Do Fortune 500 Companies Dodge Their ‘Fair Share’ of Taxes?

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The U.S. government loses out on an estimated $90 billion in federal income tax revenue each year due to the use of corporate tax havens, according to a new report.

Two nonprofit consumer advocacy groups, Citizens for Tax Justice and the U.S. Public Interest Research Group (U.S. PIRG) Education Fund, explain in “Offshore Shell Games 2015,” released Monday:

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.

Rather than paying their fair share, many multinational corporations use accounting tricks to pretend for tax purposes that a substantial portion of their profits are generated in offshore tax havens.

The report defines “tax havens” as jurisdictions with four characteristics:

  • Very low or nonexistent taxes.
  • Laws that encourage financial secrecy and inhibit an effective exchange of information about taxpayers to tax and law enforcement authorities.
  • General lack of transparency in legislative, legal or administrative practices.
  • Lack of a requirement that activities be “substantial,” suggesting that a jurisdiction is trying to earn modest fees by enabling tax avoidance.

Citizens for Tax Justice and the U.S. PIRG Education Fund created a list of the Fortune 500 companies that hold the most profits offshore based on data from documents that public companies must file with the U.S. Securities and Exchange Commission.

The companies at the top of the list that each reportedly hold more than $60 billion offshore are:

  • Apple
  • General Electric
  • Microsoft
  • Pfizer
  • International Business Machines

Also in the top 20 is Coca-Cola, which the Internal Revenue Service recently accused of dodging $3.3 billion in taxes in connection with its licensing of products for overseas markets.

Citizens for Tax Justice and the U.S. PIRG Education Fund created a list of the 50 biggest tax havens based on data from several sources.

The countries in which American multinational companies report the most profits are:

  • Bermuda
  • Cayman Islands
  • British Virgin Islands
  • Bahamas
  • Luxembourg

The report argues that individual taxpayers suffer when U.S.-based businesses don’t pay their “fair share” of taxes because individuals end up paying more taxes as a result.

However, a separate nonprofit, the Tax Foundation, also reported Monday that the U.S. has the third-highest general top marginal corporate income tax rate in the world (39 percent), topped only by Chad and the United Arab Emirates.

The U.S. also has the highest corporate income tax rate among the 34 industrialized nations that belong to the Organisation for Economic Co-operation and Development.

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