Texas could save $141.5 million with simple, proven method to curb offshore tax dodging, new study finds

TexPIRG Education Fund

AUSTIN– Texas taxpayers could save $141.5 million from a simple reform to crack down on offshore tax dodging, according to a new report released today by TexPIRG Education Fund. The reform, which has already been proven effective in Montana and passed in Oregon, would require companies to treat profits booked to notorious tax havens as domestic taxable income.

TexPIRG was joined by Representative Lloyd Doggett in releasing the new report, “Closing The Billion-Dollar Loophole: How States Are Reclaiming Revenue Lost to Offshore Tax Havens.

“Last year, in the midst of major budget battles, Texas lost $243 million as a result of the abuse of offshore tax loopholes,” said Sara Smith, TexPIRG Advocate. “By modernizing our state’s tax code with this simple reform, we can keep millions of dollars in Texas every year. While eliminating incentives for moving business offshore, we would be leveling the playing field for Texas businesses that compete with multinational corporations. We ought to protect regular taxpayers and small business owners from picking up the tab for tax dodgers.”

For years, some corporations that do business here in Texas have dodged taxes by booking profits made in Texas and across the United States to tax havens like the Cayman Islands, that levy little to no tax. For example, Exxon Mobile, Conoco Phillips, AT&T and several other companies based here in Texas maintain multiple subsidiaries in known tax havens.

This simple loophole closing uses information that multinational companies already report to states. Montana and Oregon simply treat profits that companies book to notorious tax havens as if it were domestic taxable income. The reform could be introduced anywhere, but is readily available to Texas and the 23 other states that have already modernized their tax codes to require companies to report on how profits are distributed among jurisdictions so that they are taxed based on how much business activity they do in those places. All told, closing this tax haven loophole could save Texas and the remaining 21 states including the District of Columbia over a billion dollars annually.

Here in Texas, the $141.5 million saved would be enough to fund the salaries of 4,133 new teachers based on the average starting salary of $34,234

“Tax dodging is not a victimless offense. When multinational corporations skirt taxes, small businesses and individuals usually have to make up the difference,” said Representative Lloyd Doggett (D-TX35). “That means higher taxes for average taxpayers or cuts to public programs. Here in Texas, we want to have reasonable taxes without making unreasonable cuts to vital public programs – like education.”

To ultimately put an end to offshore tax dodging – which costs the federal Treasury $90 billion annually and state governments $20 billion annually – federal action is required. But Montana and Oregon have shown that states can do more than sit on their hands waiting for Congress to act. The Montana experience (Oregon’s law, which passed last year with strong bipartisan support, will first take effect this year) has shown that this reform is simple to implement, and can play a real role in closing the state budget gap.

As of 2012, at least 82 of the top 100 publicly traded corporations in the U.S. used tax havens, according to an earlier U.S. PIRG study. American multinational companies collectively hold a staggering $1.9 trillion offshore. 

Here are some increasingly notorious ways that some of America’s largest corporations drastically shrink their tax bill:

  • Pfizer, the world’s largest drug maker, made 40 percent of its sales in the U.S. over the past five years, but thanks to their use of offshore tax loopholes they reported no taxable income in the U.S. during that time. The company operates 172 subsidiaries in tax havens and has $73 billion parked offshore which remains untaxed by the U.S., according to its own SEC filing. That is the second highest amount of money sitting offshore for a U.S. multinational corporation.
  • Google used accounting techniques nicknamed the “double Irish” and the “Dutch sandwich,” according to Bloomberg News. Using two Irish subsidiaries and one in Bermuda, Google helped shrink its tax bill by $3.1 billion from 2008 to 2010.
  • Citigroup – a bank that was bailed out by taxpayers during the financial meltdown of 2008 – maintains 20 subsidiaries in tax havens and has $42.6 billion sitting offshore, on which it would otherwise owe $11.5 billion in taxes, according to its own SEC filing. Citigroup currently ranks eighth among U.S. multinationals for having the most money stashed offshore.

According to Dan Bucks, the former chief of Montana Director of Revenue who administered the law for the state from 2005 to 2013, “Montana’s tax haven law brings a measure of tax justice to small businesses, farmers and ranchers, retirees and wage earners who already pay taxes on income they earn in Montana.  Without the law, these Montanans would pay more to make up for taxes wrongly avoided by large corporations shifting their Montana income to tax havens.”

You can download the report here

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TexPIRG 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