Category: Archive

April 1, 2015 01:23 PM | Permalink |

Hundreds More Likely Do the Same, Avoiding $600 Billion in U.S. Taxes

Read this report in PDF (Includes Company by Company Appendices)

Download the Company by Company PRE Data (XLS)

It’s been well documented that major U.S. multinational corporations are stockpiling profits offshore to avoid U.S. taxes. Congressional hearings over the past few years have raised awareness of tax avoidance strategies of major technology corporations such as Apple and Microsoft, but, as this report shows, a diverse array of companies are using offshore tax havens, including the pharmaceutical giant Amgen, the apparel manufacturer Nike, the supermarket chain Safeway, the financial firm American Express, banking giants Bank of America and Wells Fargo, and even more obscure companies such as Advanced Micro Devices and Group 1 Automotive.

All told, American Fortune 500 corporations are avoiding up to $600 billion in U.S. federal income taxes by holding more than $2.1 trillion of “permanently reinvested” profits offshore. In their latest annual financial reports, twenty-eight of these corporations reveal that they have paid an income tax rate of 10 percent or less in countries where these profits are officially held, indicating that most of these profits are likely in offshore tax havens.

How We Know When Multinationals’ Offshore Cash is Largely in Tax Havens

Offshore profits that an American corporation “repatriates” (officially brings back to the United States) are subject to the U.S. tax rate of 35 percent minus a tax credit equal to whatever taxes the company paid to foreign governments. Thus, if an American corporation reports it would pay a U.S. tax rate of 25 percent or more on its offshore profits, that indicates it has paid foreign governments a tax rate of 10 percent or less.

Twenty-eight American corporations have acknowledged paying less than a 10 percent foreign tax rate on the $470 billion they collectively hold offshore. The table on the following page shows the disclosures made by these 28 corporations in their most recent annual financial reports.

It is almost always the case that profits reported by American corporations to the IRS as earned in tax havens were actually earned in the United States or another country with a tax system similar to ours.  Most economically developed countries (places where there are real business opportunities for American corporations) have a corporate income tax rate of at least 20 percent, and typically tax rates are higher.

Countries that have no corporate income tax or a very low corporate tax — countries such as Bermuda, the Cayman Islands, and the Bahamas — provide very little in the way of real business opportunities for American corporations like Qualcomm, Safeway, and Microsoft. But large Americans corporations use accounting gimmicks (most of which are, unfortunately, allowed under current law) to make profits appear to be earned in tax haven countries. In fact, a 2014 CTJ examination of corporate financial filings found U.S. corporations collectively report earning profits in Bermuda and the Cayman Islands that are 16 times the gross domestic products of each of those countries, which is clearly impossible. 

Hundreds of Other Fortune 500 Corporations Don’t Disclose Tax Rates They’d Pay if They Repatriated Their Profits

At the end of 2014, 304 Fortune 500 companies collectively held a whopping $2.15 trillion offshore. (A full list of these 304 corporations is published as an appendix to this paper.)

Clearly, the 28 companies that report the U.S. tax rate they would pay if they repatriated their profits are not alone in shifting their profits to low-tax havens—they’re only alone in disclosing it.  The vast majority of these companies — 247 out of 304 —decline to disclose the U.S. tax rate they would pay if these offshore profits were repatriated. (57 corporations, including the 28 companies shown on this page, disclose this information. A full list of the 57 companies is published as an appendix to this paper.) The non-disclosing companies collectively hold $1.56 trillion in unrepatriated offshore profits at the end of 2014.

Accounting standards require publicly held companies to disclose the U.S. tax they would pay upon repatriation of their offshore profits — but these standards also provide a gaping loophole allowing companies to assert that calculating this tax liability is “not practicable.”  Almost all of the 247 non-disclosing companies use this loophole to avoid disclosing their likely tax rates upon repatriation — even though these companies almost certainly have the capacity to estimate these liabilities.

