How Do Large Us Corporations Shelter Their Money From Taxes

Fact Sheet: Offshore Corporate Loopholes

Central Facts

• Taxation avoidance through offshore tax loopholes is a meaning reason why corporations, which paid ane-3rd of federal revenues lx years ago, now pay one-10th of federal revenues.
• U.Southward. corporations dodge $90 billion a year in income taxes by shifting profits to subsidiaries — often no more than a post role box — in tax havens.
• U.Southward. corporations hold $2.ane trillion in profits offshore — much in tax havens — that have not been taxed in the U.S.
• General Electric, which uses a loophole for offshore financial profits, earned $27.5 billion in profits from 2008 to 2012 but claimed tax refunds of $3.i billion.
• Apple made $74 billion from 2009-2012 on worldwide sales (excluding the Americas) and paid nearly cypher in taxes to any country.
• 26 profitable Fortune 500 firms paid no federal income taxes from 2008-2012. 111 large, assisting corporations paid null federal income taxes in at to the lowest degree one of those five years.

Talking points

• We should stop revenue enhancement breaks for corporations that ship jobs and profits offshore. It'southward fourth dimension to invest in America and create jobs here.
• When big corporations employ tax havens to dodge paying their fair share of taxes, the residue of u.s. accept to pick up the tab. Families pay higher taxes, get fewer services or nosotros all get a bigger deficit.
• Revenue enhancement dodging by large corporations puts pocket-sized businesses that play by the rules at a disadvantage. We need to level the playing field.
• Corporations say our 35% corporate income tax rate is the highest in the world, which makes them uncompetitive and kills jobs. But corporations aren't paying too much in taxes; many pay too fiddling. The typical American family paid more than income taxes in one year than General Electric and dozens of other companies paid in v years. Many large, profitable corporations pay a revenue enhancement charge per unit of less than 20%, and some pay absolutely nothing for years. If corporations pay less, yous volition have to pay more. Corporations need to pay their off-white share too.
• Corporations say a repatriation tax vacation will enable them to bring profits home, invest and create jobs. When this was tried in 2004 it was an utter failure. Companies actually cut jobs, but they lined the pockets of big shareholders and corporate executives. A tax holiday gives tax breaks to corporations that take done the most to dodge paying their off-white share of taxes.

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Overview

Many U.S. corporations use offshore tax havens and other accounting gimmicks to avoid paying as much as $90 billion a twelvemonth in federal income taxes. A big loophole at the eye of U.Due south. revenue enhancement police force enables corporations to avoid paying taxes on foreign profits until they are brought home. Known as "deferral," it provides a huge incentive to keep profits offshore equally long every bit possible. Many corporations choose never to bring the profits habitation and never pay U.S. taxes on them.

Deferral gives corporations enormous incentives to use accounting tricks to make it appear that profits earned here were generated in a tax haven. Profits are funneled through subsidiaries, often shell companies with few em­ployees and piffling existent business action. Effectively, firms launder U.S. profits to avert paying U.S. taxes.

Loopholes used to shift U.S. profits to tax havens

• U.S. firms can fix a subsidiary offshore, channel billions of dollars of turn a profit through it and brand the subsidiary "disappear" for U.S. taxation purposes simply past "checking a box" on an IRS form.
• Corporations tin can sell the right to patents and licenses at a low price to an offshore subsidiary, which then "licenses" back to the U.S. parent at a steep price the correct to sell its products in America. The goal of this "transfer pricing" is to arrive announced that the company earns profits in taxation havens merely not in the U.S.
• Wall Street banks, credit card companies and other corporations with big financial units tin can easily move U.South. profits offshore using a loophole known as the "active financing exception."
• A U.South. corporation can do an "inversion" by buying a foreign firm then claiming that the new, merged company is foreign. This lets information technology reincorporate in a land, often a tax haven, with a much lower tax rate. The procedure takes place on paper — the company doesn't movement its headquarters offshore and its ownership is mostly unchanged — only it continues to bask the privileges of operating hither while paying low revenue enhancement rates in the foreign state.

