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

Media Contacts

30 companies booked more cash offshore than others combined

MASSPIRG EDUCATION FUND

Boston. June 5 – Tax loopholes encouraged more than 70 percent of Fortune 500 companies – including some companies headquartered in Massachusetts – to maintain subsidiaries in offshore tax havens as of 2013, according to “Offshore Shell Games,” released today by MASSPIRG 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 Deirdre Cummings, Tax and Budget Policy Director for the MASSPIRG 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 Massachusetts taxpayers. We simply shouldn’t allow companies that use Massachusetts roads, and benefit from our education and public safety systems 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 Massachusetts $900 million in state tax revenue. That money would be enough to purchase 374 new commuter rail cars or pay the salary for 12,720 teachers based on the average school teacher salary. Or, $900 million could pay the cost of Massachusetts’ State Police, Homeland Security, Parks and Recreation and Environmental Protection budgets – combined.

MASSPIRG 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, more than the entire state budgets of all 6 New England states 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 Massachusetts include: 

Thermo Fisher Scientific maintains 144 subsidiaries in offshore tax havens, including four in Bermuda, three in Barbados, and ten in the Cayman Islands. The company ranks fifth among the Fortune 500 for the most subsidiaries in tax havens. Thermo Fisher Scientific reports booking nearly $6 billion in profits offshore for tax purposes but does not disclose what it would pay in taxes if those profits weren’t booked offshore.

Boston Scientific operates 42 subsidiaries in tax havens, including two in Bermuda and four in Switzerland. The company has booked $11.9 billion offshore for tax purposes as of 2013, but does not disclose its estimated tax bill on those profits were they not booked offshore.

Biogen Idec has booked $3.8 billion offshore for tax purposes as of 2013. The company estimates that it would owe close to a billion in taxes on those profits were they not booked offshore. That implies the company is currently paying a ten percent tax rate on its “foreign” profits, suggesting that a large share of it is on the books of its tax haven subsidiaries. Biogen maintains 14 subsidiaries in offshore tax havens.

Staples maintains 38 subsidiaries in off shore tax havens including 4 in the Cayman Islands and 1 in Bermuda. The company has $604 million in profits booked off shore.

Other companies include:

Nike: The sneaker giant reports having $6.7 billion booked offshore, on which it would otherwise owe $2.2 billion in U.S. taxes. That means they pay a mere 2.2 percent tax rate on those offshore profits, suggesting nearly all of the money is held by subsidiaries in tax havens. Nike does this in part by licensing the trademarks for some of its products to 12 subsidiaries in Bermuda to which it must pay royalties. Its Bermuda subsidiaries actually bear the names of their products like “Air Max Limited” and “Nike Flight.”

Citigroup reported operating 427 tax haven subsidiaries in 2008 but disclosed only 21 in 2013. Over that time period, Citigroup more than doubled the amount of cash it reported holding offshore. The company currently pays an 8.3 percent tax rate offshore, implying that most of those profits have been booked to low or no tax jurisdictions.

“As a small business owner nothing bothers me more than to see large corporations dodge their tax responsibility by stashing cash overseas and then leaving us to pick up the tab,” said Representative Josh Cutler,(D-Duxbury) who along with Representative Leonard Mirra, (R- West Newbury) is working to  remedying the imbalance by closing an offshore tax haven loophole here in Massachusetts.

“It’s very apparent that the entire tax code needs to be revisited and updated for the modern world,” said Representative Mirra. “ Addressing these loopholes, which are only available to large corporations, is a good place to start.  As a small business owner myself I welcome these changes to make the tax system simpler and more fair.” 

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.  States should also act by closing the water’s edge loophole, already in place in Oregon and Montana. The reform would require that companies treat profits made in Massachusetts and funneled to known tax havens like the Cayman Islands as domestic taxable income. Making this change to the tax code would save Massachusetts taxpayers $79 million a year.

 “Offshore Shell Games” is available for download at: http://masspirgedfund.org/reports/maf/offshore-shell-games

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MASSPIRG Education Fund
MASSPIRG Education Fund works to protect consumers and promote good government. We investigate problems, craft solutions, educate the public, and offer meaningful opportunities for civic participation. www.masspirgedfund.org

 

 

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