Hundreds of Billions in Tax Revenue at Stake

It’s impossible to know precisely how much income tax would be paid, under current tax rates, upon repatriation by the 247 Fortune 500 companies that have disclosed holding profits overseas but have failed to disclose how much U.S. tax would be due if the profits were repatriated. But if these companies paid the same 29 percent average tax rate as the 57 disclosing companies, the resulting one-time tax would total $432 billion for these 247 companies. Added to the $169 billion tax bill estimated by the 57 companies who did disclose, this means that taxing all “permanently reinvested” foreign income of the 304 companies at the current federal tax rate could result in $601 billion in added corporate tax revenue.

20 of the Biggest “Non-Disclosing” Companies Hold $906 Billion Offshore

While hundreds of companies refuse to disclose the tax they likely owe on their offshore cash, just a handful of these companies account for the lion’s share of the permanently reinvested foreign profits in the Fortune 500. The nearby table shows the 20 non-disclosing companies with the biggest offshore stash at the end of the most recent fiscal year. These 20 companies held $906 billion in unrepatriated offshore income — more than half of the total income held by the 247 “non-disclosing” companies. Most of these companies also disclose, elsewhere in their financial reports, owning subsidiaries in known tax havens. For example:

■ General Electric disclosed holding $119 billion offshore at the end of 2014. GE has subsidiaries in the Bahamas, Bermuda, Ireland and Singapore, but won’t disclose how much of its offshore cash is in these low-tax destinations. [Some of it is clearly there; see text box below.]

■ Pfizer has subsidiaries in the Cayman Islands, Ireland, the Isle of Jersey, Luxembourg and Singapore, but does not disclose how much of its $74 billion in offshore profits are stashed in these tax havens.

■ Merck has10 subsidiaries in Bermuda alone. It’s unclear how much of its $60 billion in offshore profits are being stored (for tax purposes) in this tiny island.

Congress Should Act

While corporations’ offshore holdings have grown gradually over the past decade, there are two reasons it is vital that Congress act promptly to deal with this problem. First, a large number of the biggest corporations appear to be increasing their offshore cash significantly. Seventy-seven of the companies surveyed in this report increased their declared offshore cash by at least $500 million each in the last year alone. Seven particularly aggressive companies each increased their permanently reinvested foreign earnings by more than $5 billion in the past year. These include Apple, General Electric, Microsoft, IBM, Google, Oracle and Gilead Sciences.

A second reason for concern is that companies are aggressively seeking to permanently shelter their offshore cash from U.S. taxation by engaging in corporate inversions, through which companies acquire smaller foreign companies and reincorporate in foreign countries, thus avoiding most or all U.S. tax on their profits.

Even “Non-Disclosers” Slip Up Sometimes As noted above, General Electric does not disclose the U.S. tax it would owe if its $110 billion offshore stash was repatriated. But in its 2009 annual report, GE noted that it had reclassified $2 billion of previously earned foreign profits as “permanently reinvested” offshore, and said that this change resulted “in an income tax benefit of $700 million.” Since $700 million is 35 percent of $2 billion, this is an admission that the expected foreign tax rate on this $2 billion of offshore cash was exactly zero, which in turn strongly suggests that GE’s “permanent reinvestment” plan for this $2 billion involved assigning it to one of its tax haven subsidiaries.

What Should Be Done?

Many large multinationals that fail to disclose whether their offshore profits are officially in tax havens are the same companies that have lobbied heavily for tax breaks on their offshore cash. These companies propose the government either enact a temporary “tax holiday” for repatriation, which would allow companies to officially bring offshore profits back to the U.S. and pay a very low tax rate on the repatriated income, or give them a permanent exemption for offshore income in the form of a “territorial” tax system. Either of these proposals would increase the incentive for multinationals to shift their U.S. profits, on paper, into tax havens.

A far more sensible solution would be to simply end “deferral,” that is, repealing the rule that indefinitely exempts offshore profits from U.S. income tax until these profits are repatriated. Ending deferral would mean that all profits of U.S. corporations, whether they are generated in the U.S. or abroad, would be taxed by the United States in the year they are earned. Of course, American corporations would continue to receive a “foreign tax credit” against any taxes they pay to foreign governments, to ensure profits are not double-taxed. 

