US Companies Book Huge Profits Offshore

07 Oct 2015 | 03.02 pm

US Companies Book Huge Profits Offshore

Ireland tax haven used by scores of US multinationals for tax planning

07 Oct 2015 | 03.02 pm

A study on tax avoidance by US multinationals has found that they hold as much as $2.1 trillion in profits outside the US. The study was carried out by non-profits Citizens for Tax Justice and the US Public Interest Research Group Education Fund. It reveals where companies’ tax subsidiaries are and, in some cases, an estimate of how much tax would be owed if the profits were repatriated to the US.

The study used the financial filings for Fortune 500 companies in 2014 to gather data. More than 70% of the companies were found to operate subsidiaries in tax havens, with 358 companies owning 7,622 subsidiaries.

The companies still owe tax on profits earned overseas, but don’t have to pay until they bring the profits back to the US. Accounting techniques are used to increase the amount of profit said to be generated from these subsidiaries and to find ways to allow companies to use these profits in the US.

More than 150 companies in the study have Irish subsidiaries.

The companies with the largest offshore profits, who also have Irish subsidiaries, include Apple, Google and Pfizer.

Apple was found to have the most offshore profits, at $181 billion. If those profits were not held offshore, the study calculates that the US Treasury would gain $59 billion in tax income.

PepsiCo has 132 subsidiaries, 12 of which are in Ireland. The company parks $38 billion in profits offshore.

Pfizer has 151 subsidiaries, with 27 in Ireland, and has $74 billion in profits located offshore beyond the clutches of the US tax authorities

According to the report, from 2008-2014 Pfzier generated 41% of its sales in the US, but didn’t report any taxable income during that period.

Pfizer can transfer drug patents to one of its subsidiaries, and then pays that subsidiary licencing fees for drugs sold in the US. This enables the company to turn domestic profits into ‘fees’ paid to its own subsidiaries for its own licence, which then shifts those profits into overseas profits.

Morgan Stanley has 210 overseas subsidiaries, six of which are in Ireland. The bank has $7.4 billion of profits located overseas.

tax evasion

Disappearing Subsidiaries

The study points out that corporations with fewer disclosed havens don’t necessarily have less offshore profit. Companies may disclose fewer subsidiaries or have increased income to their subsidiaries.

Take the following companies, all with Irish subsidiaries as examples:

– Citigroup reported 427 tax subsidiaries in 2008 and 41 in 2014, while at the same time doubling the cash it held offshore. Two of its subsidiaries are in Ireland.

– Walmart reported having no tax haven subsidiaries for the last decade, yet a report by Americans for Tax Fairness revealed the retailer  operates as many as 75, one of which is in Ireland. Walmart’s offshore income has grown from $6.8 billion in 2005 to $23.3 billion in 2014.

– Bank of America, with one Irish subsidiary, went from reporting 264 tax havens in 2013 to 22 in 2014.

 tax Evasion, 2

Tax Havens

A tax haven is a jurisdiction with very low or no taxes. Tax havens are said to, “encourage financial secrecy and inhibit an effective exchange of information about taxpayers to tax and law enforcement authorities”.

Tax havens are said to have a lack of transparency in legislative, legal or administrative practices, and don’t require business activities to be substantial, “suggesting that a jurisdiction is trying to earn modest fees by enabling tax avoidance,” according to the report.

While Ireland is referred to as a tax haven, it doesn’t meet all the OECD criteria of a tax haven. It has a corporation tax of 12.5%. According to the Economic and Social Review, Ireland has been labelled a tax haven insome quarters due to the country’s failure “to distinguish between legitimate and abusive transfer pricing; a misunderstanding of the role and regulation of IFSC; and a dated but influential academic paper from 1994 that incorrectly included Ireland in a list of tax havens, based on a reason that has long since lost any validity.”

Offshore Profits

Companies that say they generate profits overseas don’t have pay US tax on these profits until they ‘repatriate’ the funds to the US.

According to the report: “Much if not most of the profits kept offshore are actually housed in U.S. banks or invested in American assets, but are registered in the name of foreign subsidiaries. In such cases, American corporations benefit from the stability of the U.S. financial system while avoiding paying taxes on their profits that officially remain booked “offshore” for tax purposes.”

In 2008, American multinationals reported 43% of their earnings in five countries – Bermuda, Ireland, Luxembourg, the Netherlands and Switzerland. Those countries accounted for 4% of the companies’ workforces and 7% of their foreign investments.

ugland house2

The study uses the example of Ugland House (pictured) to illustrate the at times farcical nature of tax havens. Ugland House is a five storey office building in the Cayman Islands that is the registered address of no less than 18,857 companies.

US multinationals with at least one subsidiary located in Ireland are listed below.

