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

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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

  • $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

Source: Federal Reserve Economic Data


People paying more, corporations paying less

Source: U.S. Office of Management and Budget


Corporate tax revenues have shrunk a lot

Source: U.S. Office of Management and Budget


U.S. corporate taxes in middle of world pack (all govt. levels)

Source OECD.StatsExtract


What federal income tax rate do corporations actually pay?

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

Ugland House, Cayman Islands

Address of 18,857 corporate entities


How U.S. corporations are taxed

“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

  • $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

  • $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

  • Temporary tax amnesty: Repatriation tax holiday

  • Permanent tax amnesty: Territorial tax system


“Repatriation” tax holiday: temporary tax amnesty

  • 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

  • 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

  • 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

  • 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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