Largest Multinationals Avoiding $90B in U.S. Taxes

U.S.-based multinational corporations are allowed to play by a different set of rules, says a new study on corporate taxation.
Katie Kuehner-HebertOctober 6, 2015
Largest Multinationals Avoiding $90B in U.S. Taxes

Most of America’s largest corporations maintain subsidiaries in offshore tax havens, enabling them to avoid an estimated $90 billion in federal income taxes annually. That is equal to the U.S. government’s entire budget for transportation and water infrastructure in 2014.

The study that produced the numbers was released Tuesday by The Center for Tax Justice and the U.S. Public Interest Research Group Education Fund.

In total, Fortune 500 companies are holding an accumulated $2.1 trillion in profits offshore for tax purposes, the study estimates.

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At least 358 companies, nearly 72% of the Fortune 500, operated subsidiaries in tax haven jurisdictions as of the end of 2014, the study concluded after reviewing the companies’ filings with the Securities and Exchange Commission.

Only 57 of these firms disclose what they would expect to pay in U.S. taxes if these profits were not officially booked offshore — collectively, $184.4 billion.The 57 companies, have, on average paid 6% in taxes to other countries on these profits.

If that 6% tax rate was applied to “the entirety” of Fortune 500 companies’ offshore profits, the study says, they would collectively owe $620 billion in additional federal U.S. taxes.

“Rather than paying their fair share, many multinational corporations use accounting tricks to pretend for tax purposes that a substantial portion of their profits are generated in off-shore tax havens, countries with minimal or no taxes where a company’s presence may be as little as a mailbox,” the authors wrote.

“Congress, by failing to take action to end to this tax avoidance, forces ordinary Americans to make up the difference. Every dollar in taxes that corporations avoid by using tax havens must be balanced by higher taxes on individuals, cuts to public investments and public services, or increased federal debt.”

The study lists some of the “worst offenders,” including Apple, which has booked $181.1 billion offshore — more than any other company. It would owe $59.2 billion in U.S. taxes if these profits were not officially held off-shore for tax purposes. A 2013 Senate investigation found that Apple had structured two 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 tax to any government on the lion’s share of their offshore profits,” the authors wrote.

“Congress can and should take strong action to prevent corporations from using offshore tax havens, which in turn would restore basic fairness to the tax system, reduce the deficit, and improve the functioning of markets,” the study concluded.