Fortune 500 companies hold more than $2.1 trillion in profits offshore to avoid US taxes that would amount to an estimated $620 billion tax bill, according to a report by the public interest research and advocacy organization, Citizens for Tax Justice (CTJ).
The study used the companies’ public financials filed with the Securities and Exchange Commission to reach their conclusions. Nearly three-quarters of the firms on the Fortune 500 list of top American companies according to gross revenue maintain tax havens in countries like Singapore, Cayman Islands, Bermuda, Switzerland, Ireland, Luxembourg, and the Netherlands.
Parking money overseas means the companies defers their tax bill until they repatriate the money back into the US. Companies avoid paying taxes by booking profits to a tax haven because US tax laws allow them to defer paying taxes on profits that they report are earned abroad until the money comes back to the United States. But there are no deadlines to when the profits should be repatriated, meaning the profits can sit overseas, tax-free, indefinitely.
What makes the whole situation more egregious is that profits booked as offshore often remain onshore. There is not an imaginary stockpile of billions sitting in an account in Bermuda. Most of the profits reported as overseas are earning interest in US banks or invested in onshore assets but are registered to foreign subsidiaries.
According to the study, the top Fortune 500 offenders include:
- Apple holds $181.1 billion offshore through three tax havens.
- General Electric has $119 billion offshore in 18 tax havens.
- Microsoft is holding $108.3 billion in five tax havens.
- Pfizer has $74 billion distributed through 151 subsidiaries.
- Google reported operating 25 subsidiaries in tax havens in 2009, but the CTJ’s findings discovered that Google only discloses two in Ireland. The amount of cash the company reported offshore grew exponentially from $7.7 billion to $47.4 billion.
- PepsiCo kept $37.8 billion offshore through 132 subsidiaries in offshore tax havens.
- Bank of America reported having 264 subsidiaries in 2013 but disclosed only 22 in 2014, holding $17.2 billion offshore.
- American Express has reported $9.7 billion offshore through 23 subsidiaries.
- Nike holds $8.3 billion offshore through three subsidiaries.
- Morgan Stanley holds $7.4 billion offshore via 210 subsidiaries.
- Walmart reported operating no tax havens yet the CTJ found them to have 75 tax haven subsidiaries not included in its SEC filings. According to the report, “Over the past decade, Walmart’s offshore income has grown from $6.8 billion in 2005 to $23.3 billion in 2014.”
“At least 358 companies, nearly 72 percent of the Fortune 500, operate subsidiaries in tax haven jurisdictions as of the end of 2014,” the study reported.
There are no incentives for these companies to repatriate the money and pay US taxes, therefore, the money “sits” overseas. Earlier this year Obama proposed a 14 percent mandatory tax on the stockpiled profits and a 19 percent minimum tax on foreign earnings going forward which has met with opposition from Congress.