 

Number of Tax Haven Subsidiaries Offshore Funds ($m)
Abbott Laboratories 91 23,000
AbbVie Inc 35 23,000
AES 206
Aetna 11
AGCO 17 3,300
Air products & Chemicals 14 5,894
Allergan 28 4,485
Alliance Data Systems 33 55
Allstate 2
American International Group 17
Amgen 8 29,300
Amphenol 15
Anixter International 14 679
Apple 3 181,100
Applied Materials 21 2,700
Aramark 18
ARRIS Group 10 48
Arrow Electronics 51 2,947
Ashland 33 1,800
Avery Dennison 70 2,200
Avon Products 28
Bank of America Corp. 22 17,200
Bank of New York Mellon Corp. 5 6,000
Baxter International 19 13,900
Becton Dickinson 38 4,900
Biogen 14 4,600
BlackRock 40 3,871
Blackstone Group 161
BorgWarner 7 2,700
Boston Scientific 20 7,700
Bristol-Myers Squibb 22 24,000
C.H. Robinson Worldwide 11
Cameron International 56 5,100
Cardinal Health 8 1,900
Caterpillar 72 18,000
CC Media Holdings 45
CDW 67
Celgene 26 7,541
Cisco Systems 59 52,700
Citigroup 41 43,800
CMS Energy 1
Coca-Cola 12 33,300
Cognizant Technology Solutions 15 6,121
Colgate-Palmolive 11 4,900
Computer Sciences 37 2,552
Corning 12 10,300
Crown Holdings 19 774
Dana Holding 15
Danaher 34 11,800
Dow Chemical 92 18,037
eBay 38 7,900
Ecolab 80 1,800
Eli Lilly 27 25,700
EMC 4 11,800
Emerson electric 86 7,100
Expedia 18
Expeditors International of Washington 10
Express Scripts 5 96
Facebook 3
Fidelity National Information Services 26
First Data 35
Fluor 71
Foot Locker 15 999
Franklin Resources 34 7,300
Gap 7 581
General Mills 49 1,900
General Motors 21 7,100
Gilead Sciences 12 15,600
Goodyear Tire & Rubber 12 2,600
Google 2 47,400
Hanesbrands 46 2,400
Hartford Financial Services 7
Hewlett-Packard 25 42,900
HRG Group 21 352
Illinois Tool Works 81 7,100
Insight Enterprises 10 80
Intel 14 23,300
International Business Machines 15 61,400
INTL Fcstone 6 175
Jabil Circuit 36 2,300
Jacobs Engineering Group 12 26
Johnson & Johnson 58 53,400
Kellogg 34 2,200
KKR 258
L-3 Communications 6 331
Laboratory Corp. of America 30
Level 3 Communications 28
LifePoint Health 1
Live Nation Entertainment 49 477
Manpower 51 733
Marriott International 79 894
Marsh & McLennan 117 6,300
McGraw-Hill 16 1,239
McKesson 3 4,916
Merck 121 60,000
MetLife 31 4,200
Microsoft 5 108,300
Mohawk Industries 28 1,385
Mondelēz International 82 13,200
Morgan Stanley 210 7,364
NCR 36 2,100
NetApp 14 3,300
News Corp. 23 3,500
Norfolk Southern 1
Office Depot 26 416
Oracle 5 38,000
Owens & Minor 12 32
PepsiCo 132 37,800
Pfizer 151 74,000
Phillips 17 2,000
Phillips-Van Heusen 43 389
PPG Industries 20 5,000
PPL 3,700
Praxair 20 10,400
Precision Castparts 15 1,482
Principal Financial 20 825
Procter & Gamble 38 45,000
Prudential Financial 39 2,396
Quest Diagnostics 5
Quintiles 20
R.R. Donnelley & Sons 34
Reinsurance Group of America 10 1,115
Rockwell Automation 5 2,781
Salesforce.com 10
SanDisk 7 969
Sanmina 15 544
Sealed Air 49
Sherwin-Williams 9 4
Stanley Black & Decker 110 4,773
Staples 35 835
Starbucks 20 2,200
Starwood Hotels & Resorts 4 3,500
State Street Corp. 4 4,200
Stryker 47 5,878
Supervalu 3
Symantec 4 3,600
Sysco 30 1,100
Tech Data 13 500
Terex 17 800
Texas Instruments 13 7,670
Thermo Fisher Scientific 155 8,440
TJX 5 567
U.S. Bancorp 10
United Technologies 28 28,000
UnitedHealth Group 17 391
Unum Group 1 1,000
Valero Energy 15 2,900
Voya Financial 7
Wal-Mart Stores 75 23,300
Wellpoint 3
Wells Fargo 98 1,800
Western Digital 17 9,400
Western Union 44 7,500
World Fuel Services 37 1,300

 

 

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