Tax loopholes allow US firms to siphon $206bn offshore
THE largest US-based companies added $206bn (€149bn) to their stockpiles of offshore profits last year, parking earnings in low-tax countries.
The multinational companies have accumulated $1.95 trillion outside the US, up 11.8pc from a year earlier, according to securities filings from 307 corporations reviewed by Bloomberg News.
The data is particularly stark given the increased global focus on multinational companies and the amount of tax they pay.
The OECD is working to close down loopholes that allow profit-shifting, such as the so-called Double Irish. Three US-based companies – Microsoft Corp, Apple and IBM – added $37.5bn, or 18.2pc of the total increase.
"The loopholes in our tax code right now give such a big reward to companies that use gimmicks to make it look like they earn their profits offshore," said Dan Smith, a tax and budget advocate at the US Public Interest Research Group, which seeks to counteract corporate influence.
Even as governments around the world cut tax rates and try to keep corporations from shifting profits to tax havens, the US Congress remains paralysed in its efforts. The response of US-based companies over the past few years has been consistent: book profits offshore and leave them there.
Congress hasn't acted because of disagreements over whether to be tougher on US companies operating abroad amid broader disputes over government spending and taxation.
The stalemate has prevented the US from tapping a pot of money that President Obama and the top Republican tax writer in Congress have eyed for such projects as rebuilding highways.
Meanwhile, the companies are deferring hundreds of billions of dollars in US taxes as they lobby to end a system that they describe as a competitive disadvantage in world markets.
The top 15 companies now hold $795.2bn outside the US, up 10.6pc. That increase was slower than the 15.9pc rise in stockpiled profits they had the previous year.
Pfizer reported a decrease in offshore profits this year, while General Electric and Citigroup each reported growth of less than 3pc.
The increase in profits held outside the US has been particularly large and steady at technology companies, many of which have moved patents and other intellectual property to low-tax locations.
US multinational companies reported earning 43pc of their 2008 overseas profits in Bermuda, Ireland, Luxembourg, the Netherlands and Switzerland, more than five times the share of workers and investment they have in those jurisdictions, according to a 2013 Congressional Research Service report.
That report cites academic estimates of the annual revenue loss to the US that ranges from $30bn to $90bn.
Politicians in the US, the UK, France and Italy have scrutinised companies such as Microsoft, Hewlett-Packard, Apple, Google and Amazon.
Those inquiries have revealed an Apple subsidiary that earned $30bn over four years with no home for tax purposes and loans that let HP access its off-limits offshore cash.
The OECD and the Group of 20 nations are trying to negotiate a common set of rules to prevent such profit shifting. (Bloomberg)