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SACRAMENTO – Tax loopholes encouraged more than 70 percent of Fortune 500 companies – HP, Google, and Apple here in California – to maintain subsidiaries in offshore tax havens as of 2013, according to “Offshore Shell Games,” released today by CALPIRG 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 62 percent of the total, or $1.2 trillion.
“Our tax code is broken, and it's hurting the public,” said Garo Manjikian of the CALPIRG Education Fund. “We’ve made it too easy for American multinationals to dodge taxes by setting up shell companies in tax havens, it hurts all California taxpayers. We simply shouldn’t allow companies that use California roads, and benefit from our education system and large consumer market, to take a free ride at the expense of the rest of us.”
“The loopholes in America’s corporate tax have grown so outrageous that our policymakers should be embarrassed,” said Steve Wamhoff, CTJ legislative director. “The data in this report demonstrate that a huge portion of the supposedly ‘offshore’ profits are likely to be U.S. profits that are manipulated so that they appear to be earned in countries like Bermuda or the Cayman Islands where they won’t be taxed. Policymakers should close the loopholes that make this manipulation possible.”
Every year, offshore tax loopholes used by U.S. corporations cost California $4.1 Billion in state tax revenue. CALPIRG 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:
- At least 362 Fortune 500 companies operate subsidiaries in tax haven jurisdictions, as of 2013. All told, these companies maintain at least 7,827 tax haven subsidiaries. The 30 companies with the most money booked offshore for tax purposes collectively operate 1,357 tax haven subsidiaries.
- Approximately 64 percent of the companies with any tax haven subsidiaries registered at least one in Bermuda or the Cayman Islands. The profits that American multinationals collectively claim to earn in these island nations’ totals 1,643 percent and 1,600 percent, respectively of each country’s entire yearly economic output.
- The 30 companies with the most money booked offshore for tax purposes collectively hold nearly $1.2 trillion overseas. That is 62 percent of the nearly $2 trillion that Fortune 500 companies together report holding offshore.
- Only 55 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 55 companies would collectively owe $147.5 billion in additional federal taxes, equal to the entire state budgets of California, Virginia, and Indiana combined. The average tax rate the 55 companies currently pay to other countries on this income is a mere 6.7 percent, implying that most of it is booked to tax havens.
Companies headquartered in California that were highlighted by the study include:
- Hewlett Packard: HP reported booking $38.2 billion offshore and maintains 27 subsidiaries in offshore tax havens, including Bermuda, the Cayman Islands, and Cyprus. A 2012 Senate investigation found that HP used cash from two offshore subsidiaries – one in Belgium and one in the Cayman Islands – to fund its U.S. operations here in California. The offshore cash was funneled to the California parent company in the form of short term loans for 30 to 60 days at a time. By paying back these loans in short intervals, HP could tap billions worth of offshore cash entirely tax free.
- Google: Google reported operating 25 subsidiaries in tax havens in 2009, but since 2010 only discloses two, both in Ireland. During that period, it increased the amount of cash it had booked offshore from $7.7 billion to $38.9 billion. An academic analysis found that as of 2012, the 23 no-longer-disclosed tax haven subsidiaries were still operating. Google uses accounting techniques nicknamed the “double Irish” and the “Dutch sandwich,” according to a Bloomberg investigation. Using two Irish subsidiaries, one of which is headquartered in Bermuda, Google shifts profits through Ireland and the Netherlands to Bermuda, shrinking its tax bill by approximately $2 billion a year.
- Apple: Apple has more profits booked offshore for tax purposes than any other company. It discloses it would owe $36.4 billion in U.S. taxes had it not shifted $111 billion offshore. A 2013 Senate investigation found that Apple has structured two Irish subsidiaries to be tax residents of neither the U.S. –where they are managed and controlled – nor Ireland – where they are incorporated. This arrangement ensures that they pay no taxes to any government on the lion’s share of their offshore profits. One of the subsidiaries has no employees. All told, Apple’s tax rate on its foreign cash is just 2.3 percent – further evidence that most of its offshore profits are booked to tax havens.
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, strengthen tax enforcement, and increase transparency.
“Offshore Shell Games” is available for download at: http://calpirgedfund.org/sites/pirg/files/reports/CAP%20ShellGames%20Jun14_2.pdf
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