posted November 2, 2015
How US Multinational Corporations Avoid Taxes

A year ago, in November 2014, the US held elections for the US Congress. In an article for telesur that month this writer predicted the top two objectives of the new Congress in 2015 would be the Transpacific Partnership (TPP) free trade treaty and major tax cuts for US corporations. With the TPP agreement recently signed, the top priority of the US Congress is now more business tax cuts. Leading the charge are US multinational corporations (MNCs).

Since 2001, tax cuts have allowed US MNCs to keep trillions of dollars they should have otherwise paid in taxes. And that’s not counting additional hundreds of billions of dollars more in quasi-legal tax avoidance and outright illegal tax fraud.

One would think the issue of multinational corporate tax rip-offs would be at the top of the list in discussions and debates between presidential candidates of both US parties. But thus far hardly a word has been said by candidates, Clinton, Bush, Trump and the others. The one exception has been Bernie Sanders, who has raised the issue of corporate taxes in general, but has said little about multinational corporations specifically—i.e. the biggest pigs at the corporate tax cut trough.

It’s an election year and US MNCs are among the biggest election campaign money contributors to politicians running for office. So politicians of both parties will ‘blow smoke’, tell voters what they want to hear, and ‘take the corporate money and run’. After the elections, they’ll pass new laws giving US corporations in general, and MNCs in particular, even more tax cuts.

Here’s some interesting specifics about US corporations and the taxes they don’t pay:

• The US Government Accounting Office (hardly a radical source) estimated in 2013 that US corporations paid an effective (i.e. actual) federal tax rate of only 12.6% to the US government—not the official 35% that the media likes to report.

• That 12.6% effective rate in 2013 compares to what was once an effective rate of 33% in 1990 and 29% as recently as 2000, when nominal rates were 34% (1990) and 35% (2001).

• In 2013 US corporations paid another effective 2.2% to US states that levy income taxes in the US.

• US multinational corporations’ nominal rate paid to foreign governments is another 6% on average. But that number is a joke as well. US companies like Apple, Google, Starbucks, US oil companies, big pharmaceutical companies, and telecom companies manipulate dozens of loopholes in tax codes to end up paying on average no more than another 2% of that nominal 6% to foreign governments.

• As a result of paying 2%, US MNCs now hoard between $1.7 trillion and $2.1 trillion in cash in their offshore subsidiaries, refusing to bring the profits back to the US to invest there in order to avoid paying US taxes.

It’s not as if US corporations can’t afford to pay more. Corporate pre-tax profits in the US have tripled since 2001 and doubled since 2008, to $1.65 trillion in 2014. And that’s not counting the offshore cash hoarding; or another $1.35 trillion for non-corporate business profits. That’s $3 trillion in business profits in the US last year.

US multinational corporations have the best deal of all US corporations. They have ‘loopholes’ that allow them to pay even less total taxes on a global scale. For example, because they are located in many countries, they can manipulate their internal prices paid between their subsidiaries so that the profits end up recorded in the country with the lowest nominal rates. Favorite locations of US MNCs are Ireland, the Netherlands, and favorite tax haven islands like Bermuda and the Caymans in the Caribbean. Their nominal rates are then reduced further by loopholes provided by those countries. Tax cut lawyers and corporate finance managers even joke about loopholes they call the ‘Dutch Sandwich’ in the Netherlands that allows them not to have to withhold taxes. Then there’s the ‘Double Irish’ in Ireland that allows them to cut their effective tax rates in half. Google Corporation in this way records all its foreign earnings through Ireland that it then routes through the Netherlands—that way creating a ‘Dutch Sandwich with a Double Irish’ to go. In one recent year, Apple Corp. saved $9 billion in taxes this way. It’s why they hardly pay more than a token 2% on their foreign earnings in taxes to foreign countries.

Surely US tax collectors know of all these manipulations by US MNCs. Yes, of course they do. And they not only allow but encourage the loopholes. Since 1995, under the Clinton administration and continuing under Bush and now Obama, the US government allows US MNCs to manipulate the tax loopholes without penalty. After 1995, all US MNCs have to do is ‘check the box’ on their corporate Internal Revenue Forms to indicate a foreign subsidiary of the corporation is what’s called a ‘disregarded entity’ for paying taxes. They then can activate the ‘Look Through’ loophole on their IRS forms to move profits between their offshore subsidiaries.

Then there’s the so-called ‘tax inversions’ gimmick that became public last year, which US pharmaceutical companies in particular have been manipulating. ‘Inversions’ is the corporate strategy of buying a small company offshore and then transferring the US corporation headquarters there on paper. That makes the MNC technically a foreign company and reduces its US taxes, especially if the purchase is made in Ireland, Bermuda, Luxembourg, Belgium, or elsewhere.

After a flurry of publicity and attention given to the spread of MNC ‘inversions’ in 2014, the Obama administration went silent on the issue of stopping inversions. Billions of dollars in inversion ‘deals’ have continued.

But what about the US foreign profits tax? Don’t US MNCs have to pay the US 35% corporate tax on offshore profits, called for by US law? No. Not if the law is not enforced, which it isn’t. That’s why they’ve accumulated their $1.7 trillion and $2.1 trillion cash hoard in their offshore subsidiaries. Apple Corp. alone has stashed more than $150 billion offshore.

While US politicians and the Obama administration do nothing about the US MNCs constant ‘gaming’ of the global tax system, recently an initiative was launched in Europe to go after the Apples, Googles, Starbucks, Amazons, and other US MNCs to make them pay.

Last week Margrethe Vestager, an EU competition commissioner, declared US MNC loopholes amounted to “illegal forms of state aid”. Investigations have been launched into Apple, Amazon, Starbucks, and other US MNCs. More are coming. Not surprising, in response the US Treasury department of the Obama administration is protesting Vestager’s investigations. And the US Treasury says it may have to cut US taxes for Apple and others to compensate if Europe makes them pay more offshore. Meanwhile, Obama and Congress have re-introduced legislation to cut US MNC’s nominal and effective tax rates on offshore profits even further. So watch for US MNCs taxes to decline still further.

And what are the candidates for US president and Congress of both parties saying about all this? Nothing. But what can one expect from those who are receiving billions of corporate dollars today to fund their re-election campaigns.

Jack Rasmus is author of the forthcoming book, ‘Systemic Fragility in the Global Economy’, Clarity Press, December 2015. For more information, go to: http://www.kyklosproductions.com/homewar.html

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