It is estimated that nearly three-fourths of Fortune 500 firms have stashed a staggering $2.1 trillion of their profits overseas to avoid the U.S. taxation regime. The taxes on such an amount could theoretically add up to a total of $620 billion. However, that remains wishful thinking as the money has already been moved offshore to tax havens like Bermuda, Switzerland, the Cayman Islands, Panama, Luxembourg, the Netherlands and Ireland.
So who exactly are the culprits?
Two non-profit groups, the Citizens for Tax Justice along with the US Public Interest Research Group Education Fund had used the companies’ financial data filed before the Securities and Exchange Commission to arrive at these findings. Apple (NADAQ:AAPL) leads the pack, holding $181.1 billion in three countries, and would owe Uncle Sam $59.2 billion if it repatriated the money. General Electric (NYSE:GE) has stored $119 billion in 18 such tax-friendly countries while another technology giant, Microsoft (:NASDAQ:MSFT) has $108.3 billion in five subsidiaries located abroad and pharma major Pfizer (NYSE:PFE) is responsible for moving $74 billion to 151 of its subsidiaries worldwide.
The study concludes that 358 of the Fortune 500 companies collectively have 7,622 subsidiaries in tax havens worldwide. 57 of these companies admit to paying six percent in taxes at these overseas locations while they would have to cough up 35% for the same amount in the United States. $184.4 billion is the amount they would have owed to the US Government if they hadn't moved their profits out of the country.
The way forward
The left-leaning study also calls for strong action from Congress in order to prevent such corporations from using offshore tax havens, which in turn would reduce the deficit, restore basic fairness to the tax system, and improve the functioning of markets. It comes close on the heels of the Organisation for Economic Cooperation and Development or OECD publishing its own set of recommendations to clamp down on such practices.
On his part, US President Barack Obama has proposed taxing the above mentioned $2.1 trillion at the rate of 14%, and using the taxes to finance infrastructure projects within the country. All monetary gains moved abroad in the future would attract a tax of 19%. While Congress has signified its assent to this, they are specific in asking for taxes to be levied only on earnings within the country and not profits made offshore.