Study: 70 percent of Fortune 500 companies used tax havens in 2013

June 5, 2014
TaxHaven

Online Staff Report

Tax loopholes encouraged more than 70 percent of Fortune 500 companies — including Abbott Labs and Caterpillar — to maintain subsidiaries in offshore tax havens as of 2013, according to the report “Offshore Shell Games,” released June 5 by Illinois PIRG Education Fund and Citizens for Tax Justice. Collectively, the companies reported booking nearly $2 trillion offshore for tax purposes, with just 30 companies accounting for 62 percent of the total, or $1.2 trillion.

Our tax code is broken, and it’s hurting the public,” said Dev Gowda of Illinois PIRG Education Fund. “We’ve made it too easy for American multinationals to dodge taxes by setting up shell companies in tax havens, which hurts all Illinois taxpayers. We simply shouldn’t allow companies that use Illinois roads, and benefit from our education system and large consumer market, to take a free ride at the expense of the rest of us.”

Steve Wamhoff, CTJ legislative director, said: “The loopholes in America’s corporate tax have grown so outrageous that our policymakers should be embarrassed. The data in this report demonstrate that a huge portion of the supposedly ‘offshore’ profits are likely to be U.S. profits that are manipulated so that they appear to be earned in countries like Bermuda or the Cayman Islands where they won’t be taxed. Policymakers should close the loopholes that make this manipulation possible.”

Every year, offshore tax loopholes used by U.S. corporations cost Illinois $1.4 billion in state tax revenue. Here in Illinois, the $1.4 billion saved would be enough to cover the salaries for 39,000 Illinois teachers.

Illinois PIRG Education Fund’s new study shows that while most very large companies use tax havens, a smaller subset are most aggressive about using offshore tax havens to avoid taxes.

Key findings of the report include the following:

At least 362 Fortune 500 companies operate subsidiaries in tax haven jurisdictions, as of 2013. All told, these companies maintain at least 7,827 tax haven subsidiaries. The 30 companies with the most money booked offshore for tax purposes collectively operate 1,357 tax haven subsidiaries.

Approximately 64 percent of the companies with any tax haven subsidiaries registered at least one in Bermuda or the Cayman Islands. The profits that American multinationals collectively claim to earn in these island nations’ totals 1,643 percent and 1,600 percent, respectively, of each country’s entire yearly economic output.

The 30 companies with the most money booked offshore for tax purposes collectively hold nearly $1.2 trillion overseas. That is 62 percent of the nearly $2 trillion that Fortune 500 companies together report holding offshore.

Only 55 companies disclose the amount they would expect to pay in U.S. taxes if they didn’t report profits offshore for tax purposes. All told, these 55 companies would collectively owe $147.5 billion in additional federal taxes, more than four times the recently-passed $35.7 billion Illinois budget for FY2015. The average tax rate the 55 companies pay to other countries on this income is a mere 6.7 percent, implying that most of it is booked to tax havens.

Companies with headquarters in Illinois that were highlighted by the study include the following:

Abbott Laboratories: This pharmaceutical maintains 79 subsidiaries in offshore tax havens, including five in Bermuda, two in the Bahamas and one in Barbados. Abbott Labs ranks 21 for the most tax haven subsidiaries among the Fortune 500. The company reports having $24 billion booked offshore. Between 2008 and 2012, the Illinois-based Abbott Laboratories made 44 percent of its revenue in the U.S., but only reports for tax purposes that 3 percent of its profits were earned here. The company has been involved in disputes with the IRS for shifting its intellectual property offshore to avoid U.S. taxes.

Caterpillar: A Senate investigation found that Caterpillar, a manufacturer of construction equipment and engines, deferred or avoided $2.4 billion in U.S. taxes between 2000 and 2012 by shifting $8 billion in profits to a Swiss subsidiary, which was awarded a special corporate tax rate of just 4 to 6 percent in negotiations between Caterpillar and the Swiss government. In 2013, Caterpillar operated a total of 74 subsidiaries in tax havens, including eight in Bermuda and two in the Cayman Islands. The company reports booking $17 billion offshore for tax purposes. (See “Picking up the Tab 2014” for all sources)

Baxter International: Baxter International reports having $12.2 billion booked offshore. The company discloses that it would owe $3.8 billion in U.S. taxes on those profits if they were not offshore. That implies they pay a tax rate of just 3.9 percent to foreign governments, suggesting that most of the money is booked to tax havens. Baxter International maintains 12 subsidiaries in offshore tax havens, including seven in Switzerland.

Jo Patton, director of Special Projects of AFSCME Council 31, said: “They may seem remote, but these off-shore tax havens have a real impact on people throughout Illinois,. Think of the investments we could make in our schools, roads, libraries, mental health services and more if the loopholes were closed and multinational corporations were required to pay the billions they owe in federal taxes. Our union is committed to working with our partners to put an end to tax haven abuse and make sure corporations pay their fair share.”

Mike Nikodem, owner of the Great Harvest Bread Company in Naperville, Ill., said: “Small business owners like myself are hit especially hard by corporate tax dodging. Like all other taxpayers, we must pick up the tab for tax-dodging by large companies. On top of that, large corporations that use tax havens to shrink their tax bill gain an artificial competitive advantage over responsible small businesses. Businesses should compete based on the quality of their products, not the cleverness of their tax attorneys.”

Jessica Fujan of Food & Water Watch Illinois said: “Uncle Sam frowns at Americans who don’t pay their taxes, but turns a blind eye when corporations abuse our common resources, then bend the rules in boost their bottom lines. Let’s invest in American communities by reinvesting corporate taxes into the infrastructure systems that make America great.”

Helen Cameron, owner of Uncommon Ground in Chicago, said: “Small business owners like myself are left at a disadvantage when large corporations use accounting and tax loopholes to book profits made in the U.S. to offshore tax havens. Small businesses and average taxpayers are left with picking up the tab.”

The report concludes that to end tax haven abuse, policymakers should end incentives for companies to shift profits offshore, close the most egregious offshore loopholes, strengthen tax enforcement and increase transparency.

Offshore Shell Games” is available for download here.

Posted June 5, 2014

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