 59 companies that disclose how much they would pay upon repatriation showed that they would owe an average tax rate of 28.7 percent upon repatriation, which means they have paid an average tax rate on their offshore earnings of only 6.3 percent so far.

 

“It is almost always the case that profits reported by American corporations to the IRS as earned in tax havens were actually earned in the United States or another country with a tax system similar to ours.  Most economically developed countries (places where there are real business opportunities for American corporations) have a corporate income tax rate of at least 20 percent, and typically tax rates are higher.”

 

The report says countries that have no corporate income tax or a very low corporate tax — countries such as Bermuda, the Cayman Islands, and the Bahamas — provide very little in the way of real business opportunities for American corporations like Qualcomm, Citigroup, and Microsoft. “But large Americans corporations use accounting gimmicks (most of which are, unfortunately, allowed under current law) to make profits appear to be earned in tax haven countries. In fact, a 2016 Citizens for Tax Justice (CTJ) examination of IRS data found U.S. corporations collectively report earning profits in Bermuda and the Cayman Islands that are more than 15 times the gross domestic products of those countries, which is clearly impossible,” it added.

 

At the end of 2016, 322 Fortune 500 companies collectively held a whopping $2.6 trillion offshore. Clearly, the 29 companies that disclosed paying 10 percent or less in foreign taxes on their offshore profits are not alone in shifting their profits to tax havens—they’re only alone in disclosing it.  More than 80 percent of these companies — 263 out of 322 —decline to disclose the U.S. tax rate they would pay if these offshore profits were repatriated.

 

According to ITEP, failing to disclose the tax due on offshore profits violates the spirit of the law; but failing to disclose those profits themselves appears to violate Securities Exchange Commission rules. “We found five corporations that disclose having permanently reinvested earnings, but do not disclose the cumulative total of those earnings. These companies are: C.H. Robinson, Dana Incorporated, H&R Block, Jones Lang LaSalle, and Whole Foods.”

Click here to read the detailed report 

 


Filled under: U.S., Views Digest, ViewsWeek Exclusive

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