How to solve the problem

The simplest solution is to finish "deferral," as proposed past Sen. Bernie Sanders and Rep. Jan Schakowsky. Corporations would pay taxes on offshore income the twelvemonth it is earned, rather than indefinitely avoid paying U.S. income taxes. This would as well remove incentives to shift U.S. profits to tax havens, and it would raise $600 billion over x years.

Short of ending deferral, Congress should close the about egregious loopholes, such as "check the box," "transfer pricing," the "agile financing exception" and corporate "inversions." It should also end the loophole that lets firms deduct the toll of expenses from moving jobs and operations offshore if the profits earned from those activities remain offshore and untaxed by the U.South. — saving $60 billion over x years.

Sen. Carl Levin (D-MI) has introduced legislation, the Stop Tax Oasis Abuse Act (Southward. 1533), that will close some of these loopholes. It volition enhance $220 billion over 10 years.

Corporations actually want a "territorial" tax system

Corporations don't just want to "defer" paying U.S. taxes on strange profits. They want a "territorial" tax system that eliminates all U.S. revenue enhancement of offshore profits. This would provide fifty-fifty more than incentives for corporations to shift profits to offshore tax havens. A organisation in which U.S. corporations pay no U.S. income taxes on offshore profits would encourage U.South. firms to create 800,000 jobs overseas rather than in the U.S.

Why non permit companies "bring the money home?"

Because U.S. firms are officially holding $two.1 trillion in untaxed profits offshore, they are proposing a "repatriation tax holiday," which would allow them to bring that money home at a special low tax rate. Supporters say this would increase domestic investment, creating jobs.

A tax holiday was tried in 2004, when $300 billion was brought home at a 5.25% tax rate, but it was a big failure. It did not increase domestic investment or create jobs, and the coin was used largely for stock buybacks, dividends and executive bonuses. Also, a tax holiday costs more than it raises — it will lose $100 billion over 10 years. Worst of all, it rewards firms that utilize offshore tax loopholes, encouraging fifty-fifty more revenue enhancement dodging in the futurity.

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News Coverage

• The Islands Treasured by Offshore Revenue enhancement Avoiders, The New York Times
• For U.S. Companies, Money 'Offshore' Means Manhattan, The New York Times
• Switching Names to Salve on Taxes, The New York Times
• G.East.'due south Tax Strategies Allow it Avoid Taxes Altogether, The New York Times
• Greenbacks Abroad Rises $206 Billion as Apple to IBM Avoid Tax, Bloomberg News
• Britain Becomes Oasis for U.S. Companies Great to Cut Taxation Bills, Reuters
• Apple'south Web of Taxation Shelters Saved It Billions Panel Finds, The New York Times

Opinion

• 'A is for Avoidance,' The New York Times
• Corporations and their Tax Shell Games: Time for a Global Crackdown, The Los Angeles Times

Resources

• Revenue enhancement Havens: International Tax Abstention and Evasion, Congressional Inquiry Service
• International Corporate Tax Rate Comparisons and Policy Implications, Congressional Research Service
• Offshore Shell Games 2014, Citizens for Tax Justice and U.S. PIRG
• The Pitiful State of Corporate Taxes, Citizens for Tax Justice
• Don't Renew the Offshore Tax Loopholes, Citizens for Tax Justice
• Full general Electric'south Special Taxation Loophole Lets Company Dodge Billions in Taxes, Americans for Tax Fairness
• The Financial and Economic Risks of Territorial Taxation, Center on Upkeep and Policy Priorities
• Repatriation Tax Holiday Would Lose Revenue and Is a Proven Policy Failure, Center on Upkeep and Policy Priorities
• Corporate Tax Rates And Economic Growth Since 1947, Economic Policy Institute
• Corporate Income Tax: Effective Tax Rates Tin Differ Significantly from the Statutory Charge per unit' U.South. Government Accountability Office

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Fatigued from Americans for Tax Fairness' 2014 Tax Fairness Conference Booklet.

Source: https://americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-offshore-corporate-tax-loopholes/

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