Offshore Shell Games

CALPIRG

Executive Summary

Many large U.S.-based multinational corporations avoid paying U.S. taxes by using accounting tricks to make profits made in America appear to be generated in offshore tax havens—countries with minimal or no taxes. By booking profits to subsidiaries registered in tax havens, multinational corporations are able to avoid an estimated $90 billion in federal income taxes each year. These subsidiaries are often shell companies with few, if any employees, and which engage in little to no real business activity. 

Loopholes in the tax code make it legal to book profits offshore, but tax haven abusers force other Americans to shoulder their tax burden. Every dollar in taxes that corporations avoid by using tax havens must be balanced by other Americans paying higher taxes, coping with cuts to government programs, or increasing the federal debt.

This study reveals that tax haven use is ubiquitous among the largest 100 publicly traded companies as measured by revenue. 

82 of the top 100 publicly traded U.S. companies operate subsidiaries in tax haven jurisdictions, as of 2012. 

All told, these 82 companies maintain 2,686 tax haven subsidiaries. 

The 15 companies with the most money held offshore collectively operate 1,897 tax haven subsidiaries. 

The 15 companies with the most money offshore hold a combined $776 billion overseas. That is 66 percent of the approximately $1.17 trillion that the top 100 companies keep offshore. This list includes:

Apple: A recent Senate investigation found that Apple pays next to nothing in taxes on the $102 billion it books offshore, which is the second highest amount of any company. Manipulating tax loopholes in the U.S. and other countries, Apple has structured three Irish subsidiaries to be tax residents of neither the U.S.—where they are managed and controlled—nor Ireland—where they are incorporated. This arrangement ensures that they pay no taxes to any government on the lion’s share of their offshore profits. Two of the subsidiaries have no employees.

American Express: The company reports having $8.5 billion sitting offshore, on which it would owe $2.6 billion in U.S. taxes if those funds were repatriated. That means that they currently pay only a 4.4 percent tax rate on their offshore profits to foreign governments, suggesting that most of the money is parked in tax havens levying little to no tax. American express maintains 22 subsidiaries in offshore tax havens.

Oracle: The tech giant reports having $20.9 billion booked offshore. The company discloses that it would owe $7.3 billion in U.S. taxes on those profits if they were not offshore. That means they pay a tax rate of less than one percent to foreign governments, suggesting that most of the money 

Some companies that report a significant amount of money offshore maintain hundreds of subsidiaries in tax havens. The top three companies with the greatest number of tax haven subsidiaries:

Bank of America reports having 316 subsidiaries in offshore tax havens. Kept afloat by taxpayers during the 2008 financial meltdown, the bank keeps $17.2 billion offshore, on which it would otherwise owe $4.5 billion in U.S. taxes.

Morgan Stanley maintains 299 subsidiaries in offshore tax havens. The bank, which also received a taxpayer bailout in 2008, reports holding more than $7 billion offshore, on which it would otherwise owe $1.7 billion in taxes.

Pfizer, the world’s largest drug maker, operates 174 subsidiaries in tax havens and currently books $73 billion in profits offshore. The company made more than 40 percent of its sales in the U.S. between 2010 and 2012, but managed to report no federal taxable income in the U.S. for the past five years. This is because Pfizer uses accounting gimmicks to shift the location of its taxable profits offshore.