Corporate offshore tax dodging and how to stop it
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Corporate Offshore Tax Dodging and How to Stop It. June 2013 U.S. Public Interest Research Group (U.S. PIRG) Americans for tax fairness. What’s at stake?. Ability to fund a government that makes critical investments in future generations and takes care of those most in need

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Corporate offshore tax dodging and how to stop it

Corporate Offshore Tax Dodging and How to Stop It

June 2013

U.S. Public Interest Research Group (U.S. PIRG)

Americans for tax fairness


What s at stake
What’s at stake?

  • Ability to fund a government that makes critical investments in future generations and takes care of those most in need

  • $150 billion in revenue lost each year to tax havens that could:

    • Replace across-the-board spending cuts known as the “sequester”

    • Avoid cost of living cut to Social Security

    • Pay for Pell grants for 10 million college students

  • Tax system corporations want is a race to the bottom

    • Shipping profits and jobs overseas

    • Lowering wages here at home


Corporate profits at record highs corporate taxes at record lows
Corporate profits at record highs, Corporate taxes at record lows

Source: Federal Reserve Economic Data


People paying more corporations paying less
People paying more, corporations paying less lows

Source: U.S. Office of Management and Budget


Corporate tax r evenues have s hrunk a lot
Corporate tax lowsrevenues have shrunk a lot

Source: U.S. Office of Management and Budget



What federal income tax rate do corporations actually pay
What federal income tax rate do corporations actually pay? levels)

Statutory rate: 35% (rate companies supposed to pay)

Effective rates (actually paid):

  • All companies: 12.1% in 2011 (Congressional Budget Office)

  • Fortune 500 companies: 18.5% in 2008-2010

    (Citizens for Tax Justice)


What happened tax havens cost u s taxpayers 150 billion a year
What happened? Tax havens cost U.S. taxpayers $150 billion a year

Ugland House, Cayman Islands

Address of 18,857 corporate entities


How u s corporations are taxed
How U.S. corporations are taxed year

“Worldwide” system of taxation

  • U.S. corporate income tax assessed on all profits everywhere

  • MINUS taxes paid to foreign countries

    But…companies can defer paying taxes on offshore profits until returned to America

  • Creates powerful incentives to disguise U.S. profits as “foreign” profits earned in tax havens with no or with low tax rates


Apple inc how tax dodging works
Apple yearInc: how tax dodging works

  • $74 billion profits earned offshore (2009-2012); virtually untaxed using Irish subsidiaries

  • One Irish subsidiary: Not taxed by U.S. or Ireland. U.S. recognizes where incorporated (Ireland); Ireland recognizes who controls (U.S.)

  • Second Irish company: Negotiated a tax rate of less than 2%. Apple transfers part ownership of its intellectual property created in U.S. to company allowing Apple to shift profits to Ireland.

  • U.S.: Has 95% of R&D; 65% of employees; 35% of profits; controls Irish subsidiaries

  • Ireland: Has 1% of R&D; 3% of employees; claims 65% of profits

  • Effective U.S. tax rate: 7.3% counting untaxed offshore profits (2011)

Source: U.S. Senate Permanent Subcommittee on Investigations


Corporate offshore tax avoidance has grown a lot
Corporate offshore tax avoidance has grown a lot year

  • $1.9 trillion in U.S. profits sitting offshore avoiding U.S. taxes

  • Increased 70% over last five years

  • 83 of top 100 publicly traded companies have subsidiaries in offshore tax havens

  • 43% of foreign earnings by U.S. multinationals booked to 5 tax-haven countries


Corporations want to make the system even more unfair
Corporations want to make the system even more unfair year

  • Temporary tax amnesty: Repatriation tax holiday

  • Permanent tax amnesty: Territorial tax system


Repatriation tax holiday temporary tax amnesty
“Repatriation” tax holiday: temporary tax amnesty year

  • 2004 tax holiday given to return offshore profits

    • Corporate tax rate dropped to 5% -- down from 35% or a company’s effective tax rate

    • $312 billion brought back to U.S. – half by 15 companies

    • Most money came back from low-tax countries or tax havens

    • No new jobs or investment created – mostly went to stock repurchases and higher dividend payments

  • $1.9 trillion offshore now waiting for new holiday


Territorial tax system permanent tax amnesty
Territorial tax system: permanent tax amnesty year

  • Eliminates all U.S. taxation of corporate overseas income

  • Creates greater incentivizes to shift profits to tax havens

  • Benefits few companies in a few industries: high tech, pharma, banking

  • Main Street and domestic businesses and individuals have to make up for lost revenue

  • Encourages job loss and lower wages

  • Higher budget deficits: $130 billion over ten years


Our solutions end offshore tax dodging
Our solutions: End offshore tax dodging year

  • Sen. Sanders bill, S. 250/Rep. Schakowsky, HR 694

    • Ends “deferral” – ability of companies to delay paying taxes on profits offshore until returned to U.S.

    • Raises $600 billion over 10 years; 60% of the across-the-board spending cuts (“sequester”)

  • Levin bill, S. 268

    • Closes worst offshore loopholes allowing companies to shift profits overseas

    • Raises $150-200 billion over 10 years


A winnable fight
A winnable fight year

  • Public strongly with us

    • By 73%-25%: Voters approved of closing loopholes allowing corporations and wealthy individuals to avoid paying U.S. taxes by shifting income to overseas tax havens

    • By 73%-20%: Voters opposed allowing corporations to not pay any U.S. taxes on profits that they earn in foreign countries – essentially rejecting the basis of a “territorial tax” system

  • Powerful and diverse constituencies on our side

  • Front page issue

Source: Hart Research Associates, Jan. 2013


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