Follow the tax-break. That’s what U.S. multi-national companies appear to have been increasingly doing over the past few years.

The profits of foreign subsidiaries of U.S. corporations in 18 tax havens swelled from $88 billion in 1999 to $149 billion in 2002, according to Tax Notes,, which cited U.S. Commerce Department data covering the years 1999 to 2002. Tax Notes is published by taxanalysts.com.

Total profits of U.S. multinationals’ foreign subsidiaries around the world stood at $255 billion in 2002, it noted.

The 18 tax havens were home to 58 percent of the foreign profits of the multinationals—a figure that far exceeds the share of economic activity that multinationals conduct in those low-tax countries, according to the report.

How did the companies earn so much in those low-producing locales? The companies benefited from both changes in U.S. tax laws and cuts in effective tax rates in some tax havens, the report said.

“Subsidiaries of U.S. corporations now generate profits mainly in tax havens rather than in the locations in which they conduct most of their business,” according to the report, written by Martin Sullivan.

For example, profits of subsidiaries of U.S. multinationals in low-tax Ireland doubled in four years, from $13.4 billion to $26.8 billion, according to the study. Profits from operations of U.S. multinationals in Bermuda, which has no income tax, have tripled, from $8.5 billion to $25.2 billion. “Not surprisingly, those two tax havens rank as the number one and number two locations in terms of profitability for U.S. corporations operating abroad—surpassing long-time leading investment partners like the United Kingdom and Canada,” according to the report.

U.S. companies domiciled in Luxembourg and Singapore, have also seen striking profit increases, Sullivan also pointed out. The two countries had 2002 effective tax rates of 1.4 percent and 11.4 percent, respectively.

For example, in Luxembourg, the profits of U.S. subsidiaries more than quadrupled over the period, the most recent one for which statistics are available, from $4 billion in 1999 to $18.4 billion in 2002. In Singapore, subsidiaries’ profits surged from $4.4 billion to $7.5 billion.

In contrast, profits generated by foreign subsidiaries in the large industrial countries where U.S. companies conducted most of their foreign business have fallen sharply, according to the report.

Sullivan noted that profits of U.S. companies operating in Canada, France, Germany, Italy, and the United Kingdom combined dropped 25 percent—from $72 billion in 1999 to $54 billion in 2002.

That means that even though those five countries accounted for 44 percent of foreign sales, 44 percent of foreign plant and equipment, and 56 percent of foreign employee compensation in 2002, they accounted for only 21 percent of foreign profits.

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