A new report released Tuesday reveals how "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 paying taxes"—to the tune of more than $100 billion every year.
The analysis from the U.S. PIRG Education Fund, Citizens for Tax Justice, and the Institute on Taxation and Economic Policy finds that in 2015, more than 73 percent of Fortune 500 companies maintained subsidiaries in offshore tax havens, including top offenders Apple, Citigroup, Nike, Pfizer, PepsiCo, and Goldman Sachs. By doing so, the corporations are avoiding up to $717.8 billion in U.S. taxes, total.
"Corporate tax dodging may be legal, but it's certainly not good for everyday taxpayers and responsible small businesses."
—Michelle Surka, US PIRG
And it's all legal, according to the U.S. tax code.
"Companies can avoid paying taxes by booking profits to a tax haven because U.S. tax laws allow them to defer paying U.S. taxes on profits that they report are earned abroad until they 'repatriate' the money to the United States," explains the report, entitled Offshore Shell Games (pdf). "Many U.S. companies game this system by using loopholes that allow them to disguise profits earned in the U.S. as 'foreign' profits earned by subsidiaries in a tax haven."
However, said Michelle Surka, advocate with U.S. PIRG, "Corporate tax dodging may be legal, but it's certainly not good for everyday taxpayers and responsible small businesses."
"It disadvantages small businesses that don't have scores of tax lawyers, creates an economic environment that favors accounting tricks over innovation, and real productivity, and forces the rest of us to foot the bill," she said.
And that's especially unfair, the report charges, given that "[t]he profits earned by these companies generally depend on access to America's largest-in-the-world consumer market, a well-educated workforce trained by our school systems, strong private-property rights enforced by our court system, and American roads and rail to bring products to market."
The report concludes by urging Congress reform the corporate tax code—an effort for which the groups see international momentum—by ending incentives to shift profits overseas and closing the most egregious tax loopholes.
"There's been a lot of talk this week about how the tax system is rigged and this report is Exhibit A," said Clark Gascoigne, deputy director of the Financial Accountability and Corporate Transparency (FACT) Coalition, of which the report authors are all a part. "By shifting their profits to tax havens, the largest U.S. companies have been able to avoid more than $700 billion in taxes. These loopholes simply aren't available to average taxpayers and small businesses, who can't afford to hire the lawyers and accountants to move money through shell companies created in tax havens."