In the U.S., both corporate tax and income tax max out at around 40%. But when it comes to actually paying the tax man, Big Business plays by different rules than the average Mom and Pop stores that dot the country, forming the backbone of the economy. Many multinational corporations use their global reach, and a fair degree of high-tech accounting, to shift their assets, profits –and taxes due– to so-called offshore tax havens. These countries have minimal corporation tax rates, drastically reducing the amount of tax these multinationals have to pay. Below is a list of the 30 U.S. companies with the biggest offshore holdings. Our calculator gives you an idea of how much more money Uncle Sam would make if all that income were declared in the U.S.
The calculator above lists the aforementioned 30 Fortune 500 companies with the biggest offshore holdings. They are ranked by the total value of their subsidiaries in offshore tax havens, in descending order.
Apple tops the list, with offshore assets of $181.1 billion. That corresponds to $59.2 billion in deferred taxes. In other words: that's how much money would have flowed into the coffers of the IRS, if those assets had been kept in the U.S. Other familiar names on the list include Microsoft and Google, Pepsi and Coca-Cola, and J.P. Morgan and Walmart. Each with billions and billions in offshored assets, and deferred taxes.
Those figures are way too big to tell you much. To give you a better grasp of its size, we've compared each company's deferred taxes to U.S. government spending per department. Go to the drop-down menu above the list, choose a government department from the first box and select a tax-dodging company from the second box. The resulting percentage tells you how much of that particular budget that company's deferred taxes would have covered.
- For instance, Apple's deferred taxes would have paid for more than two-thirds of the federal budget for Education, Training and Employment (67.4% to be exact)
- Social Security is a gigantic cost for the federal government. Still, General Electric's deferred taxes alone would have paid for 1/25th of the total (i.e. 4%)
- If Microsoft had kept all its assets in the U.S., the taxes thus generated would have covered one-fifth of federal spending on Veterans Benefits and Services (20.8%, actually)
- The deferred taxes of pharmaceutical giant Pfizer would have covered almost nine-tenths of the federal budget for Agriculture (87.7%)
- IBM's deferred taxes represent almost a third of what the federal government spends on the Administration of Justice (32%)
- Google's deferred taxes are equal to 1.5% of the federal budget for Health and Medicare.
- ExxonMobil's deferred taxes would have paid for a quarter (25.7%) of the federal budget for International Affairs.
- Oracle's deferred taxes are equal to just over 40% of the federal budget for Science, Space and Technology.
- Pepsi's deferred taxes amount to just over twice the federal budget for Energy (201.8%).
- Even Caterpillar, the last company on the list, still defers taxes equal to more than one-eighth (13.8%) of the federal budget for Natural Resources and Environment.
Countries use low corporation tax as an incentive to attract foreign investment. The strategy has obvious benefits - companies generally prefer to establish subsidiaries where they are taxed least - but also two drawbacks: investment is often limited to opening a mailbox; and low corporation tax invokes the ire of larger economies who cannot afford - or do not choose - to have corporation tax as low as in certain offshore havens, as it diverts their tax income.
It's estimated that the widespread use of offshore tax havens causes the U.S. to miss out on $90 billion in federal income taxes each year. Retrieving that amount wouldn't cover the gap in the federal budget. But it would help increase the corporate contribution to federal coffers, currently filled mainly by taxes on employees. In fiscal 2015, federal revenues covered $3.2 trillion of the government's $3.7 trillion spend - borrowing around $500 billion financed the remainder. The three main sources of revenue were income taxes (47%, or $1.5 trillion), payroll taxes (33%, or $1 trillion) and corporate taxes (11%, or $350 billion).
The most popular offshore tax havens are Bermuda and the Cayman Islands: 60% of U.S. companies with offshore subsidiaries had one in either of these two localities. The profits that all American companies claimed they earned in these two countries in 2010 totaled around 1,600% of each country's GDP. Like Bermuda and the Caymans, many other offshore tax havens are island paradises, often located in the Caribbean. Others on the list of usual suspects are Anguilla, Aruba, the Bahamas, Barbados, the British Virgin Islands, St Kitts and Nevis, St Lucia, the Turks and Caicos islands, and the U.S. Virgin Islands. And although it's tempting to see modern-day offshore assets as a continuation of the buried treasure from pirate days, tax havens don't need to be islands, or in the 'West Indies'. Further afield, there is Bahrain, the (English) Channel Islands, Costa Rica, Cyprus, Hong Kong, Jordan, Luxembourg, Malta, Mauritius, Singapore, and even Lebanon. And of course Panama. Usually, offshore tax havens are small nations; countries with larger populations would reap little benefit from very low corporate tax rates. Yet some medium-sized countries have become notable offshore destinations: Ireland, Switzerland, the Netherlands.
According to Citizens for Tax Justice, Fortune 500 companies are holding more than $2.1 trillion in accumulated profits offshore for tax purposes, with just 30 companies – the ones listed here – accounting for 65% of the total.
The amounts of money held offshore by Fortune 500 companies has doubled between 2008 and 2014. In 2014, Apple held a whopping $70 billion more offshore than in the previous year. This necessarily has implications for the U.S. federal government's tax revenue. Faced with dwindling income from corporation tax, government has three options: raise taxes on 'onshore' taxpayers (i.e. employees and small businesses), reduce spending, or increase debt (or any combination of those three).
According to a study by Citizens for Tax Justice, at least 358 companies on the Fortune 500 list (or 72% of the total) have subsidiaries in tax havens; the $2.1 trillion they have collectively stashed way, corresponds to a total of $620 billion in deferred taxes.
The financial crisis of 2008 has increased the awareness among the world's largest economies that offshore tax havens have a sizeable, negative impact on their fiscal performance and social cohesion. Hence the growing calls for more global transparency on this issue, and a reversal of the trend towards more offshoring. However, progress is minimal, due to the seemingly unresolvable conflict between the wish to control international movements of capital and the fact that fiscal policy is a core element of national sovereignty.
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