Corporate Offshore Tax
Dodging and How to
Stop It
JUNE 2013
U.S. PUBLIC INTEREST RESEARCH GROUP
(U.S. PIRG)
AMERICANS FOR ...
What’s at stake?
• Ability to fund a government that makes critical investments
in future generations and takes care of th...
Corporate profits at record
highs, Corporate taxes at
record lows
5.8%
9.8%
5.5%
2.5%
0
2
4
6
8
10
12
PercentofGDP
Year
Co...
People paying
more, corporations paying less
42.2%
46.2%
32.1%
9.9%
0
10
20
30
40
50
60
1952
1954
1956
1958
1960
1962
1964...
Corporate tax revenues have
shrunk a lot
0
10
20
30
40
50
60
70
80
90
100
1952
1954
1956
1958
1960
1962
1964
1966
1968
197...
U.S. corporate taxes in middle
of world pack (all govt. levels)
1.0
2.7 2.8 3.1
3.3 3.5
10.0
0
2
4
6
8
10
12
Iceland
US
It...
What federal income tax rate
do corporations actually pay?
Statutory rate: 35% (rate companies supposed to pay)
Effective ...
What happened? Tax havens
cost U.S. taxpayers $150
billion a year
Ugland House, Cayman Islands
Address of 18,857 corporate...
How U.S. corporations are
taxed
“Worldwide” system of taxation
• U.S. corporate income tax assessed on all profits everywh...
10
Apple Inc: how tax dodging
works
• $74 billion profits earned offshore (2009-2012); virtually untaxed
using Irish subsidia...
Corporate offshore tax
avoidance has grown a lot
• $1.9 trillion in U.S. profits sitting offshore avoiding U.S.
taxes
• In...
Corporations want to make the
system even more unfair
• Temporary tax amnesty: Repatriation tax holiday
• Permanent tax am...
“Repatriation” tax holiday:
temporary tax amnesty
• 2004 tax holiday given to return offshore profits
• Corporate tax rate...
Territorial tax system:
permanent tax amnesty
• Eliminates all U.S. taxation of corporate overseas income
• Creates greate...
Our solutions: End offshore
tax dodging
• Sen. Sanders bill, S. 250/Rep. Schakowsky, HR 694
• Ends “deferral” – ability of...
A winnable fight
• Public strongly with us
• By 73%-25%: Voters approved of closing loopholes allowing
corporations and we...
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ATF-USPIRG: Corporate Offshore Tax Dodging and How to Stop It

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ATF-USPIRG: Corporate Offshore Tax Dodging and How to Stop It

