Large US Corps Avoiding Significant Amounts of Tax

August 1, 2011 Taxation in USA

Large US Corps Avoiding Significant Amounts of TaxLarge US corporations are using their expansive financial resources and expertise to hide billions of dollars of international profits, in order to minimize their US tax obligations.

In the face of the ongoing political debates in the US regarding the country’s current financial situation, the independent public policy research organization The Greenlining Institute has issued a new report on large US corporations minimizing their tax obligations through the use of subsidiaries established in offshore jurisdictions. The Institute claims that an effort to address shortcomings in the tax system would make a significant positive contribution to the country’s economic situation.

According to data contained in the report, US based Fortune 100 companies avoid a cumulative USD 60 billion in US taxes per year by moving their profits to subsidiaries in offshore jurisdictions. The lost tax revenues are estimated to be large enough to cover the combined budgets of the US Environmental Protection Agency and the US Departments of Energy and Labour. It was noted by the report’s authors that only 10.3 percent of the current federal budget is funded by corporate tax collections, while in the 1940s the level was at approximately 28 percent.

It was concluded in the report that the US tax system is particularly advantageous to high-tech and pharmaceutical firms, which can take advantage of current rules to shift significant amounts of intellectual properties and licenses to low-tax jurisdictions. The Greenlining Foundation recommends that the US government immediately addresses the multitude of loopholes which allow large corporations to use offshore entities and subsidiaries to excessively lower their effective tax rates.

Photo by Paul Balchin