Conclusion

The limited disclosures made by a handful of Fortune 500 corporations show that corporations are brazenly using tax havens to avoid taxes on significant profits. But the scope of this tax avoidance is likely much larger, since the vast majority of Fortune 500 companies with offshore cash refuse to disclose how much tax they would pay on repatriating their offshore profits.

Lawmakers should resist calls for tax changes, such as repatriation holidays or a territorial tax system, that would reward U.S. companies for shifting their profits to tax havens.  If the Securities and Exchange Commission required more complete disclosure about multinationals’ offshore profits, it would become obvious that Congress should end deferral, thereby eliminating the incentive for multinationals to shift their profits offshore once and for all. 

For the full list of unrepatriated profits and taxes owed, click to read the pdf or download the Excel spreadsheet.

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March 17, 2015 05:09 PM | Permalink |

For Immediate Release: Tuesday, March 17, 2015
Contact: Jenice R. Robinson, 202.299.1066 x 29, Jenice@ctj.org

Following is a statement by Robert McIntyre, director of Citizens for Tax Justice, regarding the House Budget proposal for fiscal year 2016 released today.

 “The House leadership’s budget (A Balanced Budget for a Strong America) once again demonstrates some of our lawmakers value rhetoric over substance. The blueprint is astonishingly vague on vital tax reform questions. The plan calls for reducing tax rates and eliminating special interest loopholes but is silent on how to achieve the tax reform that both parties agree is vital.

“At the same time, the blueprint is quite specific about two new budget-busting tax cuts for the best-off Americans. The plan would repeal tax increases enacted to pay for health care reform and the Alternative Minimum Tax. These new cuts would blow a trillion-dollar hole in the federal budget over 10 years, with little or no benefit for middle- and low-income families.

“Most worrisome, the plan would allow valuable temporary expansions of two tax credits for working families to expire. Reducing the Earned Income Tax Credit and Child Tax Credit, as the plan appears to do, would push low-income working families further into poverty.”

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March 4, 2015 02:02 PM | Permalink |

PDF of this report.

On March 4, 2015, Senate and House Democrats proposed the “Working Families Tax Relief Act of 2015,” a bill that would improve the Earned Income Tax Credit (EITC) for childless workers. The bill would provide an average annual tax benefit of $604 to 10.6 million low-income working individuals and couples across the United States through boosting the maximum credit and expanding eligibility to more childless workers.

Over its 40 year history, the EITC has become one of the nation’s most significant and effective anti-poverty programs. But historically it has provided little to no benefit to childless workers, including full-time workers earning the minimum wage. In fact, childless workers are the only group that the federal tax system actually taxes deeper into poverty, largely because they do not receive the full benefit of the EITC and aren’t eligible for the Child Tax Credit, another program that boosts low-wage workers’ income.

The Working Families Tax Relief Act would correct this gap by:

• Increasing the maximum benefit from $503 to $1,400. The proposal would increase the income level and rate at which the credit phases in, while also increasing the income at which the credit begins to phase out for childless workers. In other words, lower-income individuals and couples could earn a little bit more and still be eligible for the EITC, and some low-income workers would be newly eligible.
• Lowering the eligibility age of childless workers from 25 to 21. For young people just starting out in the workforce, the EITC could prove to be an especially effective wage boost.

Recent proposals by Rep. Paul Ryan and President Obama would also expand the EITC for childless workers, however the maximum credit under their proposals would only be $1,000, compared to $1,400 under the Working Families Tax Relief Act.

Besides expanding the EITC to include childless workers, the Working Families Tax Relief Act of 2015 would make permanent expansions to the EITC and CTC passed as part of the American Recovery and Reinvestment Act (ARRA) in 2009. A separate CTJ analysis shows that maintaining this expansion (set to expire in 2017) would mean 13 million low-income families retain an average annual benefit of $1,073.

