American corporations avoid millions of dollars in taxes each year by reporting that large shares of their income are earned in five popular tax havens, even though small segments of their workforce and investment take place in those countries, according to data from the Congressional Research Service.
The report analyzed five countries — Switzerland, Ireland, the Netherlands, Bermuda, and Luxembourg — that serve as popular tax havens, compared with five countries — Canada, Germany, the United Kingdom, Australia and Mexico — where American companies typically do large shares of their business. What it found, as Citizens for Tax Justice highlighted, is that even though large shares of their workforces and investment concentrated in the “traditional economies,” large shares of their profits were reported in the five tax havens:
In 2008, American multinational companies reported earning 43 percent of their $940 billion in overseas profits in the five little tax-haven countries, even though only four percent of their foreign workforce and seven percent of their foreign investments were in these countries.
In contrast, the five “traditional economies,” where American companies had 40 percent of their foreign workers and 34 percent of their foreign investments, accounted for only 14 percent of American multinationals’ reported overseas’ profits.
American companies have become experts at routing profits overseas, with companies like Apple and Microsoft avoiding billions of dollars in taxes each year. The problem has gotten particularly bad in the last decade, as this chart from the report shows:
At the same time, many business leaders are advocating for a particular corporate tax reform, known as the territorial tax system, that would make it even easier to route profits overseas and avoid American taxes.