For years, U.S. corporations have been using a number of tricks and loopholes to avoid paying federal income taxes on their profits kept offshore in tax havens like the Cayman Islands that have little or no tax penalties.
The largest U.S. companies have a collective $1.2 trillion parked offshore — costing the federal and state governments an estimated $180 billion in revenue every year. That's according to a new report co-authored by Citizens for Tax Justice and the U.S. Public Interest Research Group.
To put that in context, every U.S. taxpayer would have to slap an extra $1,259 on their tax bill this year in order to make up for that lost revenue.
Under the current U.S. tax code, companies are legally allowed to defer paying taxes on profits earned by their foreign subsidiaries, which are typically set up in countries that don't exchange financial information with foreign tax collectors and don't require a substantial local presence. Those profits aren't subject to U.S. taxes until the money is returned home, which, in most cases is never.
Though most companies are still paying some taxes, the loophole allows these companies to pay far less than the nominal federal tax rate of 35 percent, one of the highest among developed countries in the world. The Government Accountability Office said in 2010 that companies were paying an average effective tax rate of 12.6 percent.
Business groups like the Business Roundtable see the discussion of tax reform as an opening to push for a territorial system, which would exempt profits made outside the United States from taxes. The groups argue that other developed nations have territorial tax exemptions and the American system puts them at a competitive disadvantage.
In its latest report, PIRG examined how much some of the largest companies would pay in U.S. taxes if their profits weren't tucked away offshore. The estimates were provided by 55 companies — below is a sampling of the top 10.
Apple: $36.4 billion. Apple has three tax haven subsidiaries in Ireland and says it's holding $111.3 billion offshore — which means a tax bill of about $36.4 billion. It paid a 2 percent tax rate offshore.
Microsoft: $24.4 billion. Microsoft has five subsidiaries — three in Ireland, one in Luxembourg, and one in Singapore. It's holding about $76.4 billion offshore, which would result in a $24.4 billion tax bill. It paid a 3 percent tax rate offshore.
Citigroup: $11.7 billion. Citigroup has 21 subsidiaries — four in the Bahamas, two in Bermuda, two in the Cayman Islands, four in Hong Kong, three in Ireland, one in the Netherlands, three in Singapore, and two in Switzerland. It has 43.8 billion in offshore profits, adding up to a tax bill of about $11.7 billion. It paid about an 8 percent offshore tax rate.
Amgen: $9.1 billion. Amgen has eight subsidiaries — three in Bermuda, one in Ireland, two in the Netherlands and two in Switzerland. It's holding about $25.5 billion offshore. That would be about a $9.1 billion tax billion in the U.S. It paid an offshore tax rate of 0 percent.
Eli Lily: $8.3 billion. Eli Lily has 26 subsidiaries-two in Bermuda, three in the British Virgin Islands, four in the Cayman Islands, five in Ireland, two in the Netherlands, one in Panama, and one in Singapore. It has $23.7 billion store offshore and is paying a 0 percent tax rate. The company would be paying $8.3 billion in taxes to the U.S. on its offshore cash.
Oracle: $8 billion. Oracle has six subsidiaries in Ireland. It's holding $26.2 billion offshore. Its estimated tax bill would be about $8 billion on its offshore profits. It paid a tax rate of 4 percent on its offshore cash stash.
Qualcomm: $7.6 billion. Qualcomm has 11 subsidiaries — three in Bermuda, two in the British Virgin Islands, two in Hong Kong, one in Macau, one in Mauritius, and two in Singapore. It has $21.6 billion stored offshore, where it pays a 0 percent tax rate. If those offshore profits were taxed in the U.S., Qualcomm would pay $7.6 billion.
JP Morgan: $6.4 billion. JP Morgan has 83 subsidiaries — one in the Bahamas, one in Barbados, two in Bermuda, four in the British Virgin Islands, 19 in the Cayman Islands, six in the Channel Islands, one in Cyprus, nine in Hong Kong, seven in Luxembourg, 16 in Mauritius, five in the Netherlands, eight in Singapore, and four in Switzerland. The behemoth bank is holding $28.5 billion offshore. It's estimated tax bill would be $6.4 billion. It paid a 13 percent offshore tax rate.
Bank of America: $4.3 billion. Bank of America has a whopping 264 subsidiaries — two in the Bahamas, three in Bermuda, 143 in the Cayman Islands, 17 in the Channel Islands, one in Costa Rica, four in Gibraltar, eight in Hong Kong, 11 in Ireland, 18 in Luxembourg, six in Mauritius, 32 in the Netherlands, one in Panama, 10 in Singapore, four in Switzerland, one in Turks and Caicos, and three in the U.S. Virgin Islands. It has 17 billion stored offshore and pays a tax rate of 10 percent. It would owe an estimated $4.3 billion in U.S. taxes on that money.
Goldman Sachs: $4 billion. Goldman Sachs has 15 subsidiaries — one in Bermuda, one in the British Virgin Islands, eight in the Cayman Islands, one in Hong Kong, two in Mauritius, and two in Singapore. It has an estimated $22.5 billion held offshore and it pays a tax rate of 17 percent. If it paid U.S. taxes on that money, the Treasury would get an additional $4 billion.
More from The Fiscal Times...
THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER
- This is what happens when Republicans actually enact their radical agenda
- How to be the most productive person in your office — and still get home by 5:30 p.m.
- The Obama administration's nonstop incoherence on ISIS
- 6 super-helpful iOS8 tricks you probably don't know about
- 43 TV shows to watch in 2014
- Why so many Christians won't back down on gay marriage
- How I dug myself out of debt — and stayed that way
- 6 things the happiest families all have in common
- The science of sex: 4 harsh truths about dating and mating
- 13 Urban Outfitters controversies
Subscribe to the Week