Tax dodging by multinational corporations costs the US approximately $111 billion each year and saps an estimated $100 billion every year from poor countries, preventing crucial investments in education, healthcare, infrastructure, and other forms of poverty reduction. US policymakers and a broken international tax system enable tax dodging by multinational corporations, which contributes to dangerous inequality that is undermining our social fabric
and hindering economic growth.
Introduction:
The gap between rich and poor is reaching new extremes. The richest 1% have accumulated more wealth than the rest of the world put together. Meanwhile, the wealth owned by the bottom half of humanity has fallen by a trillion dollars in the past five years. Just 62 individuals now have the same wealth as 3.6 billion people – half of humanity. This figure is down from 388 individuals as recently as 2010. These dramatic statistics are just the latest evidence that today we live in a world with dangerous and growing levels of inequality.
This inequality is fueled by an economic and political system that benefits the rich and powerful at expense of the rest, causing the gains of economic growth over the last several decades to go disproportionately to the already wealthy. Among the most damning examples of this rigged system is the way large, profitable companies use offshore tax havens, and other aggressive and secretive methods, to dramatically lower their corporate tax rates in the
United States and developing countries alike. This practice is called “tax avoidance” or “tax dodging.”2 Ironically, these same companies, which retain a multibillion dollar army of lobbyists to influence federal policy, are among the largest beneficiaries of taxpayer funded support.3
Tax dodging by multinational corporations costs the US approximately $111 billion each year.4 But these schemes do not just harm the US. The same tactics corporations use to dodge US tax sap an estimated $100 billion every year from poor countries, preventing crucial investments in education, healthcare, infrastructure, and other forms of poverty reduction.5 The harm done to Americans and people living in poor countries by corporate tax dodging are two sides of the same coin.
A new analysis by Oxfam of the 50 largest public US companies6 sheds light on just how rigged the tax system has become and shows that these same companies are using considerable political influence to push for even greater rewards in the forms of loans, bailouts and other government support. The analysis highlights the vast taxpayer-funded support the largest and most profitable US companies receive even as they engage in aggressive schemes to avoid paying taxes. Using corporate financial, lobbying and investor disclosures, Oxfam found:
From 2008 – 2014 the 50 largest US companies collectively received $27 in federal loans, loan guarantees and bailouts for every $1 they paid in federal taxes. From 2008 – 2014 these 50 companies spent approximately$2.6 billion on lobbying while receiving nearly $11.2 trillion in federal loans, loan guarantees and bailouts. Even as these 50 companies earned nearly $4 trillion in profits globally from 2008 – 2014, they used offshore tax havens to lower their effective overall tax rate to just 26.5%8, well below the statutory rate of 35% and even below average levels paid in other developed countries. Only 5 of 50 companies paid the full 35% corporate tax rate.
These companies relied on an opaque and secretive network of more than 1600 disclosed subsidiaries in tax havens to stash about $1.4 trillion offshore. In addition to the 1600 known subsidiaries, the companies may have failed to disclose thousands of additional subsidiaries to the Securities and Exchange Commission because of weak reporting requirements.
Their lobbying appears to have offered an incredible return on investment. For every $1 spent on lobbying, these 50 companies collectively received $130 in tax breaks and more than $4,000 in federal loans, loan guarantees and bailouts.
Responsibility for setting US tax policy rests with Congress and the President, and real reform of our broken tax system depends on changes in public policy. But multinational corporations, which take advantage of and in some cases aggressively lobby to shape the broken system in their favor, are not mere bystanders. Companies can and must reform their practices as well.
Tax dodging practiced by corporations and enabled by federal policymakers contributes to dangerous inequality that is undermining our social fabric and hindering economic growth. That is why Oxfam is urging Congress and the President to take aggressive measures to crack down on tax haven abuse and bring greater transparency and accountability to corporate tax practices by passing the Stop Tax Haven Abuse Act (S. 174/H.R.297) as a first step to necessary reform. Central to this reform is a mandatory set of new rules that ensure companies publicly report details on where they pay taxes and where they really do their business so they can be held accountable everywhere they dodge taxes. Even without legislative reforms, companies have a responsibility to publicly report their tax practices, end tax dodging and use their political influence to seek a more level playing field on tax, rather than rigging the rules for their own benefit.
The big picture on tax dodging
In every country in the world tax revenues pay for schools, hospitals, roads, bridges, first responders, social safety nets and other public services that keep societies running and reduce poverty.
Fair tax systems are vital to finance well-functioning and efficient states and to enable governments to fulfill their obligations to uphold citizens’ rights to essential services such as healthcare, education and social protection for low income families. A well-designed tax system can ensure that those who can afford it most make the largest contribution. In developing countries in particular, where there is an immense need to strengthen health and education services for the hundreds of millions of people who still live in extreme poverty, revenues from taxes provide the most sustainable way to pay for teachers, doctors and police officers. Every dollar a developing country can raise in taxes is a dollar it does not need to seek from donors. Ultimately, the only way poor countries will be able to sustain themselves without relying on foreign aid is by creating a strong domestic tax base that can fund the essential public services and functioning governments their populations need. However, national tax codes, as well as the international tax structure, can instead work in reverse so that the biggest burden falls on the poorest people. The current global tax architecture is secretive and uncoordinated, weakening the ability of governments to collect the taxes they are due. These rules facilitate cross-border tax dodging and the concealment of wealth. In particular, tax havens and offshore financial centers—which can be characterized by secrecy, low- or zero-tax rates and the almost complete lack of disclosure of any relevant business information—are the most obvious tools used to enable multinational corporations to escape taxes.
Exploiting tax loopholes and engaging in large-scale tax avoidance are integral components of the profit-making strategies of many multinational corporations. Tax avoidance, or tax dodging, means engaging in transactions which serve no commercial purpose other than to decrease the company’s tax bill.
Tax dodging can take many forms. US corporations must pay 35% tax on all profits, wherever they are earned around the globe—but only after that money has been “repatriated” back to the US. Companies report that they have more than $2 trillion of profits “permanently reinvested” abroad to avoid being taxed in the US – but companies actually can use that money in the US without paying tax by borrowing money domestically using these offshore assets as collateral.
— source oxfamamerica.org (pdf)