The offshore stash of corporate cash at top U.S. companies has ballooned to over $1 trillion:
U.S. companies led by General Electric Co. (GE) and Pfizer Inc. (PFE) stockpiled an additional $187 billion in untaxed overseas profits over the past year, boosting their offshore holdings by 18.4 percent, according to data compiled by Bloomberg.
The 70 U.S.-based companies studied hold $1.2 trillion in profits around the world. GE and Pfizer have built up the most money outside the U.S., with $102 billion and $63 billion respectively, according to securities filings. Apple Inc. (AAPL), Google Inc. (GOOG) and Microsoft Corp. (MSFT) were among the companies that increased their accumulated overseas profits by more than 40 percent in 2011.
As U.S.-based companies expand globally, they keep profits overseas, legally out of the reach of the Internal Revenue Service. Lawmakers from both political parties point to the stockpiling as a symptom of a failed corporate tax system, even while they remain deadlocked over whether the U.S. should impose higher or lower taxes on its companies’ global profits.
One of Google's maneuvers sounds more like a hard drink than a tax avoidance strategy:
Google’s income shifting -- involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” -- helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries.
Forty percent of the offshore hoard is held by financial services corporations:
Of the $1 trillion that’s believed to be offshored, about $400 billion of that was moved out of the U.S. by financial services corporations — the same ones that already benefited from a king’s ransom of a bailout in 2008.
Citigroup, Morgan Stanley and Bank of America had more than 800 offshore tax havens in 2008, according to a U.S. General Accountability Office study. The list goes on and includes brand-name companies like Apple, Google, Microsoft and Procter and Gamble.
In 2009,
Citigroup was fined for helping clients dodge taxes:
Finra’s fine against Citigroup Global Markets, expected to be announced on Monday, partly involves the bank’s failure to control trading related to strategies including so-called “total return swaps”.
Such swaps helped Citi’s foreign clients receive the full value of dividends from US securities without paying the withholding tax.
Morgan Stanley is increasingly employing equity swaps, a
secretive strategy used to dodge taxes
on stock trades:
“The audit guidelines reflect suspicion that all cross-border equity swaps are tax-avoidance transactions, even though the I.R.S.’s own regulations treated these transactions favorably,” Mr. Leeds said.
Tax lawyers regard the directive as significant because it concerns a vast, unregulated market and could lead to tax disputes between the I.R.S. and Wall Street banks. The exact size of the equity swaps market is difficult to ascertain, but the Bank of International Settlements puts the notional value of all equity-linked swaps and forwards, which are similar derivatives, at nearly $1.7 trillion as of last June.
Washington D.C. lawmakers are piecing together a deal to
broaden the tax base:
A small, bipartisan group of lawmakers in both the House and Senate are secretly drafting deficit grand bargain legislation that cuts entitlements and raises new revenue.
Sources said that the task of actually writing the bills is well underway, but core participants in the regular meetings do not yet know when the bills can be unveiled.
The core House group of roughly 10 negotiators is derived from a larger Gang of 100 lawmakers led by Reps. Mike Simpson (R-Idaho) and Health Shuler (D-N.C.), who urged the debt supercommittee to strike a grand bargain last year.
The politicians may look for a model to the U.K. where increased compliance has allowed the government to reduce the overall rate,
per the Secretary:
HMRC’s strategy for collecting that tax is based on a relationship of trust and transparency and the results of this speak for themselves: of the almost £14bn collected through HMRC’s compliance work last year, almost £8bn came from large business.
But this is not a one-way street and companies must pay the tax they owe, when they owe it. Alongside our commitment to working with business and helping them pay, the Government is clear that we will clamp down on tax avoidance where we see aggressive and abusive attempts to escape paying a fair share.