Study: 72% of Fortune 500 Companies Used Tax Havens in 2014

CoPIRG Foundation and Citizens for Tax Justice

Denver, October 6 – Tax loopholes encouraged more than 72 percent of Fortune 500 companies – including Western Union, Level Three Communications, and Arrow Electronics here in Colorado – to maintain subsidiaries in offshore tax havens as of 2014, according to “Offshore Shell Games,” released today by CoPIRG Foundation and Citizens for Tax Justice. Collectively, the companies reported booking nearly $2 trillion offshore for tax purposes, with just 30 companies accounting for 65 percent of the total, or $1.35 trillion.

“When corporations dodge their taxes, the public ends up paying,” said Robert Nowell of the CoPIRG Foundation. “The American multinationals that take advantage of tax havens use Colorado roads, benefit from our education system and large consumer market, and enjoy the security we have here, but are ultimately taking a free ride at the expense of other taxpayers.”

One loophole, the “water’s edge” loophole, allows corporations to avoid paying state taxes by booking profits offshore. This accounting move costs Colorado at least $15 million a year.

CoPIRG Foundation’s new study shows that while most very large companies use tax havens, a smaller subset are most aggressive about using offshore tax havens to avoid taxes.

Key findings of the report include:

–       At least 358 Fortune 500 companies operate subsidiaries in tax haven jurisdictions, as of 2014. All told, these companies maintain at least 7,622 tax haven subsidiaries. The 30 companies with the most money booked offshore for tax purposes collectively operate 1,225 tax haven subsidiaries.

–       Approximately 60 percent of the companies with any tax haven subsidiaries registered at least one in Bermuda or the Cayman Islands. The profits that American multinationals collectively claim to earn in these island nations’ totals 1,643 percent and 1,600 percent, respectively of each country’s entire yearly economic output.

–       The 30 companies with the most money booked offshore for tax purposes collectively hold nearly $1.35 trillion overseas. That is 65 percent of the nearly $2 trillion that Fortune 500 companies together report holding offshore.

–       Only 56 companies disclose the amount they would expect to pay in U.S. taxes if they didn’t report profits offshore for tax purposes. All told, these 56 companies would collectively owe $170 billion in additional federal taxes, which is nearly six times Colorado’s state budget. The average tax rate the 56 companies currently pay to other countries on this income is a mere 6.3 percent, implying that most of it is booked to tax havens.

Companies headquartered in Colorado that were highlighted by the study include:

–       Level Three Communications maintains 28 tax haven subsidiaries, including three in Bermuda, two in the Cayman Islands, and three in Luxembourg. The company does not disclose any information about how much of money is booked to these subsidiaries.

–       Western Union maintains 44 subsidiaries in offshore tax havens, including 14 in Bermuda, four in Luxembourg, and one in Barbados. The company reports having $7.5 billion booked offshore, but does not disclose their estimated tax bill on those profits were they not booked offshore.

–       Arrow Electronics maintains 51 tax haven subsidiaries, including three in the Cayman Islands, one in Luxembourg, and one in Ireland. The company reports having $2.9 billion booked offshore.

 “Because Velosoul pays its fair share of taxes, my business is at a disadvantage against the huge corporations that can get away with paying very little or no taxes at all,” said Zach Hepner, owner of Velosoul, a bike shop, in Denver. “Businesses should compete on level ground, based on their innovation and what they can offer to customers, not based on their access to savvy tax attorneys.”

The report concludes that to end tax haven abuse, Congress should end incentives for companies to shift profits offshore, close the most egregious offshore loopholes, and increase transparency.

 “Offshore Shell Games” is available for download at: LINK