Corporate Tax Havens Stiff Taxpayers by $110B A Year
Business + Economy

Corporate Tax Havens Stiff Taxpayers by $110B A Year

On the eve of Tax Day, a prominent consumer advocacy group on Tuesday provided a vivid reminder of how some of the largest Fortune 500 companies avoid paying billions of dollars in U.S. taxes on profits parked overseas.

Last year alone, the U.S. Treasury and state governments lost roughly $110 billion in tax revenues after major corporations funneled their cash through accounts in the Cayman Islands, Bermuda and other offshore tax havens, according to figures compiled by the U.S. Public Interest Research Group (PIRG).

Related: 15 Fortune 500 Companies Paid No Federal Income Taxes in 2014

Under current law, U.S. corporations are allowed to defer or delay paying federal income taxes on overseas profits to avoid a federal corporate tax rate of as much as 35 percent until this money is “repatriated” or brought back into the United States. 

At least 362 companies, making up 72 percent of the Fortune 500, maintained subsidiaries in tax haven jurisdictions as of 2013.

Among the biggest beneficiaries, according to the PIRG analysis:

  • Pfizer, the world’s largest drug manufacturer, paid no U.S. income taxes between 2010 and 2012 despite earning $43 billion throughout the globe. Pfizer actually received more than $2 billion in federal tax refunds.
  • Microsoft maintains five tax haven subsidies and kept $92.9 billion overseas in 2014. By taking advantage of the federal tax law, Microsoft averted an additional $29.6 billion in taxes.
  • Citigroup stashed $43.8 billion in offshore jurisdictions in 2014, saving itself $11.6 billion of additional taxes.

Related: IRS Says Budget Cuts Could Bilk Billions from Taxpayers

While what these and scores of other corporations are doing is perfectly legal under federal and state tax codes, lawmakers, advocates of tax reform and government watchdogs say its galling and unfair for wealthy companies to dodge hefty tax bills while Congress struggles to adequately fund program and control the long term debt.

“At a time when we have a $18.2 trillion national debt, at a time when major corporation after major corporation pays nothing in federal income taxes, and at a time when corporate profits are at an all-time high, it is past time for corporate America to pay their fair share in taxes so that we can create the millions of jobs this country needs,” Sen. Bernie Sanders (I-VT), the ranking member of the Senate Budget Committee, said on Tuesday on Capitol Hill.

During a joint press conference with officials of PIRG, Citizens for Tax Justice and the American Sustainable Business Council, Sanders announced the introduction of his “Corporate Tax Dodging Prevention Act of 2015.”  The bill would prevent corporations from sheltering profits in the Cayman Islands and other tax havens to avoid paying U.S. taxes. The bill would also eliminate tax breaks that he said reward companies that ship jobs and factories overseas.

Related: The Ten Worst States for Paying Taxes

The Joint Committee on Taxation (JCT) has estimated in the past that the provisions in this bill will raise more than $590 billion in revenue over the next decade, he said.

“Let’s be clear: deficit reduction is a serious matter,” Sanders said. “That is a major reason why I am introducing this bill today.”

According to PIRG, small business owners are indirectly hit twice by the impact of off-shore tax dodging by large, multi-national corporations: Small businesses are routinely placed at a competitive disadvantage in the market place and – like average taxpayers—they “end up picking up the tab for offshore tax avoidance in the form of higher taxes, cuts to public services, or increases to the federal debt.”

In a strictly hypothetical case study that quantified the impact of off-shore tax dodging by major corporations, PIRG concluded that every small business would need to pay an average of $3,244 in additional taxes if they were to pick up the full tab for lost income.

Related: Ryan Shoots for Tax Reform within Seven Months

“The big picture of this report is that our tax system creates winners and losers, and the winners are a narrow set of wealthy multi-national companies  and the losers end up being small businesses and average taxpayers like you and me,” said Jaimie Woo, U.S. PIRG’s tax and budget advocate.

The Senate Finance Committee and House Ways and Means Committee are examining areas of the corporate tax code for possible changes this year. The Obama administration proposed a new corporate-tax plan that would raise $238 billion over 10 years by assessing a 14-percent "transition tax" on the more than $2 trillion in U.S. corporate profits sitting offshore. The revenue would be used to shore up the Highway Trust Fund and increase investments in public infrastructure.

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