U.S. corporations are continuing tax dodging practices to boost their profits by the millions by reincorporating abroad, an article The Wall Street Journal on Wednesday shows.
John D. McKinnon and Scott Thurm describe how 10 companies have moved or have announced plans to move their incorporation address oversees since 2009 in an effort to lower their effective tax rate.
Alexander Cutler, chief executive of Eaton, a Cleveland-based company that has reincorporated in Ireland, said, "We have too high a domestic rate and we have a thoroughly uncompetitive international tax regime." The move is saving the company $160 million a year.
Another company that moved is Ensco, now saving more than $100 million a year in tax dodging.
Yet while companies complain of a burdensome corporate tax rate of 35% and say that was a motivating factor behind their reincorporation oversees, very few companies actually pay that rate.
A Reuters report from May describing the Eaton reincorporation lays this out as well:
The top U.S. corporate tax rate is 35 percent, the highest in the world, though few companies actually pay that much due to abundant loopholes that lower their effective rates.
The Eaton-Cooper deal comes as the U.S. Congress inches toward a broad corporate tax code overhaul. The deal could add momentum to that effort, with Republicans arguing that high U.S. tax rates can drive companies to drastic measures.
In what could be a painful drain on the Treasury over time, at least seven U.S. companies in recent months have chosen through acquisition or merger to renounce their U.S. corporate citizenship by relocating to Ireland, the Netherlands, Switzerland or other lower-tax countries.
"There have been more of these in the last two months than in the five years before," said Bob Willens, an independent tax analyst and publisher of The Willens Report.
The Eaton-Cooper deal will lead to $160 million in annual tax savings for the combined company, even though Eaton in practice already pays far less than 35 percent. That is thanks to its foreign subsidiaries, many of which are already in low-tax countries such as Luxembourg and the Cayman Islands.
In fact, many companies are paying a negative tax rate, as data from Citizens for Tax Justice show.
While there has been talk of the deficit at the Republican National Convention going on now in Tampa, there has been no talk of the impact closing corporate tax loopholes would have on the deficit.
“These big, profitable corporations are continuing to shift their tax burden onto average Americans,” said Citizens for Tax Justice director Bob McIntyre. “This isn’t fair to the rest of us, it makes no economic sense, and it’s part of the reason our government is running huge budget deficits.”
“Getting rid of corporate tax subsidies that cause such widespread tax avoidance ought to be a key part of any deficit-reduction program,” said McIntyre. “As a bonus, revenue-raising corporate tax reform would make it much easier to fund the investments we need to improve education and repair our crumbling roads and bridges — things that would actually help businesses and our economy grow.”