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Study: 70% of Fortune 500 Companies Used Tax Havens in 2013

30 companies booked more cash offshore than others combined
For Immediate Release

TRENTON, June 5 – Tax loopholes encouraged more than 70 percent of Fortune 500 companies – including over a dozen companies here in New Jersey – to maintain subsidiaries in offshore tax havens as of 2013, according to “Offshore Shell Games,” released today by NJPIRG Law & Policy and Citizens for Tax Justice. Collectively, the companies reported booking nearly $2 trillion offshore for tax purposes, with just 30 companies accounting for 62 percent of the total, or $1.2 trillion.

“Our tax code is broken, and it's hurting the public,” said Jen Kim, NJPIRG State Director. “We’ve made it too easy for American multinationals to dodge taxes by setting up shell companies in tax havens, it hurts all New Jersey taxpayers. We simply shouldn’t allow companies that use New Jersey roads, and benefit from our education system and large consumer market, to take a free ride at the expense of the rest of us.”

“The loopholes in America’s corporate tax have grown so outrageous that our policymakers should be embarrassed,” said Steve Wamhoff, CTJ legislative director. “The data in this report demonstrate that a huge portion of the supposedly ‘offshore’ profits are likely to be U.S. profits that are manipulated so that they appear to be earned in countries like Bermuda or the Cayman Islands where they won’t be taxed. Policymakers should close the loopholes that make this manipulation possible.”

Every year, offshore tax loopholes used by U.S. corporations cost New Jersey $1 billion in state tax revenue. That money would be enough to pay the salary for 15,000 school teachers, (based on the average state school teacher salary), or help to renew the Transportation Trust Fund.

NJPIRG LPC’s new study shows that while most very large companies use tax havens, a smaller subset are most aggressive about using offshore tax havens to avoid taxes.

Key findings of the report include:

-    At least 362 Fortune 500 companies operate subsidiaries in tax haven jurisdictions, as of 2013. All told, these companies maintain at least 7,827 tax haven subsidiaries. The 30 companies with the most money booked offshore for tax purposes collectively operate 1,357 tax haven subsidiaries.
-    Approximately 64 percent of the companies with any tax haven subsidiaries registered at least one in Bermuda or the Cayman Islands. The profits that American multinationals collectively claim to earn in these island nations’ totals 1,643 percent and 1,600 percent, respectively of each country’s entire yearly economic output.
-    The 30 companies with the most money booked offshore for tax purposes collectively hold nearly $1.2 trillion overseas. That is 62 percent of the nearly $2 trillion that Fortune 500 companies together report holding offshore.
-    Only 55 companies disclose the amount they would expect to pay in U.S. taxes if they didn’t report profits offshore for tax purposes. All told, these 55 companies would collectively owe $147.5 billion in additional federal taxes, equal to almost 4.5 times the entire state budget for New Jersey in FY14. The average tax rate the 55 companies currently pay to other countries on this income is a mere 6.7 percent, implying that most of it is booked to tax havens.

Over 15 companies headquartered in New Jersey were highlighted by the study, including: Merck, Johnson & Johnson, Honeywell International, & Prudential Financial.

-    Merck: This pharmaceutical company maintains 131 subsidiaries in offshore tax havens, including 12 in Bermuda, putting it in the top ten for most tax haven subsidiaries. It has booked $57 billion in profits offshore, ranking it 5th among the Fortune 500 for the most cash reported offshore for tax purposes. Pharmaceutical companies like Merck are able to avoid taxes by licensing patents for its drugs to a subsidiary in a low or no-tax country. Then when the U.S. branch of the company sells the drug in the U.S., it must pay its own offshore subsidiary high licensing fees that turn domestic profits into on-the-books losses and shifts profit overseas. In 2012, Merck shelled out nearly $10 million in lobbying expenses, and tax policy was its second priority, according to Opensecrets.org.
-    Johnson and Johnson: This company maintains 60 subsidiaries in offshore tax havens, including 23 in Ireland, four in Luxembourg, and 20 in Switzerland. The company ranks 7th for the most money booked offshore for tax purposes, with 50.9 billion booked overseas. J&J does not disclose what it would owe in taxes if it had not booked those profits offshore.
-    Honeywell: This company maintains five subsidiaries in tax havens – one in Luxembourg, one in Singapore, and three in Switzerland. Honeywell reports booking $13.5 billion offshore, but does not disclose what it would owe in taxes if it had not booked those profits offshore.

-    Air Products & Chemicals, a gas and chemical company based in Pennsylvania’s Lehigh Valley, uses 11 subsidiaries in tax havens to book $5.5 billion offshore, on which it would otherwise owe $1.4 billion in U.S. taxes.
-    Nike: The sneaker giant reports having $6.7 billion booked offshore, on which it would otherwise owe $2.2 billion in U.S. taxes. That means they pay a mere 2.2 percent tax rate on those offshore profits, suggesting nearly all of the money is held by subsidiaries in tax havens. Nike does this in part by licensing the trademarks for some of its products to 12 subsidiaries in Bermuda to which it must pay royalties. Its Bermuda subsidiaries actually bear the names of their products like “Air Max Limited” and “Nike Flight.”

The report concludes that to end tax haven abuse, Congress should end incentives for companies to shift profits offshore, close the most egregious offshore loopholes, strengthen tax enforcement, and increase transparency.

 “Offshore Shell Games” is available for download at: http://njpirgcenter.org/reports/njf/offshore-shell-games-2014

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