Study: Most Fortune 500 Companies Used Tax Havens in 2016

Illinois PIRG

In 2016, 73 percent of Fortune 500 companies – including 34 headquartered in Illinois – maintained subsidiaries in offshore tax havens, according to “Offshore Shell Games,” released today by Illinois PIRG Education Fund and the Institute on Taxation and Economic Policy. Collectively, multinationals reported booking $2.6 trillion offshore, with just 30 companies accounting for 68 percent of this total, and just four companies accounting for a quarter of the total.

“With Congress looking to pass tax cuts that would cost upwards of $5 trillion, it’s all the more unacceptable to leave open these absurd loopholes and gimmicks for the biggest multinational corporations,” said Abraham Scarr, Illinois PIRG Director. “Tax reform should inject common sense into our tax code, and it shouldn’t balloon our deficit. Closing tax haven loopholes would both eliminate some of the most ridiculous tax gaming and it could help pay for the cost of tax cuts.”

This report highlights the urgent need to close tax haven loopholes. By stashing profits in offshore tax havens using phony accounting gimmicks, the biggest corporations may be avoiding up to $750 billion in U.S. federal taxes. AbbVie Inc. headquartered in Lake Bluff, holds $29 billion in 40 offshore tax havens including the Netherlands and Cayman Islands.

Key findings of the report include:

• Most of America’s largest corporations maintain subsidiaries in offshore tax havens. At least 366 companies, or 73 percent of the Fortune 500, operate one or more subsidiaries in tax haven countries.
• Approximately 57 percent of companies with tax haven subsidiaries have set up at least one in Bermuda or the Cayman Islands — two particularly notorious tax havens. The profits that all American multinationals — not just Fortune 500 companies —implausibly claimed they earned in these two island nations according to the most recent data totaled 1,884 percent and 1,313 percent of each country’s entire yearly economic output, respectively.
• The 34 companies headquartered in Illinois maintain at least 824 tax haven subsidiaries holding $130.3 billion in profits offshore.
• The 30 companies with the most money booked offshore for tax purposes collectively hold nearly $1.76 trillion overseas, increased since last year. That is 67 percent of the nearly $2.6 trillion that Fortune 500 companies together report holding offshore.
• Only 58 Fortune 500 companies disclose what they would expect to pay in U.S. taxes if these profits were not officially booked offshore. In total, these 58 companies would owe $240 billion in additional federal taxes. The average tax rate the 58 companies currently pay to other countries on this income is a mere 6.1 percent, implying that most of it is booked to tax havens.

“Real tax reform would fix the deferral loophole, not reward companies for using the loophole to avoid taxes year after year,” said Richard Phillips, a senior policy analyst at the Institute on Taxation and Economic Policy. “Lawmakers shouldn’t be discussing how to sweeten the pot and give corporations a huge tax break that amounts to a huge financial reward for engaging in bad corporate behavior.”

The report concludes that to end tax haven abuse, Congress and state legislatures should end incentives for companies to shift profits offshore, close the most egregious offshore loopholes, strengthen tax enforcement, increase transparency, and deny corporations a repatriation holiday.

And while much of the reform necessary to stop this offshore tax dodging must happen at the federal level, states can still act to curb some of the worst abuses. By closing these loopholes on the state level, Illinois could save at least $108.3 million annualy.