This document summarizes the issue of corporate offshore tax dodging and proposes solutions to stop it. It finds that U.S. corporations use tax havens to avoid an estimated $150 billion in taxes annually by disguising domestic profits as foreign income. Closing offshore loopholes could generate hundreds of billions in revenue to fund priorities like education and infrastructure. The document advocates ending the ability of corporations to indefinitely defer domestic taxes on offshore profits and closing specific loopholes that allow profit shifting to tax havens. Public opinion polling indicates strong voter support for reforms to ensure corporations pay their fair share of U.S. taxes.

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. 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
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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
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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
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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
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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
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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
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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)
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8. What happened? Tax havens
cost U.S. taxpayers $150
billion a year
Ugland House, Cayman Islands
Address of 18,857 corporate entities
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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
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10. 10

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
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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
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13. Corporations want to make the
system even more unfair
• Temporary tax amnesty: Repatriation tax holiday
• Permanent tax amnesty: Territorial tax system
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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
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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
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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
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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
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