Study: Offshore Tax Havens Cost Oregon $175 million annually

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OSPIRG Foundation

Portland, OR – Oregon loses $175 million in tax revenue each year due to corporate tax avoidance, largely through abuse of offshore tax havens, according to a new report. The report by OSPIRG Foundation and the Institute on Taxation and Economic Policy, “A Simple Fix for a $17 Billion Loophole,” comes as the state legislature convenes with eyes towards closing an estimated $623 million budget shortfall. According to the report, adopting worldwide combined report, or “Complete Reporting” would allow the state to recapture lost revenue from corporate tax avoidance, which would account for more than half of the anticipated shortfall in the 2019-2020 budget cycle.

“When large corporations are able to use accounting gimmicks to avoid paying their taxes, the result is reduced services, higher taxes, or both,” said Charlie Fisher, State Director of OSPIRG Foundation, “Everyone should  agree that being able to afford expensive tax lawyers shouldn’t grant you a lower tax rate.” 

Tax havens are countries or jurisdictions with very low or nonexistent taxes—often small island nations like Bermuda, the Cayman Islands and Seychelles—to which firms transfer their earnings to avoid paying taxes in the United States. So instead of paying the top corporate tax rate in Oregon of 7.6%, they can pay close to nothing, even if the profits are attributable to business done in the state.

According to the report, companies have many strategies for booking profits offshore. Some transfer their patents or trademarks to subsidiaries located in tax havens and spend their domestically earned income to pay tax-deductible royalties to the subsidiary to use the patents or trademarks in America. Other companies engage in “earnings stripping” in which companies in the United States borrow money from subsidiaries in a tax haven and then deduct their interest payments from their taxable income.

“When corporations avoid paying their taxes, Oregon’s children’s end up picking up the tab,” said Otto Schell, legislative director of the Oregon Parent Teacher Association, “Our educational outcomes are consistently some of the lowest in the country. Making sure corporations can’t get out of paying taxes is an important first step towards making Oregon a leader in student success.”

Local small businesses are also affected by corporate tax avoidance. Because they don’t have the resources or desire to set up subsidiaries in tax haven countries, they often have to operate on an even playing when large corporations are able to artificially reduce their tax rate. In fact, a study by Greenberg Quinlan Rosner Research found that seven in 10 small business owners feel their business is harmed when larger businesses avoid taxes.

To prevent abuse of offshore tax loopholes, the report suggests states enact complete reporting, which requires a company to report their total, global profits, and the portion of that overall business done in a given jurisdiction. If a state makes up 2 percent of a company’s global business, then 2 percent of their taxable profit would be subject to the state’s tax rate.

“Thriving small businesses mean more vibrant communities and a better quality of life,” said Iris Hodge, Main Street Alliance, Oregon State Lead, “Unfortunately, they’re the ones who often end up filling the gap through higher taxes when large corporations use fancy accounting tricks to get out of paying what they owe. Complete reporting would level the playing field for small businesses in Oregon and be the investment that our communities deserve.”

Legislation sponsored by Oregon State Representative Rob Nosse, introduced earlier this week in Salem, would implement a complete reporting system for Oregon and attempt to claw back revenue lost due to corporate tax avoidance.