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April 14, Boston– As Tax Day approaches tomorrow, it’s a good time to be reminded of how ordinary taxpayers and specifically small businesses pick up the tab for offshore tax loopholes used by many large multinational corporations. MASSPIRG was joined today by Representatives Josh Cutler (D-Duxbury) and Lenny Mirra (R-West Newbury), Senator Mark Montigny (D-NewBedford) and Massachusetts Fair Share to release a new study by the MASSPIRG Education Fund revealing that the average Massachusetts small business owner would have to pay an extra $4,031 in state and federal taxes to make up for the money lost in 2014 due to offshore tax haven abuse by large multinational corporations and to call for the passage of a state bill to close one of the loopholes.
“When large companies shirk their taxes, small businesses get stuck with part of the bill and are put at a competitive disadvantage. Businesses should compete on innovation and the quality of their products, not on the cleverness of their tax attorneys,” said Deirdre Cummings, Legislative Director for MASSPIRG.
Every year, corporations avoid paying an estimated $108 billion in state and federal income taxes by using complicated accounting tricks to book their profits to subsidiaries in offshore tax havens. This leaves small businesses to compete on an uneven playing field, and they, along with the average taxpayer, end up picking up the tab in the form of higher taxes, cuts to public priorities, or bigger deficits.
An Act closing a corporate tax haven loophole, HB 2477 and SD 1699 filed by Representative Cutler and Senator Montigny and cosponsored by a bipartisan group of 57 lawmakers will close one such loophole. The bill, already a law in place in Oregon and Montana, also known as the “water’s edge” loophole would require that companies treat profits made in Massachusetts and funneled to known tax havens like the Cayman Islands as domestic taxable income. Making this change to the tax code would save Massachusetts taxpayers $79 million a year.
“Small businesses already face plenty of challenges, we should not ask them to compete in a rigged marketplace favoring a few corporate giants that can afford to exploit our tax code in this manner,” said Representative Josh Cutler, Chief House sponsor of the bill. “It’s time to close this loophole and let our Bay State businesses compete on a level playing field. This legislation will help ensure that the burden of paying for our state’s roads, bridges, schools and public services is shared equitably. Let’s promote innovation and creativity in the marketplace, not in our tax code.”
“For too long, multinational corporations have skirted their fair share of tax obligations through the abuse of murky off shore tax loopholes that a phalanx of lobbyists, year in and year out, protect for special interests. This is outrageous and egregiously unfair to the many hard working people of Massachusetts, who are expected to pay their fair share of taxes every year. The time is now to end these unscrupulous loopholes and make everyone pay their fair share. This legislation would level the playing field and serve far more pressing public priorities than the enrichment of corporations and their lobbyists,” said Senator Montigny, Assistant Majority Leader and longtime advocate for the closing of wasteful tax loopholes.
“The abuse of offshore tax havens undermines public confidence in our tax system. It adds to the deficit, as well as to the tax burden of all of us who play by the rules,” said Representative Lenny Mirra, a bill cosponsor. “We need to ensure that the responsibility of paying for public priorities is shared fairly.”
"Closing a loophole that lets big companies avoid taxes might not make Tax Day any easier, but it will make it more fair," said Massachusetts Fair Share State Director Nathan Proctor. "As lawmakers work through the budget they have a lot of tough choices, but this one is easy. Everyone should play by the same set of rules."
In January, two offshore loopholes expired, along with a collection of dozens of other tax breaks that overwhelmingly cater to special interests. If Congress takes no action by the end of the year, these two loopholes—the ‘active financing exception’ and ‘controlled foreign corporation look-through rule’—will be gone from the tax code, saving small businesses and ordinary taxpayers more than $80 billion over the course of the next ten years.
“We hope Congress continues to stand with taxpayers and small business owners by keeping these special interest tax breaks out of our tax code,” said Cummings.
Many of America’s largest and best-known corporations use these complex tax avoidance schemes to shift their profits offshore and drastically shrink their tax bill. GE, Microsoft, and Pfizer boast some of the largest offshore cash hoards:
General Electric paid a federal effective tax rate of negative 7.3 percent between 2008 and 2014, despite being profitable all of those years. The company received net tax payments from the government. GE maintained 18 subsidiaries in tax havens in 2014, and parked $119 billion offshore. One of the company’s most lucrative loopholes is the ‘active financing exception’, which is poised to expire at the end of the year. GE alone hired 48 lobbyists to push to renew this loophole last year.
Microsoft avoided $4.5 billion in federal income taxes over a three-year period by using sophisticated accounting tricks to artificially shift its income to tax-friendly Puerto Rico. Microsoft maintains five tax haven subsidiaries and keeps $92.9 billion there, on which it would otherwise owe $29.6 billion in additional U.S. taxes.
Pfizer paid no U.S. income taxes between 2010 and 2012 because the company reported losses in the U.S. during those years, despite making 40 percent of its sales in the U.S. and earning $43 billion worldwide. In 2014, the company operated 143 subsidiaries in tax havens and declared $74 billion parked offshore, which remains untaxed by the U.S., according to its own SEC filing.
The report recommends closing a number of offshore tax loopholes on the federal level. Many of these reforms are included in the Stop Tax Haven Abuse Act, introduced by Sen. Whitehouse in the Senate (S.174) and Rep. Doggett in the House (H.R. 297). This bill is cosponsored by Congressmen Capuano, Lynch, McGovern and Tsongas.
Click here for a copy of “Picking up the Tab: Small Businesses Pay the Price for Offshore Tax Havens.”
Click here to see an earlier study showing how states can crack down on offshore tax dodging.
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MASSPIRG, the Massachusetts Public Interest Research Group, is a non-profit, non-partisan public interest advocacy organization that takes on powerful interests on behalf of its members, working to win concrete results for our health and well-being.
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