Many large U.S.-based multinational corporations avoid paying U.S. taxes by using accounting tricks to make profits made in America appear to be generated in offshore tax havens – countries with minimal or no taxes. By booking profits to subsidiaries registered in tax havens, multinational corporations are able to avoid an estimated $90 billion in federal income taxes each year. These subsidiaries are often shell companies with few, if any employees, and which engage in little to no real business activity.
Loopholes in the tax code make it legal to book profits offshore, but tax haven abusers force other Americans to shoulder their tax burden. Every dollar in taxes that corporations avoid by using tax havens must be balanced by other Americans paying higher taxes, coping with cuts to government programs, or increasing the federal debt.
This study reveals that tax haven use is ubiquitous among the largest 100 publicly traded companies as measured by revenue.
82 of the top 100 publicly traded U.S. companies operate subsidiaries in tax haven jurisdictions, as of 2012.
- All told, these 82 companies maintain 2,686 tax haven subsidiaries.
- The 15 companies with the most money held offshore collectively operate 1,897 tax haven subsidiaries.
The 15 companies with the most money offshore hold a combined $776 billion overseas. That is 66 percent of the approximately $1.17 trillion that the top 100 companies keep offshore. This list includes:
- Apple: A recent Senate investigation found that Apple pays next to nothing in taxes on the $102 billion it books offshore, which is the second highest amount of any company. Manipulating tax loopholes in the U.S. and other countries, Apple has structured three Irish subsidiaries to be tax residents of neither the U.S. –where they are managed and controlled – nor Ireland – where they are incorporated. This arrangement ensures that they pay no taxes to any government on the lion’s share of their offshore profits. Two of the subsidiaries have no employees.
- American Express: The company reports having $8.5 billion sitting offshore, on which it would owe $2.6 billion in U.S. taxes if those funds were repatriated. That means that they currently pay only a 4.4 percent tax rate on their offshore profits to foreign governments, suggesting that most of the money is parked in tax havens levying little to no tax. American express maintains 22 subsidiaries in offshore tax havens.
- Oracle: The tech giant reports having $20.9 billion booked offshore. The company discloses that it would owe $7.3 billion in U.S. taxes on those profits if they were not offshore. That means they pay a tax rate of less than one percent to foreign governments, suggesting that most of the money is booked to tax havens. Oracle maintains 5 subsidiaries in offshore tax havens.
Only 21 of the top 100 publicly traded companies disclose what they would expect to pay in taxes if they didn’t keep profits offshore. All told, these companies would collectively owe over $93 billion in additional federal taxes. To put this enormous sum in context, it represents close to the entire state budget of California and more than the federal government spends on education.
- The average tax rate these companies currently pay to other countries on this income is just 6.9 percent – far lower than the 35 percent statutory U.S. corporate tax rate – suggesting that a large portion of this offshore money is booked to tax havens.
Some companies that report a significant amount of money offshore maintain hundreds of subsidiaries in tax havens. The top three companies with the greatest number of tax haven subsidiaries:
- Bank of America reports having 316 subsidiaries in offshore tax havens. Kept afloat by taxpayers during the 2008 financial meltdown, the bank keeps $17.2 billion offshore, on which it would otherwise owe $4.5 billion in U.S. taxes.
- Morgan Stanley maintains 299 subsidiaries in offshore tax havens. The bank, which also received a taxpayer bailout in 2008, reports holding more than $7 billion offshore, on which it would otherwise owe $1.7 billion in taxes.
- Pfizer, the world’s largest drug maker, operates 174 subsidiaries in tax havens and currently books $73 billion in profits offshore. The company made more than 40 percent of its sales in the U.S. between 2010 and 2012, but managed to report no federal taxable income in the U.S. for the past five years. This is because Pfizer uses accounting gimmicks to shift the location of its taxable profits offshore.
Corporations that disclose fewer tax haven subsidiaries do not necessarily dodge fewer taxes. Since 2008 – the last time a study of this scope was done – many companies have disclosed fewer tax haven subsidiaries, all the while increasing the amount of cash they keep offshore. For some companies, their actual number of tax haven subsidiaries may be substantially greater than what they disclose in the official documents used for this study. For others, it suggests that they are booking larger amounts of income to fewer tax haven subsidiaries.
- Citigroup reported operating 427 tax haven subsidiaries in 2008 but disclosed only 20 in 2012. Over that time period, Citigroup increased the amount of cash it reported holding offshore from $21.1 billion to $42.6 billion, ranking the company 9 for the amount of offshore cash.
- Google reported operating 25 subsidiaries in tax havens in 2009, but since 2010 only discloses two, both in Ireland. During that period, it increased the amount of cash it had reported offshore from $7.7 billion to $33.3 billion. An academic analysis found that as of 2012, the 23 no-longer-disclosed tax haven subsidiaries were still operating.
- Microsoft, which reported operating 10 subsidiaries in tax havens in 2007, disclosed only five in 2012. During this same time period, the company increased the amount of money it reported holding offshore from $6.1 billion to $60.8 billion in 2012. This sum represents 70 percent of the company’s cash, on which it would owe $19.4 billion in U.S. taxes if the income wasn’t shifted overseas. Microsoft ranks 4 among all top 100 companies for the amount of cash it keeps offshore.
Strong action to prevent corporations from using offshore tax havens will not only restore basic fairness to the tax system, but will also help alleviate America’s fiscal crunch and improve the functioning of markets.
Lawmakers can crack down on tax haven abuse by ending incentives for companies to shift profits offshore, closing the most egregious offshore loopholes, strengthening tax enforcement and increasing transparency.