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MASSPIRG
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MassLive
By
Shira Schoenberg

Close to three-quarters of Fortune 500 companies have money in offshore tax havens, according to a report released Tuesday by consumer groups. These companies have $2.6 trillion in offshore profits that are not being taxed in the U.S., according to the report.

The report, published by the consumer-oriented U.S. PIRG Education Fund and the Institute on Taxation and Economic Policy, is particularly relevant as President Donald Trump is pushing a "territorial" tax plan in which the U.S. would no longer tax most worldwide income.

A territorial tax system, in which U.S. companies would pay taxes only on U.S. earnings, "essentially codifies the practice of allowing companies to book their profits overseas in lower tax havens," said Deirdre Cummings, legislative director of MassPIRG, the state subsidiary of U.S. PIRG.

Cummings argues that moving to a territorial system would cost the U.S. money by making it easier for companies to park money overseas. "It's a concern ... because there's so much investment we need to have in this country," Cummings said.

Under current law, a company is allowed to create a subsidiary overseas in a country with a low tax rate and attribute profits to the overseas company. These subsidiaries do not need any kind of workforce or office in the country other than a post office box. The money may physically be in U.S. banks with the profits attributed on paper to offshore companies.

If the company moves the money back to the United States to use it here, the company will have to pay the 35 percent corporate tax rate.

In 2004, President George W. Bush instituted a temporary tax break on overseas profits to encourage companies to bring their money back.

Trump's territorial tax proposal would let companies bring overseas profits back to the U.S. without paying corporate taxes. Businesses favor the move, and advocates say it will encourage businesses to conduct more economic activity in the United States.

The U.S. PIRG study examines the extent to which companies use offshore tax havens. It finds that of the 500 largest U.S. companies whose earnings are publicly available, 366 operate subsidiaries in tax haven countries.

More than half those companies have a subsidiary in the Netherlands. Fifty-eight percent operate a subsidiary in either Bermuda or the Cayman Islands.

Of the $2.6 trillion in offshore profit, four companies - Apple, Pfizer, Microsoft and General Electric - account for a quarter of the total amount.

Fifty-eight companies disclosed what they would pay in U.S. taxes if the profits were returned to the U.S. They would owe a total of $240 billion. By keeping the money overseas, the companies pay an average tax rate of 6.1 percent on their overseas income.

Massachusetts-based General Electric has $82 billion overseas in 22 subsidiaries in the Netherlands, Bermuda, Singapore, Luxembourg and other countries, according to the report.

Massachusetts-based Thermo Fisher Scientific has 199 overseas subsidiaries in places including the Netherlands, Luxembourg, Hong Kong, Switzerland and the Cayman Islands, which hold a total of $12.4 billion. Other Massachusetts-based companies named in the report for having offshore accounts include Boston Scientific, Biogen Idec and State Street Corp.

The consumer groups argue that any congressional action should close the legal loopholes that allow companies to use offshore tax havens.

Cummings said the group is open to negotiating a deal to bring the money back, but only in a way that prevents companies from building up the money year after year on the assumption Congress will pass a tax break.

Cummings said offshore tax havens give an advantage to multi-national corporations over smaller businesses. "All businesses can compete on the product," Cummings said. "We don't want them to compete on who has the best tax attorney."

U.S. Rep. Richard Neal, a Springfield Democrat, is in the middle of the issue as the top Democrat on the Ways and Means Committee. Neal has met with Trump on tax reform and will be instrumental in brokering any sort of deal with House Democrats.

"There's a lot of pressure on Neal to see if he can work a deal in here," said Nathan Proctor, national campaign director for Fair Share and state director of Massachusetts Fair Share, which advocates for economic policy that benefits the working and middle class. "This is the $2.6 trillion question. Of all the money on the table, this is the biggest piece."

Neal said in a statement that he has been leading the charge against offshore tax evasion for years. "It's not fair that large corporations and wealthy individuals can shift income to place like the Cayman Islands and Bermuda to avoid taxes - while the rest of the American family faithfully pays its tax bills every year," Neal said. "One of my priorities in Congress has been to make sure our tax laws apply fairly to all taxpayers."

For example, Neal has tried to close a loophole that lets foreign insurance companies hold U.S. reserves overseas to avoid paying U.S. taxes.

Neal said he believes the Ways and Means Committee needs to hold public hearings to discuss how to pass a bipartisan comprehensive tax reform bill. "Since January, I have been urging my Republican colleagues to schedule these hearings so we can debate the merits of issues like a territorial tax system with full transparency," Neal said. "There is broad consensus that the tax code is broken and in need of repair. We need to have a robust conversation in the United States Congress on how it can be fixed."

 

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