Report: 358 Fortune 500 Companies Operate in Tax Havens

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By Alison Bennett

Oct. 6 — More than 350 Fortune 500 companies are structuring their operations through tax haven jurisdictions as a worldwide problem with U.S. tax avoidance grows, according to a new report by Citizens for Tax Justice and the U.S. Public Interest Research Group Education Fund.

Urging Congress to take action against tax code provisions that may encourage use of tax havens, the report released Oct. 6 found that at least 358 such companies—nearly 72 percent—operated subsidiaries in tax haven jurisdictions in 2014. The report said Fortune 500 companies are holding more than $2.1 trillion in accumulated profits offshore for tax purposes. Just 30 companies account for 65 percent of these offshore profits, the study found.

Widespread Problem?

According to "Offshore Shell Games 2015," some of the "worst offenders" include Apple Inc., American Express Co., Nike Inc., PepsiCo Inc., Pfizer Inc., Morgan Stanley, Citigroup Inc., Wal-Mart Stores Inc., Bank of America Corp., Google Inc. and Microsoft Corp.

The findings show that the problem isn't limited to a few giants in recent headlines, according to an official whose group was deeply involved in the research for the report.

"It confirms what a lot of people already suspected, which is that offshore tax avoidance is a widespread problem," Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, told Bloomberg BNA Oct. 6. "We've all heard about companies like Apple, Microsoft and Google moving their profits offshore. The problem is much bigger."

He praised the Organization for Economic Cooperation and Development for its Oct. 5 recommendations to curb base erosion and profit shifting worldwide, saying its actions are further proof that action is needed to curb global tax evasion.

Thousands of Subsidiaries

Studying public disclosures by the companies, the report, dated Oct. 5, found that more than 350 companies on the Fortune 500 list had subsidiaries in tax havens, with the number of subsidiaries topping 7,600.

Some companies that report a significant amount of money offshore maintain hundreds of subsidiaries in tax havens, the report said. For example, PepsiCo maintains 132 subsidiaries in such jurisdictions, while it reported holding $37.8 billion offshore for tax purposes, the CTJ study found. The soft-drink maker didn't disclose what its estimated tax bill might be if it didn't hold those profits outside the U.S., the group said.

Pfizer, the world's biggest drugmaker, operates 151 subsidiaries in havens and officially holds $74 billion offshore, the report found, while Citigroup reported operating 427 tax haven subsidiaries in 2008 but disclosed only 41 in 2014.

According to the report, Bank of America reported operating 264 tax haven subsidiaries in 2013 but disclosed only 22 in 2014.

Congressional Action Urged

 

The report said action by lawmakers is the best solution to the growing problem. U.S. multinationals shouldn't be allowed to indefinitely defer paying U.S. taxes on profits they attribute to their foreign subsidiaries, CTJ said.

“Companies should pay taxes on their foreign income at the same rate and time that they pay them on their domestic income,” the report said. This wouldn't lead to double taxation because the companies already subtract any foreign taxes they've paid from their U.S. tax bill, and that won't change, it said. No Patent Boxes Existing profits held previous hitoffshorenext hit should be taxed through a deemed repatriation at the full 35 percent rate, minus foreign taxes paid, the report said. It criticized the 14 percent minimum tax proposed by President Barack Obama, because this would allow big multinationals to avoid about $400 billion in taxes, and said lawmakers should reject a territorial tax system or the creation of a patent box. Gardner said that while the report ought to prompt action by lawmakers, “it seems pretty clear that this Congress is not in the business of closing loopholes. And that's a shame. Congress needs to shut the door.”

To contact the reporter on this story: Alison Bennett in Washington at abennett@bna.com

To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com