The chart below lays out the national and state-by-state impact of the expansion of the EITC to childless workers had it been in effect in 2014:

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February 20, 2015 10:07 AM | Permalink |

PDF of this report.

One of the most effective ways in which the American Recovery and Reinvestment Act (ARRA) helped increase economic opportunity was through expansions of the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). The temporary improvements to the credits have helped working families get ahead at a time of growing income inequality. Without congressional action, however, the credits’ expansion will expire at the end of 2017.

If the EITC and CTC improvements are allowed to expire, more than 13 million families, including almost 25 million children, would see an average benefit cut of $1,073 per family. Every dollar matters to working families. Congress should make these expansions a permanent part of the U.S. tax code, rather than allowing them to expire or passing a temporary extension.

The ARRA expansion of the Earned Income Tax Credit:

• Boosted benefits for families with more than two children. Previously families with more than two children received the credit at the same rate as families with two children– 40 percent–but under the expansion these families receive a credit rate of 45 percent. For example, under the expansion the maximum credit for a married couple with three or more children is $6,242. Without the improvement, the maximum credit would be $5,548, the same amount a married couple with two children receives.
• Reduced marriage penalties. The expansion increased the income amount at which the EITC phases out for married couples, thus allowing married couples to receive a small benefit boost at higher income levels.  

The ARRA expansion of the Child Tax Credit:

• Lowered the refundability threshold. The ARRA expansion lowered the income threshold above which a taxpayer can receive a tax credit at a rate of 15 percent of earnings to $3,000, compared to around the threshold of $13,850 it would otherwise have been in 2015. This means taxpayers that even more lower-income families can receive this credit.

The total cost of making these expanded benefits permanent would be just under $14 billion in 2018. While not insignificant, this cost pales in comparison to the $73 billion cost in 2018 of a group of business tax breaks, known as the tax extenders that Congress is poised to extend or make permanent. At a time of growing income inequality, lawmakers’ priority should be helping working families get ahead, not giving businesses tens of billions in additional tax breaks.

The charts below lay out the national and state-by-state impact of the expansion of the EITC and CTC in 2018:

 

 

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February 6, 2015 10:17 AM | Permalink |

PDF of this report.

Earlier this week, President Barack Obama released details of his proposed federal budget for the fiscal year ending in 2016. While many observers and some members of Congress derided the budget blueprint as an irrelevant exercise in political theatre, the President’s plan includes a number of ideas that are likely to be incorporated into politically viable tax reform proposals in the weeks and months to come. It also includes some proposals that, while politically dead on arrival in the current Congress, have the potential to reshape the Washington tax reform debate moving forward. Here’s a quick overview of the best—and the worst—tax policy ideas in the president’s budget plan.

The President’s proposed budget includes $1.7 trillion in tax increases over the next ten years, almost all of which would fall primarily on the wealthiest individual taxpayers and on corporations. Obama proposes to use $470 billion of those tax hikes to pay for targeted tax cuts, primarily targeted to middle- and low-income families, and would use the rest to pay for needed public investments and reduce the deficit.

Where the Money Comes From

President Obama’s budget would raise about $1.7 trillion in new tax revenues over the next ten years.

Roughly a third of these revenues would come from a variety of proposals designed to pare back tax benefits accruing to wealthy investors. Most notably, the President would increase the top tax rate on capital gains to 28 percent, would end the “stepped up basis” break that allows investors to avoid any tax on some capital gains, and would end the “carried interest” loophole that allows hedge fund managers to characterize income as capital gains.

Another one-third of the revenue-raisers would come from a single provision, known as the “28 percent limitation,” that would reduce itemized deductions and other tax breaks for high-income taxpayers currently paying federal tax rates above 28 percent. (In 2014, this means couples earning more than about $225,000.) This reform is broadly similar to proposals the president has included in previous budgets.

