Report: Majority of largest corporations using tax havens to lower tax bills

A majority of the largest U.S. companies stashed their profits offshore to lower their tax bills last year, a new report said Thursday.

More than 70 percent of Fortune 500 companies maintained subsidiaries in tax havens in 2013, according to a report by the U.S. Public Interest Research Group (PIRG) and Citizens For Tax Justice, two left-leaning groups.

{mosads}The report estimates that the use of certain tax provisions cost $90 billion in lost federal tax revenue.

“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,” the report said.

“These subsidiaries are often shell companies with few, if any employees, and which engage in little to no real business activity.”

The report concluded that Congress should end incentives for companies that shift profits offshore, close the worst of offshore tax benefits, strengthen tax enforcement and increase transparency.

President Obama has offered up proposals to make it more difficult for companies to reap tax benefits by changing their address and some lawmakers are pushing legislation. 

All told, about 72 percent of Fortune 500 companies had subsidiaries in low-tax jurisdictions last year, with most of these units located in the Cayman Islands or Bermuda, the report said.

The companies reported moving $2 trillion offshore for tax purposes, with 30 companies accounting for 62 percent, or $1.2 trillion, of the total.

“We’ve made it too easy for American multinationals to dodge taxes by setting up shell companies in tax havens,” said Dan Smith, report co-author and tax and budget advocate at PIRG.

“We simply shouldn’t allow companies that use American roads, and benefit from America’s education system and large consumer market, to take a free ride at the expense of the rest of us.”

Late last month, it was determined that legislation that could limit the ability of corporations to move their address abroad would raise roughly $19.5 billion over a decade, according to the Joint Committee on Taxation.

Sen. Carl Levin (D-Mich.) and Rep. Sandy Levin (D-Mich.) are leading the charge.

The new study shows that while most very large companies keep money offshore, a smaller group are most aggressive about using offshore tax havens to avoid taxes.

“The data in this report demonstrate that a huge portion of the supposedly ‘offshore’ profits are likely to be U.S. profits that are manipulated so that they appear to be earned in countries like Bermuda or the Cayman Islands where they won’t be taxed,” said Steve Wamhoff, CTJ legislative director.

“Policymakers should close the loopholes that make this manipulation possible.”

At least 362 Fortune 500 companies operate subsidiaries in tax haven jurisdictions, as of 2013, the report said.

The Organization for Economic Cooperation and Development wrapped up meetings in Washington this week to discuss efforts by Group of 20 nations and other economies to move forward in rewriting global corporate tax rules. 

Last year, G-20 leaders endorsed a 15-point action plan designed to curtail tax avoidance practices.