News Release

Study: 70% of Fortune 500 Companies Used Tax Havens in 2013

30 companies booked more cash offshore than others combined
For Immediate Release

Washington, June 5 – Tax loopholes encouraged more than 70 percent of Fortune 500 companies to maintain subsidiaries in offshore tax havens as of 2013, according to “Offshore Shell Games,” released today by the U.S. PIRG Education Fund and Citizens For Tax Justice. Collectively, the companies reported booking nearly $2 trillion offshore for tax purposes, with just 30 companies accounting for 62 percent of the total, or $1.2 trillion.

 “Our tax code is broken, and it's hurting the public,” said Dan Smith, Tax and Budget advocate for the U.S. PIRG Education Fund and report co-author. “We’ve made it too easy for American multinationals to dodge taxes by setting up shell companies in tax havens. 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.”

 “The loopholes in America’s corporate tax have grown so outrageous that our policymakers should be embarrassed,” said Steve Wamhoff, CTJ legislative director. “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. Policymakers should close the loopholes that make this manipulation possible.”

 Every year, offshore tax loopholes used by U.S. corporations cost $90 billion in lost federal tax revenue. The 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 362 Fortune 500 companies operate subsidiaries in tax haven jurisdictions, as of 2013. All told, these companies maintain at least 7,827 tax haven subsidiaries. The 30 companies with the most money booked offshore for tax purposes collectively operate 1,357 tax haven subsidiaries.

-       Approximately 64 percent of the companies with tax haven subsidiaries had subsidiaries 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 $1.2 trillion overseas. That is 62 percent of the nearly $2 trillion that Fortune 500 companies together report holding offshore.

-       Only 55 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 55 companies would collectively owe $147.5 billion in additional federal taxes, equal to the entire state budgets of California, Virginia, and Indiana combined. The average tax rate the 55 companies currently pay to other countries on this income is a mere 6.7 percent, implying that most of it is booked to tax havens.

 Companies that were highlighted by the study include:

 -          Nike: The sneaker giant reports having $6.7 billion booked offshore, on which it would otherwise owe $2.2 billion in U.S. taxes. That means they pay a mere 2.2 percent tax rate on those offshore profits, suggesting nearly all of the money is held by subsidiaries in tax havens. Nike does this in part by licensing the trademarks for some of its products to 12 subsidiaries in Bermuda to which it must pay royalties. Its Bermuda subsidiaries actually bear the names of their products like “Air Max Limited” and “Nike Flight.”

-          Pfizer, the world’s largest drug maker, operates 128 subsidiaries in tax havens and currently books $69 billion in profits offshore, the third highest among the Fortune 500. Pfizer recently attempted the acquisition of a smaller foreign competitor so it could reincorporate on paper as a “foreign company.” Pulling this off would have allowed the company to use its supposedly offshore profits in the U.S. tax-free.

-          Citigroup reported operating 427 tax haven subsidiaries in 2008 but disclosed only 21 in 2013. Over that time period, Citigroup more than doubled the amount of cash it reported holding offshore. The company currently pays an 8.3 percent tax rate offshore, implying that most of those profits have been booked to low or no tax jurisdictions.

 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, strengthen tax enforcement, and increase transparency.

 “Offshore Shell Games” is available for download at: http://uspirgedfund.org/reports/usf/offshore-shell-games-2014  

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U.S. PIRG Education Fund works to protect consumers and promote good government. We investigate problems, craft solutions, educate the public, and offer meaningful opportunities for civic participation.

Citizens for Tax Justice, founded in 1979, is a 501(c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation. CTJ’s mission is to give ordinary people a greater voice in the development of tax laws.

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