Just 14 American tech and pharmaceutical companies have parked about half a trillion dollars offshore to avoid U.S. taxes, the Financial Times reported on Friday. The handful of firms controls about one quarter of the nearly $2 trillion in total U.S. corporate profits hold overseas.
The list of companies includes names that should be familiar to those who follow the legal wrangling over corporate taxes and international tax havens. Apple, Microsoft, and Google top the list, and each of those tech giants has had its tax schemes exposed by Congressional investigators or reporters in recent years.
The companies have seen their effective tax rates fall steadily over the past eight years thanks to their offshoring practices, according to the Financial Times analysis. If all is above board, a company’s overseas profits should increase at about the same rate as its overseas sales, but the companies Financial Times scrutinized reported that “their lightly taxes foreign profits grew at nearly three times the pace of their foreign sales.” The overseas money was taxed at an average rate of just 10 percent last year.
Tech giant Apple relies on subsidiaries based in Ireland and the Netherlands that exploit loopholes in international tax law to create a corporate presence that technically doesn’t owe taxes in any country. The technique is so common that it has a quirky nickname — the “double Irish with a Dutch sandwich” — and while Irish lawmakers have taken some cosmetic steps to make the scheme harder, the reforms fit into a pattern of ineffectual government actions to combat legal corporate tax evasion.
Such practices are by no means special to the tech and pharmaceutical sectors, though. Caterpillar, one of the largest heavy machinery companies in the world, has ducked about $2.4 billion in taxes in recent years through a similar arrangement that stashes overseas profits in Switzerland. Chiquita used its acquisition of rival banana giant Fyffe’s to relocate its tax headquarters to Ireland (though it expects the benefits of the move to be minimal since it “had already taken steps to minimize its tax bill” here). Walgreen‘s is one of several other large American companies that is reportedly weighing a similar move.
Several of the 14 companies in the Financial Times’s analysis also appeared in a February report by Citizens for Tax Justice on the effective income tax rates for hundreds of the country’s largest and most profitable corporations. While the business community often laments the 35 percent corporate income tax rate in the U.S., the CTJ report shows just how few companies pay anywhere close to that on-paper rate.
Pharmaceutical company Eli Lilly, for example, paid an effective U.S. corporate income tax rate of 14.8 percent from 2008 to 2012, according to the report. Merck’s rate was 17.3 percent, and Qualcomm’s was 13.7 percent.
At 27.2 percent, Oracle paid the highest effective rate of any of the Financial Times companies that also appears in the CTJ report. The other 10 companies the Financial Times looked at were considered suspicious by CTJ analysts, who believe these companies’ official reports do not accurately reflect the distribution of their sales between the U.S. and overseas business. The group provided rough estimates of those companies’ global tax rate, and they range from 12.1 percent to 21.7 percent.
By one estimate, tax dodging costs the U.S. as much as $300 billion each year. Corporate tax evasion forms only one part of that total, and an Internal Revenue Service crackdown on individual tax dodgers is ramping up this year. But the complexities of the international business tax system are tougher to resolve, and trillions of dollars in corporate profits are likely to remain hidden from the global taxman until the world’s legislators find a way to end tax havens.