The budget includes two new revenue-raising proposals that would affect corporations: a one-time “transition tax” on U.S.-based corporations holding profits offshore, and a low-rate tax on the liabilities of the very largest financial companies.  

The president’s budget also includes one tax change that would fall primarily on low- and middle-income families: an increase in the federal cigarette tax. This would represent just 5 percent of the tax hikes included in the Obama budget blueprint.

Where the Money Goes

The president’s budget would use about a third of the revenues from his proposed tax increases to cut taxes. Almost all of these tax cuts are designed to benefit middle- and low-income working families.

The biggest single item on the tax-cut side is one that would have no effect until tax year 2018. At that time, temporary expansions of the Earned Income Tax Credit (EITC) and the Child Tax Credit are set to expire. The president’s budget would make these expansions permanent, strengthening bipartisan tax provisions designed to reward work and help at-risk families stay above the poverty line.

The president would also fill one of the most glaring gaps in the structure of the EITC: its low benefits for childless workers. The budget would ensure that the wage subsidy for low-income single workers would approach the tax break already available to those with children.

Sound Tax Reform Ideas in the President’s Budget

The president’s budget includes a healthy dose of progressive tax reform proposals. Some, like the sensible proposal to shift education tax breaks away from the best-off Americans and toward the middle class, have already been abandoned. Others, including the president’s plan to eliminate some tax preferences for capital gains, never stood a chance. But a few, like President Obama’s already enacted (but set to expire in 2017) expansion of two low-income tax credits for working families, are likely to be ratified as part of the annual budgetary give-and-take. And politics aside, these proposals signify a clear and sensible policy shift toward giving middle-income working families the tools they need to get ahead.

• Ending “stepped up basis” for capital gains: The federal income tax has long had a loophole wealthy investors could drive a truck through: the complete forgiveness of federal income tax liability on the value of stocks and other capital assets passed on from decedents to their heirs. The president’s plan would end this tax break for heirs inheriting more than $200,000 for a married couple ($100,000 for singles). While the tax policy community has long agreed that the so-called “stepped up basis” is absurd, few elected officials have actively sought to repeal it—until now.
• Taxing wealth more like work: Current law imposes a top tax rate on capital gains that, at 23.8 percent, is well below the 39.6 percent top tax rate on wages. By hiking the top capital gains rate to 28 percent for the very best-off Americans, President Obama’s plan would at least slightly reduce the tax preference for wealth over work. Notably, even if the president’s plan were enacted, the top rate on investment income would remain fully 11.6 percent below the top rate on wages.
• Shifting education tax breaks down the income ladder: The President proposed to simplify and restructure the hodgepodge of education tax breaks currently allowed, repealing tax breaks used primarily by upper-income families (such as the “529” savings incentive) and expanding the middle-income American Opportunity Tax Credit. Simpler and fairer? Sounds good. Sadly, Obama quickly abandoned the 529 reform in the wake of heated opposition.
• Tripling the child care credit: Recognizing that dependent care expenses can be unaffordable for working parents, the president proposes to substantially increase an existing tax credit against child care expenses, tripling the potential tax credit for some working families.
• Boosting wages for low-income working families: the Earned Income Tax Credit provides a needed wage subsidy for workers near or below the poverty line, but generally shortchanges workers without children. The budget blueprint would make permanent an existing, temporary boost to the EITC and make needed new expansions for childless workers.
• Adequately funding the Internal Revenue Service. With no apparent knowledge of the irony, Congress routinely creates dozens of new tax breaks each year, charges the IRS with the responsibility of administering these tax breaks, and then slashes the agency’s annual administrative budget. President Obama’s budget would reverse that trend: the $2 billion boost in IRS funding the president proposes would help offset the billions in funding cuts the agency has suffered in recent years.

…And the Not-So-Good Ideas

While the president’s outline of individual tax reforms would clearly be a win for tax fairness, some provisions would needlessly complicate the tax code. On the corporate side, President Obama’s efforts are far more timid, offering billions of dollars in tax savings to offshore tax dodgers while continuing to embrace a misguided vision for “revenue-neutral” corporate reform.