  1. 1. Corporate Offshore Tax Dodging and How to Stop It JUNE 2013 U.S. PUBLIC INTEREST RESEARCH GROUP (U.S. PIRG) AMERICANS FOR TAX FAIRNESS
  2. 2. What’s at stake? • Ability to fund a government that makes critical investments in future generations and takes care of those most in need • $150 billion in revenue lost each year to tax havens that could: • Replace across-the-board spending cuts known as the “sequester” • Avoid cost of living cut to Social Security • Pay for Pell grants for 10 million college students • Tax system corporations want is a race to the bottom • Shipping profits and jobs overseas • Lowering wages here at home 2
  3. 3. Corporate profits at record highs, Corporate taxes at record lows 5.8% 9.8% 5.5% 2.5% 0 2 4 6 8 10 12 PercentofGDP Year Corporate Taxes and Profits as a Share of U.S. Economy, 1952-2011 Corporate Profits Corporate Taxes Source: Federal Reserve Economic Data 3
  4. 4. People paying more, corporations paying less 42.2% 46.2% 32.1% 9.9% 0 10 20 30 40 50 60 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 PercentofRevenue Year Corporate and Individual Income Tax as Share of Federal Revenue, 1952-2012 Individual Corporate Source: U.S. Office of Management and Budget 4
  5. 5. Corporate tax revenues have shrunk a lot 0 10 20 30 40 50 60 70 80 90 100 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 PercentofReceipts Year Percent of Individual, Corporate and Payroll Taxes as a Share of Federal Receipts, 1952-2012 Individual Corporate Payroll Source: U.S. Office of Management and Budget 5
  6. 6. U.S. corporate taxes in middle of world pack (all govt. levels) 1.0 2.7 2.8 3.1 3.3 3.5 10.0 0 2 4 6 8 10 12 Iceland US Italy UK Can Korea Norway RevenuePercentage OECD Countries OECD Corporate Tax Revenue as Share of Economy, 2010 Source OECD.StatsExtract 6
  7. 7. What federal income tax rate do corporations actually pay? Statutory rate: 35% (rate companies supposed to pay) Effective rates (actually paid): • All companies: 12.1% in 2011 (Congressional Budget Office) • Fortune 500 companies: 18.5% in 2008-2010 (Citizens for Tax Justice) 7
  8. 8. What happened? Tax havens cost U.S. taxpayers $150 billion a year Ugland House, Cayman Islands Address of 18,857 corporate entities 8
  9. 9. How U.S. corporations are taxed “Worldwide” system of taxation • U.S. corporate income tax assessed on all profits everywhere • MINUS taxes paid to foreign countries But…companies can defer paying taxes on offshore profits until returned to America • Creates powerful incentives to disguise U.S. profits as “foreign” profits earned in tax havens with no or with low tax rates 9
  10. 10. 10
  11. 11. Apple Inc: how tax dodging works • $74 billion profits earned offshore (2009-2012); virtually untaxed using Irish subsidiaries • One Irish subsidiary: Not taxed by U.S. or Ireland. U.S. recognizes where incorporated (Ireland); Ireland recognizes who controls (U.S.) • Second Irish company: Negotiated a tax rate of less than 2%. Apple transfers part ownership of its intellectual property created in U.S. to company allowing Apple to shift profits to Ireland. • U.S.: Has 95% of R&D; 65% of employees; 35% of profits; controls Irish subsidiaries • Ireland: Has 1% of R&D; 3% of employees; claims 65% of profits • Effective U.S. tax rate: 7.3% counting untaxed offshore profits (2011) Source: U.S. Senate Permanent Subcommittee on Investigations 11
  12. 12. Corporate offshore tax avoidance has grown a lot • $1.9 trillion in U.S. profits sitting offshore avoiding U.S. taxes • Increased 70% over last five years • 83 of top 100 publicly traded companies have subsidiaries in offshore tax havens • 43% of foreign earnings by U.S. multinationals booked to 5 tax-haven countries 12
  13. 13. Corporations want to make the system even more unfair • Temporary tax amnesty: Repatriation tax holiday • Permanent tax amnesty: Territorial tax system 13
  14. 14. “Repatriation” tax holiday: temporary tax amnesty • 2004 tax holiday given to return offshore profits • Corporate tax rate dropped to 5% -- down from 35% or a company’s effective tax rate • $312 billion brought back to U.S. – half by 15 companies • Most money came back from low-tax countries or tax havens • No new jobs or investment created – mostly went to stock repurchases and higher dividend payments • $1.9 trillion offshore now waiting for new holiday 14
  15. 15. Territorial tax system: permanent tax amnesty • Eliminates all U.S. taxation of corporate overseas income • Creates greater incentivizes to shift profits to tax havens • Benefits few companies in a few industries: high tech, pharma, banking • Main Street and domestic businesses and individuals have to make up for lost revenue • Encourages job loss and lower wages • Higher budget deficits: $130 billion over ten years 15
  16. 16. Our solutions: End offshore tax dodging • Sen. Sanders bill, S. 250/Rep. Schakowsky, HR 694 • Ends “deferral” – ability of companies to delay paying taxes on profits offshore until returned to U.S. • Raises $600 billion over 10 years; 60% of the across-the-board spending cuts (“sequester”) • Levin bill, S. 268 • Closes worst offshore loopholes allowing companies to shift profits overseas • Raises $150-200 billion over 10 years 16
  17. 17. A winnable fight • Public strongly with us • By 73%-25%: Voters approved of closing loopholes allowing corporations and wealthy individuals to avoid paying U.S. taxes by shifting income to overseas tax havens • By 73%-20%: Voters opposed allowing corporations to not pay any U.S. taxes on profits that they earn in foreign countries – essentially rejecting the basis of a “territorial tax” system • Powerful and diverse constituencies on our side • Front page issue Source: Hart Research Associates, Jan. 2013 17

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