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California Could Save $246 Million With Simple, Proven Method to Curb Offshore Tax Dodging, New Study Finds
Sacramento, January 30th – California taxpayers could save $246 million from a simple reform to crack down on offshore tax dodging, according to a new report released today by the CALPIRG Education Fund. 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.
CALPIRG is joined by California Fair Share in releasing the new report, “Closing the Billion-Dollar Loophole: How States Are Reclaiming Revenue Lost to Offshore Tax Havens.”
“Last year, California lost $3.3 billion as a result of the abuse of offshore tax loopholes,” said Garo Manjikian, CALPIRG Education Fund Advocate. “By modernizing our state’s tax code with this simple reform, we can keep millions of dollars in California every year, while eliminating incentives for moving business offshore, leveling the playing field for California businesses that compete with multinational corporations, and protecting regular taxpayers from picking up the tab for tax dodgers."
“In his State of the State last week, Governor Brown spoke about the need for a solid rainy day fund. Closing the Water's Edge Loophole would mean one billion dollars over four years for such a fund,” added Manjikian.
For years, some corporations that do business here in California have dodged taxes by booking profits made in America to tax havens like the Cayman Islands, that levy little to no tax. For example, Chevron based here in California maintains 18 subsidiaries in known tax havens.
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 District of Columbia over a billion dollars annually.
“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,” said Patrick Stelmach, State Organizer for California Fair Share.
Since 2008 funding for child care and state preschool has been slashed in California, reducing slots for these programs by nearly one-quarter. If we close the water's edge loophole and make large corporations pay their fair share, we could generate approximately $246 million in state revenue, revenue which could be used to help restore funding for the programs that help give our children a strong start in life," Patrick Stelmach, State Organizer for California Fair Share
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 CALPIRG 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.”
You can download the report here: http://calpirgedfund.org/reports/caf/closing-billion-dollar-loophole
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