Study: Colorado Could Curb Offshore Tax Dodging, Costs Colorado $15 Million

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Colorado taxpayers could recover $15 million a year from a simple reform to crack down on offshore tax dodging, according to a new report released today by CoPIRG. 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.

CoPIRG was joined by Zach Hepner, owner of Velosoul Bikes, and Luke Janes, owner of Kilgore Books, in releasing the new report, “Closing The Billion-Dollar Loophole: How States Are Reclaiming Revenue Lost to Offshore Tax Havens.”

“Last year, Colorado lost $246 million as a result of the abuse of offshore tax loopholes,” said Quinn Chasan, CoPIRG Associate. “By modernizing our state’s tax code with this simple reform, we can stop one form of tax dodging that costs Colorado $15 million every year, while eliminating incentives for moving business offshore, leveling the playing field for Colorado businesses that compete with multinational corporations, and protecting regular taxpayers from picking up the tab for tax dodgers.”

For years, some corporations that do business in Colorado have dodged taxes by booking profits made in America to tax havens that levy little to no tax. One single five-story building in the Cayman Islands houses 18,857 subsidiaries for some of the world’s largest companies.

While closing many of these loopholes requires federal action, one loophole the Colorado Legislature could close this session would the “water’s edge” loophole. Closing this is simple and uses information that multinational companies already report to states. For example, Montana and Oregon treat profits that companies book to notorious tax havens as if it were domestic taxable income. With a tax reporting system called ‘combined reporting’ already available here in Colorado, the various tax havens around the world where multinational companies put their money are already known and reported. With a bill that treats those known tax havens as the same as domestic income, Colorado would stop $15 million worth of tax dodging.”

“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,” added Chasan. Colorado ranks 14th among all fifty states and Washington D.C. for the amount of potential revenue they could collect by closing the waters edge loophole, the report details.

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.

As of 2012, at least 82 of the top 100 publicly traded corporations in the U.S. used tax havens, according to an earlier U.S. PIRG 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.”

“As Colorado’s lawmakers get into the 2014 legislative session, they should consider bringing this tax justice to Colorado,” said Chasan. 

Find the report here.