Fortune 500 Companies Stash $2.1 Trillion Offshore as US Taxpayers Foot the Bill

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Fortune 500 Companies Stash $2.1 Trillion Offshore as US Taxpayers Foot the Bill

New study highlights the repeated failure by U.S. lawmakers to crack down on tax avoidance schemes

Report finds that untaxed or undertaxed offshore holdings amount to an estimated $620 billion owed to the U.S. taxpayers. (Photo: rolffimages/Bigstock via Citizens for Tax Justice)

America's Fortune 500 companies are "playing by different rules" when it comes to the federal tax system and, according to a new report out Tuesday, are stashing $2.1 trillion in offshore tax havens—with as much as $620 billion owed to the U.S. taxpayers who are left footing the bill.

The report, Offshore Shell Games 2015: The Use of Offshore Tax Havens by Fortune 500 Companies (pdf), examines the accounting tricks that have enabled the country's most profitable companies to hide their earnings.

"The American multinationals that take advantage of tax havens use our roads, benefit from our education system and large consumer market, and enjoy the security we have here, but are ultimately taking a free ride at the expense of other taxpayers." —Michelle Surka, US PIRG"U.S.-based multinational corporations are allowed to play by a different set of rules than small and domestic businesses or individuals when it comes to the tax code," wrote advocacy organizations Citizens for Tax Justice and the U.S. Public Interest Research Group (U.S. PIRG), which together authored the study. 

Nearly 72 percent of the these mega-corporations operate tax haven subsidiaries in countries like Bermuda, Ireland, Luxembourg, and the Netherlands, according to the groups' examination of 2014 financial filings with the Securities and Exchange Commission.

In some cases, U.S. law allows a company to simply maintain a post office box at an offshore site to reap the tax benefits. For example, one five-story office building in the Cayman Islands serves as the registered address for 18,857 registered subsidiaries.

According to the study, the 30 worst offenders account for 65 percent of the total estimated offshore profits, booking as much as $1.4 trillion overseas for tax purposes.

With $181.1 billion offshore, Apple has booked more than any other company that reported its international holdings. According to the study, the Silicon Valley giant would owe $59.2 billion in U.S. taxes if these profits were registered within the U.S. The report notes, "A 2013 Senate investigation found that Apple has structured two Irish subsidiaries to be tax residents of neither the United States, where they are managed and controlled, nor Ireland, where they are incorporated. This arrangement ensures that they pay no tax to any government on the lion’s share of their offshore profits."

Walmart, which for the past ten years has publicly reported zero tax haven subsidiaries, has had its offshore profits grow from $6.8 billion in 2005 to $23.3 billion in 2014. What's more, the study found that "in reality the corporation operates 75 tax haven subsidiaries."

Morgan Stanley, which has been implicated in facilitating individual tax evasion through its Swiss banking division, reports having 210 subsidiaries in offshore tax havens and officially holds $7.4 billion offshore.

The repeated failure by U.S. lawmakers to crack down on tax avoidance schemes has enabled a significant loss in U.S. tax income, the report notes. To stop this flow, the study authors recommend that Congress "end incentives for companies to shift profits offshore, close the most egregious offshore loopholes, strengthen tax enforcement, and increase transparency."

"When corporations dodge their taxes, the public ends up paying," said Michelle Surka, program associate with the U.S. PIRG Education Fund. "The American multinationals that take advantage of tax havens use our roads, benefit from our education system and large consumer market, and enjoy the security we have here, but are ultimately taking a free ride at the expense of other taxpayers."

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