• Low-rate “transition tax” on multinational corporations’ offshore cash. Faced with the prospect of large multinationals such as Apple and Microsoft avoiding U.S. tax by stashing their profits in offshore tax havens, Obama proposes a one-time, 14 percent “transition tax” on these profits, after which they will never be subject to additional U.S. tax. Apparently driven by the philosophy that something is better than nothing, Obama’s plan would, in fact, give $82 billion in tax cuts to just ten of the biggest tax avoiders. A better plan would require these companies to pay the 35 percent tax they have adeptly avoided to date.
• Reinventing the wheel: We already have a federal income tax credit designed to offset expenses for two-earner couples, and, as previously noted, the President sensibly wants to expand it. So his proposal to to create a new “second earner” credit that doesn’t even require such couples to incur child care expenses is unnecessary and wasteful.
• Doubling down on “revenue-neutral” corporate tax reform: Our corporate taxes are among the lowest in the developed world as a share of the economy. So the president’s proposal to eliminate wasteful loopholes and give the money right back to corporations in the form of a lower 28 percent tax rate is unwise at a time when the nation’s is struggling to raise adequate revenue.
• More tax breaks for General Electric and Apple: If you were going to make a list of corporations that need additional tax breaks, GE and Apple would not be high on the list, especially considering their notoriously low and sometimes non-existent corporate tax rates. But by permanently extending the “active financing” loophole and “CFC look-thru rules”, President Obama will be enshrining the pair of temporary tax breaks that allow GE and Apple to escape paying their fair share in taxes.
• Looking for infrastructure funding in all the wrong places: It’s well documented that the nation is underfunding its transportation infrastructure, and it’s equally obvious that Congress’s failure to increase the gas tax since 1993 is the main culprit. But rather than calling for a long-overdue gas tax hike, the president would use the revenues from his one-time corporate “transition tax” to fund infrastructure improvements. While this plan would certainly put a dent in the nation’s transportation funding deficit, this one-shot solution would do nothing to shore up transportation funding in the long-term. 

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February 3, 2015 01:30 PM | Permalink |

PDF of this report.

Apple, Microsoft, Citigroup and Amgen Are Among Biggest Winners

Earlier this week, President Barack Obama released details of his proposed federal budget for the fiscal year ending in 2016. The proposal includes a one-time “transition tax” on the offshore profits of all U.S.-based multinational corporations. The President’s plan would tax these profits at a 14 percent rate immediately, rather than at the 35 percent rate that should apply absent the “deferral” loophole. This proposal would provide huge tax cuts to many corporations currently holding profits, often actually earned in the U.S., in low-rate foreign tax havens. Ten of the biggest offshore tax dodgers would receive a collective tax break of $82.4 billion.

Huge Tax Breaks for Notorious Tax Dodgers in Technology and Financial Sectors

The table on this page shows the ten companies that would enjoy the largest tax breaks from President Obama’s proposed “transition tax.”

• Apple currently holds $137 billion of its cash offshore. Under current rules, the company should pay $45 billion when these profits are repatriated. But the Obama plan would allow it to reduce its tax bill to $18 billion — a $26.9 billion tax break.

• Microsoft would see a $17.7 billion tax cut on its $92.9 billion in offshore profits under Obama’s proposal.

• Large financial companies with substantial offshore cash would benefit handsomely from the president’s proposal: Citigroup would enjoy a $7 billion tax cut, while JP Morgan Chase would get a $3.8 billion tax break. Bank of America and Goldman Sachs would receive tax breaks of $2.6 billion and $2.4 billion, respectively.

While these companies operate in different economic sectors, what they have in common is that each has at least $17 billion in profits that they have designated as “permanently reinvested” in other countries and each has admitted, in the detailed notes of their annual financial reports, paying tax rates substantially below the U.S. statutory rate on these offshore profits.

