Report Highlights Practice of Offshore Tax Havens
A new report shows that Fortune 500 companies, including several in Connecticut, are placing an estimated $2.5 trillion in offshore tax havens. It’s a practice that’s totally legal.
The report, Offshore Shell Games, was compiled by the U.S. Public Interest Research Group, the Institute on Taxation and Economic Policy, and Citizens for Tax Justice.
Companies headquartered in Connecticut highlighted in the report include:
• Xerox: Xerox maintains 49 subsidiaries in offshore tax havens. Headquartered in Norwalk, the company reports holding $9 billion offshore for tax purposes.
• Cigna: Cigna, headquartered in Bloomfield, has booked $2.2 billion offshore in 15 tax haven subsidiaries in places like Bermuda, Hong Kong and the Netherlands.
• United Technologies: United Technologies, headquartered in Farmington, is one of the top 30 companies with the most money held offshore. It maintains 31 tax haven subsidiaries and holds $29 billion offshore, including in the Cayman Islands.
Additionally, General Electric, which is moving its headquarters from Fairfield to Boston, is one of the big hitters on the list — with more than $100 billion in tax havens.
The Shell Games report found that 367 companies, or 73 percent of the Fortune 500, operate one or more subsidiaries in tax haven countries. The most popular tax haven among the Fortune 500 is the Netherlands, with more than half of the Fortune 500 reporting at least one subsidiary there.
“Corporate tax dodging may be legal, but it’s certainly not good for everyday taxpayers and responsible small businesses,” Kate Cohen, Connecticut Public Interest Research Group state director, said.
She said it disadvantages small businesses who don’t have scores of tax lawyers and creates an environment that favors “accounting tricks over innovation and real productivity, and forces the rest of us to foot the bill.”
She said there’s a growing international interest in cracking down on these practices because there’s $717.8 billion on the line.
Matthew Gardner, spokesman for the Institute on Taxation and Economic Policy, added: “Every year, corporations collectively report that they have tens of billions more in cash stashed offshore than they did the year before.”
This is the fourth year the group has done the report.
“The hard fact is that the U.S. tax code incentivizes tax haven abuse by allowing companies to indefinitely defer taxes on offshore profits until they are ‘repatriated.’ The only way to end this kind of tax avoidance is by closing the loopholes in the tax code that enable it,” Gardner said.
Connecticut U.S. Senators Richard Blumenthal and Chris Murphy both said it’s time for Congress to act to end tax havens.
“Utilizing tax havens to stash profits offshore is unfortunately just one element of a pattern of broken incentives in our tax system, which requires comprehensive reform,’’ Blumenthal said. “In my very first speech before the Senate, I made it clear that the people of Connecticut were outraged by the special breaks and tax loopholes that encourage companies to send jobs overseas, subsidize huge oil and gas interests, and allow tax deductions for million-dollar bonuses.”
He said the tax code should discourage off-shoring, rather than encourage it.
“Regular families can’t dodge taxes, so corporate giants shouldn’t either,” Murphy said. “Our complicated tax code is a gift to accounting firms, but it’s a clumsy and unfair way to fund the federal government.”
Murphy, one of the five poorest members of Congress elected in 2012, said he’s a big supporter of comprehensive tax reform.
“There’s a bipartisan consensus that things need to change, and I hope tax reform will be an early focus of the next president and Congress in 2017,” Murphy said.
The tax haven report is an eye opener, according to Connecticut Working Families Party Director Lindsay Farrell.
“This report comes at a moment when the role of wealthy corporations in our government is front and center in Connecticut, and it should raise concerns about the state’s dependency on corporations to foster economic growth,” Farrell said.
“We’ve seen how big businesses accumulate and transfer wealth out of state right here in Connecticut,” continued Farrell. “It’s not surprising that while they were headquartered here, General Electric, one of the biggest offenders (#4) in the report, is near the top of their list with approximately $104 billion held in 20 offshore tax havens. And United Technologies (with 31 tax havens) took the 20th spot with $29 billion held overseas.”
She said that’s $133 billion in taxable income that would have helped offset the current state budget deficit and perhaps saved nearly 1,125 positions from being eliminated.
Farrell said the tax havens for big business hurts Connecticut residents more than others.
“Connecticut has bigger divides between rich and poor than anywhere else in the country, and the middle class is quickly joining the ranks of the working poor,” Farrell said. “We need to invest in working and middle class families with higher paying jobs and benefits, such as healthcare and earned sick time. We need wealthy people and big businesses to pay their fair share — because when they don’t the rest of us pay more.”