Study: 70% of Fortune 500 Companies Used Tax Havens in 2013

Maryland PIRG Foundation and Citizens for Tax Justice

Tax loopholes encouraged more than 70 percent of Fortune 500 companies – including Stanley Black & Decker in Maryland – to maintain subsidiaries in offshore tax havens as of 2013, according to “Offshore Shell Games,” released today by the Maryland PIRG Foundation and Citizens for Tax Justice (CTJ). 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 Maryland PIRG Foundation Director Emily Scarr. “We’ve made it too easy for American multinationals to dodge taxes by setting up shell companies in tax havens, it hurts all Maryland taxpayers. We simply shouldn’t allow companies that use Maryland 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 Maryland $500 million in state tax revenue.

Maryland PIRG Foundation’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. 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 Maryland that were highlighted by the study include:

• Stanley Black & Decker: Stanley Black and Decker maintains 98 subsidiaries in offshore tax havens, including eight in the Cayman Islands and 12 in Luxembourg. The company ranks 12th for the greatest number of tax haven subsidiaries and reports having $4.4 billion booked offshore, but does not disclose what it would owe in taxes if those profits were not booked offshore.
• Lockheed Martin: The Defense Contractor reports booking $222 million in profits offshore, on which it would otherwise owe $50 million in taxes. This means that the company is currently paying a 12.5% rate to foreign governments, suggesting that some of the profits are booked to tax havens even though it does not disclose maintaining any tax haven subsidiaries.

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.

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The Maryland PIRG Foundation works to protect consumers and promote good government. We investigate problems, craft solutions, educate the public, and offer meaningful opportunities for civic participation.