Corporate Tax Reform Should Tax Offshore Profits at Today’s Corporate Tax Rate

Although President Obama has not given a detailed rationale for taxing offshore profits at a 14 percent rate, it’s hard to see why his approach makes sense. The companies currently holding profits in foreign tax havens accumulated these profits over a period when the statutory federal income tax rate stood at its current 35 percent. These companies shifted some of their profits offshore to avoid paying the statutory rate on their U.S. profits, and they should not receive a reward for dodging their tax bills in the form of a substantially lower tax rate.

The ten companies profiled here are among the worst offenders and would reap the biggest rewards for bad corporate behavior.  Almost all of them have essentially admitted that their offshore cash is located in tax havens where the tax rate is in the single digits. For example, Microsoft says it would pay a 31.9 percent tax rate if it repatriated its offshore profits. Since the tax it would pay would be equal to the 35 percent statutory tax rate minus any foreign taxes already paid, the clear implication is that the company has paid only a 3.1 percent tax rate on its offshore profits. Rewarding Microsoft with a low 14 percent tax rate on its offshore holdings would amount to huge and unwarranted tax savings for a company that has made a practice of shifting U.S. profits to tax havens to avoid taxes.  

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February 2, 2015 11:47 AM | Permalink |

Following is a statement by Robert McIntyre, director of Citizens for Tax Justice, regarding newly released details of President Barack Obama’s international business tax reform plan, which includes a 14 percent mandatory transition tax on the more than $2 trillion in profits that multinational companies currently hold offshore and a 19 percent minimum tax rate on U.S. multinational’s future foreign income.

“President Barack Obama’s decision to challenge international tax avoidance is laudable, but his execution leaves a lot to be desired. If companies were required to pay the same tax rate on their foreign profits as their domestic income, then they should owe 35 percent on their accumulated foreign profits, rather than the 14 percent that President Obama is proposing under his new transition tax.

“Such a low tax rate would disproportionately benefit the worst corporate tax dodgers and leave billions in tax revenue on the table that could be used to make critical public investments.

“In principle, President Obama’s international corporate minimum tax is a smart move because it would no longer allow corporations to defer paying U.S. taxes until they bring those foreign profits back to the United States. In practice however, the proposed 19 percent rate is far too low and would leave in a place a system that favors international over domestic investment and encourages companies to game the system to avoid U.S. taxes.

“Its unfortunate that President Obama continues to insist on revenue-neutral corporate tax reform overall, rather than using this opportunity to call for raising revenue over the long term.”

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January 29, 2015 05:15 PM | Permalink |

Following is a statement by Robert McIntyre, director of Citizens for Tax Justice, regarding the announcement by U.S. Senators Barbara Boxer (D-CA) and Rand Paul (R-KY) of a proposed “repatriation holiday” that would reward companies currently holding large amount of cash in foreign countries, including tax havens.

“A repatriation tax holiday was a bad idea when Congress last enacted one in 2004. The only difference now is that it’s a bad idea with a track record. The plan would reward companies that have hidden their U.S. profits in offshore tax havens by letting them pay a 6.5 percent tax rate on those profits, less than a quarter of the 35 percent tax rate that should apply.

“Sens.  Boxer and Paul say their tax holiday will help pay for transportation infrastructure. But it’s ludicrous to argue that a tax holiday can be used to pay for anything since repatriation holidays don’t raise revenue—they lose it. The Joint Committee on Taxation has consistently found that repatriation holidays raise some revenue in the very short term, but lose revenue over the long term.

“If Congress acts on the Boxer-Paul plan, the next sensible step for big multinationals will be to shift even more profits offshore on paper and wait for Congress to enact the next tax holiday. At a time when Congress should be taking steps to discourage corporations from hiding their profits in offshore tax havens, the Boxer-Paul plan would give these companies an incentive to stash even more profits abroad.”

See CTJ’s report on the pitfalls of repatriation tax holidays for more information.

###

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January 16, 2015 02:55 PM | Permalink |

PDF of this report.

