Offshore Shell Games

Fortune 500 companies and offshore tax havens

The 2017 edition of a report by U.S. PIRG Education Fund &
Institute On Taxation And Economic Policy

Richard Phillips & Matt Gardner, Institute on Taxation & Economic Policy
Alexandria Robins & Michelle Surka, U.S. PIRG Education Fund


The use of international tax havens has provided a safe place for large corporations to avoid paying nearly $100 billion in U.S. taxes. Corporate tax avoidance is not inevitable, but tax haven use is now standard practice among Fortune 500 companies — meaning corporations enjoy trillions of dollars in earnings while individual taxpayers make up the difference.

TAX HAVEN ABUSE BY LARGE COMPANIES MEANS YOU PAY MORE ON TAX DAY.

Use of international tax havens is common among Fortune 500 companies, which collectively hold more than $2.6 trillion in accumulated profits offshore in places like the Bahamas and the Cayman Islands.

Data from more than 50 corporations shows that, collectively, the average tax rate paid on these profits is a mere 6.1 percent — drastically lower than the 35 percent rate required by U.S. law. In the five most popular tax havens for American companies, reported corporate earnings were greater than the entire economies of those countries. The U.S. sees no income from American companies that hide their profits offshore, which means every dollar that is stashed in a tax haven subsidiary must be offset by raising taxes on the American public. Often, this results in cuts to public services and more federal debt.

Though the numbers are staggering, our estimates about how much money American companies hide offshore are low. Weak Securities and Exchange Commission (SEC) disclosure rules mean that we’re only aware of a tiny fraction of offshore subsidiaries — companies omit 91 percent of their subsidiaries in reporting, one analysis shows.

The problem is that the SEC only requires that companies report all “significant” subsidiaries. This is a glaring loophole that makes it legal for companies to break up offshore subsidiaries into smaller companies to avoid telling the government about offshore earnings. And the penalties for keeping these subsidiaries off U.S. government books are so light that companies often decide the disclosure isn’t worth the bad publicity.

Remember when U.S. taxpayers paid $160 billion to bail out the banks that caused the 2008 financial crash? Together, Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, Wells Fargo and Morgan Stanley have disclosed 2,010 offshore tax haven subsidiaries — offshoot companies they use to avoid paying taxes here at home.

Legal tax avoidance is an urgent problem. To solve it, we need to bar American corporations from indefinitely deferring payment of U.S. taxes on offshore subsidiaries. According to the Treasury Department, without action on tax haven abuse, we’ll lose an estimated $1.3 trillion over the next decade. That’s money that could go toward fixing our crumbling infrastructure, making health care more affordable or improving our educational system. It’s time to act.

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Ending tax haven abuse could reduce the national deficit by $752 billion.



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