Picking Up The Tab 2015: Small Businesses Pay the Price for Offshore Tax Havens

As tax day approaches, it's important to remember that small businesses end up picking up the tab for offshore tax loopholes used by many large multinational corporations. U.S. PIRG joined Senator Bernie Sanders, Bryan McGannon of the American Sustainable Business Council, and Bob McIntyre of Citizens for Tax Justice today to release a new study by the U.S. PIRG Education Fund revealing that the average small business owner in 2014 would have to pay an extra $3,244 in taxes to make up for the money lost in 2014 due to offshore tax haven abuse by large multinational corporations.

"When large companies shirk their taxes, small businesses get stuck with part of the bill and are put at a competitive disadvantage. Businesses should compete on innovation and the quality of their products, not on the cleverness of their tax attorneys," said Jaimie Woo, Federal Tax and Budget Advocate for U.S. PIRG.

Every year, corporations avoid paying an estimated $110 billion in state and federal income taxes by using complicated accounting tricks to book their profits to subsidiaries in offshore tax havens. This leaves small businesses to compete on an uneven playing field, and they, along with the average taxpayer, end up picking up the tab in the form of higher taxes, cuts to public priorities, or bigger deficits.

"The report released by U.S. PIRG demonstrates the degree to which our tax code is broken. While big corporations spend millions on tax attorneys to find loopholes that allow them to avoid paying their fair share of taxes, small businesses and middle-income families are left picking up the tab," said Senator Dick Durbin. "Congress needs to pass common sense legislation, like the Stop Corporate Inversions Act that would prevent corporations from moving their tax address overseas, but only on paper, to avoid paying U.S. taxes, and work towards reform that closes the many loopholes contributing to our growing income inequality."

"At a time when we have an $18.2 trillion national debt; at a time when major corporation after major corporation pays nothing in federal income taxes; and at a time when corporate profits are at an all-time high, it is past time for corporate America to pay their fair share in taxes so that we can create the millions of jobs this country needs," said Senator Bernie Sanders.

In January, two offshore loopholes expired along with a collection of dozens of other tax breaks that overwhelmingly cater to special interests. If Congress takes no action by the end of the year, these two loopholes - the 'active financing exception' and 'controlled foreign corporation look-through rule' - will be gone from the tax code, saving small businesses and ordinary taxpayers more than $80 billion over the course of ten years.

"Congress should stand with taxpayers and small business owners by keeping these special interest tax breaks out of our tax code," said Woo.

"Taxes pay for the essential assets of a modern economy. Every business needs to pay its fair share of taxes to maintain and modernize the infrastructure and services all companies depend on for a strong economy," said Bryan McGannon, policy director of the American Sustainable Business Council. "Our economic progress is undermined when the tax code rewards financial manipulation rather than innovation and productive investment."

Many of America's largest and best-known corporations use these complex tax avoidance schemes to shift their profits offshore and drastically shrink their tax bill. GE, Microsoft, and Pfizer boast some of the largest offshore cash hoards:

• General Electric paid a federal effective tax rate of negative 11.1 percent between 2008 and 2012 despite being profitable all of those years. The company received net tax payments from the government. GE maintained 18 subsidiaries in tax havens in 2014, and parked $119 billion offshore. One of the company's most lucrative loopholes is the 'active financing exception', which is poised to expire at the end of the year. GE alone hired 48 lobbyists to push to renew this loophole last year.
• Microsoft avoided $4.5 billion in federal income taxes over a three-year period by using sophisticated accounting tricks to artificially shift its income to tax-friendly Puerto Rico. Microsoft maintains five tax haven subsidiaries and keeps $92.9 billion there, on which it would otherwise owe $29.6 billion in additional U.S. taxes.
• Pfizer paid no U.S. income taxes between 2010 and 2012 because the company reported losses in the U.S. during those years, despite making 40 percent of its sales in the U.S. and earning $43 billion worldwide. In 2014, the company operated 143 subsidiaries in tax havens and declared $74 billion parked offshore which remains untaxed by the U.S., according to its own SEC filing.

"While most Americans contribute their fair share to our national security and vital public services, some large corporations still are not," said Rep. Lloyd Doggett. "Corporations that renounce their citizenship not only invert their business operations but pervert our tax laws. I have introduced the Stop Tax Haven Abuse Act, which is a step toward righting some of these inequities and ensuring that taxpaying small businesses are provided a more level playing field."

The report recommends closing a number of offshore tax loopholes. Many of these reforms are included in the Stop Tax Haven Abuse Act, introduced by Sen. Whitehouse in the Senate (S.174) and Rep. Doggett in the House (H.R. 297).

Click here for a copy of "Picking up the Tab 2015: Small Businesses Pay the Price for Offshore Tax Havens."

Click here to see an earlier study showing how states can crack down on offshore tax dodging.