On Dec. 12, 2014, Rep. John Delaney (D-MD) proposed a new version of his “repatriation holiday” tax plan. The latest version would require multinational corporations to pay a token amount of taxes on their accumulated offshore profits and exempt those profits from any further U.S. income tax.

Delaney’s new plan differs from his previous proposal, which would have allowed corporations to choose to pay a small tax on their offshore profits in exchange for tax-exemption in the future.

Delaney estimates that his proposal would raise $170 billion in revenue in the short run. He would use 70 percent ($120 billion) of that to replenish the Highway Trust Fund for six years and 30 percent ($50 billion) to capitalize a federal “infrastructure bank.” Under his “deemed repatriation,” U.S. corporations more than $2 trillion of offshore profits would sensibly be treated as potentially taxable, but his plan would then arbitrarily exempt 75 percent of those profits leaving only 25 percent subject to the repatriation tax.

Delaney’s proposal is very similar to a provision in the tax overhaul plan proposed last year by former Ways and Means Chairman Dave Camp (R-MI).

The biggest problem with Delaney’s repatriation proposal is that it would allow companies such as Apple and Microsoft, which have parked hundreds of billions of dollars of U.S. profits in offshore tax havens, to pay a U.S. tax rate of no more than of 8.75 percent, instead of the more than 30 percent tax they should pay on these profits.

Fallback Tax Reform Proposal

As a complement to the repatriation proposal, Delaney’s legislation would create an 18-month deadline for Congress to enact a tax overhaul. If such an overhaul is not enacted, Delaney’s plan would implement a fallback international tax change along the lines of former Senate Finance Committee Chairman Max Baucus (D-MT)’s Option Z framework, but with a sliding scale rate.

Delaney’s fallback proposal would end the deferral of U.S. taxes on offshore profits of American companies, but it would exempt a significant percentage of “active income” depending on the taxes, if any, already paid to foreign countries. For example, a companywith all of its offshore money in tax havens (with no tax paid) would pay the U.S. government only a 12.25 percent tax rate on its “active” foreign income. A company that paid a 25 percent rate on offshore income would owe the U.S. only 2 percent in taxes on “active” income. (See the table for a breakdown of the rate paid at different levels of foreign taxes.) For “passive” income, however, Delaney follows Baucus’s Option Z, and would not allow any exemption from the 35 percent U.S. corporate tax rate. “Passive income” includes income such as royalties that are very easy to shift into tax havens.

Corporations should pay the same tax rate on their international income as they pay on their domestic income. By that standard, the fallback international tax reform included in Delaney’s proposal fails because it continues a system in which the foreign profits of American companies would be taxed at a substantially lower rate than their domestic income. In other words, companies would still have a significant incentive to shift income and jobs offshore to avoid taxes.

In addition, Delaney’s proposed lower tax rate on “active” income would likely lead to a huge effort by corporations to redefine much of their passive income so that it fits the definition of active income, as General Electric and others have done under the current system.

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December 16, 2014 09:49 PM | Permalink |

For Immediate Release: Tuesday, December 16, 2014

$42 Billion, Deficit-Financed Tax Extenders Bill Is an Irrational Corporate Giveaway

(Washington, D.C.) Following is a statement by Robert McIntyre, director of Citizens for Tax Justice, regarding the enactment of a $42 billion package of tax breaks that primarily benefit businesses.

“This Congress has been one of the least productive in history, yet it has found the resolve to provide $42 billion in tax cuts to subsidize soft drink companies for developing new flavors, to subsidize G.E. for lending overseas, and to subsidize investments that business owners say they will make regardless of what tax breaks are offered to them.

“Even if lawmakers believe we should use the tax code to encourage businesses to do all these things, surely none believe that this bill accomplishes that. This $42 deficit-financed temporary tax break package provides subsidies only for activities that companies carried out in 2014. When these tax breaks expire again in a few weeks as we ring in the New Year, we can only hope that lawmakers will make a resolution to end this wasteful habit.”

See CTJ’s detailed report on the tax extender bill for more information.

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