How your favorite companies help raise your taxes

November 4th, 2015

In Citizens for Tax Justice’s latest report, Offshore Shell Games, the organization looks at how multinational corporations can avoid paying substantial amounts of taxes through the use of offshore tax havens. Large companies gain the advantage over small businesses and individuals by using accounting tricks to create the illusion that a substantial amount of their profits are generated in countries with minimal or no taxes. Often, a company’s only presence in these tax havens is a mailbox. There’s no big office building. Sometimes, there isn’t even a single employee. 

It is estimated that US multinational corporations jointly evade a total of $90 billion in federal taxes each year. The burden of this loss of revenue is often then pushed onto individuals; U.S. citizens have to succumb to higher tax rates, lawmakers cut federal investment and public services, and the federal government takes on debt to compensate. Offshore Games looked at Fortune 500 companies and their use of offshore tax havens in 2014. The following conclusions were made:

  • The majority (72%) of America’s Fortune 500 corporations maintain subsidiaries in offshore tax havens
  • Approximately 60% of companies with tax haven subsidiaries have set up at least one in Bermuda or the Cayman Islands
  • Data shows that if all Fortune 500 companies were forced to pay a fair tax rate, they would collectively owe $620 billion in additional federal taxes. Some of the worst offenders include Apple, Nike, and PepsiCo.
  • Corporations that disclose fewer tax haven subsidiaries do not necessarily dodge taxes less. Many corporations disclose less tax haven subsidiaries than they actually use. For example, Walmart reported operating zero tax haven subsidiaries in 2014 and the past decade, but it was revealed that the company operates as many as 75 tax haven subsidiaries
  • Congress can and should take strong action to prevent corporations from using offshore tax havens

Some of your favorite companies are likely exploiting the tax system and, overall, making you pay for it. Luckily, it is possible to combat this growing problem through the legislative process. The CTJ report suggests that policymakers should end incentives to shift profits offshore, reject the creation of new loopholes, close the most egregious offshore loopholes, and increase transparency through the implementation of country-by-country reporting. To read more, download the full report here.

Written by Adam Gerlach

Adam is the FTC's Fall 2015 Intern.

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