Biggest U.S. Companies Stash 40% of Profits Offshore to Avoid Taxes

Tuesday, March 12, 2013

While Washington implements billions of dollars in automatic spending cuts, The Wall Street Journal has reported that major corporations last year stashed enough profits overseas to avoid paying taxes that could have more than offset the hit from sequestration.


The newspaper analyzed 60 large U.S. companies, which off-shored $166 billion in earnings in 2012. Forty percent of their annual profits were protected from taxation by the Internal Revenue Service.


All of the firms examined were repeat offenders, as far as off-shoring profits. Each one had kept at least $5 billion in overseas accounts in 2011.


Out of the 60 businesses, 10 had stored more 2012 earnings in other countries, such as Ireland and Bermuda, than they generated for their bottom lines. One example cited was Abbott Laboratories, whose reported net income was $6 billion, while its stored untaxed overseas earnings went up by $8.1 billion last year, bringing its combined total of offshore profits to $40 billion.


Pharmaceutical and technology companies were most likely to take advantage of U.S. laws that help them avoid taxes on earnings overseas by creating foreign subsidiaries and then shifting patents and marketing rights to these subsidiaries. Prime examples were Pfizer, Merck and Johnson & Johnson, and Microsoft, IBM, Cisco and Apple.


The Wall Street Journal also found that it would have taken less than a third of the 60 companies (19) to have generated $98 billion in tax revenues for the U.S. Treasury had they brought their foreign earnings home to the U.S. That amount of taxes would have been more than the $85 billion in budget cuts that the sequestration has forced upon federal agencies.


In 2004, Congress passed a temporary tax holiday that led companies to bring back to the U.S. $312 billion in foreign earnings without paying taxes on it. The rationale was that this would stimulate the U.S. economy by creating jobs. But the plan failed because the companies used the money instead to pay dividends and repurchase shares.

-Noel Brinkerhoff, David Wallechinsky


To Learn More:

More U.S. Profits Parked Abroad, Saving on Taxes (by Scott Thurm and Kate Linebaugh, Wall Street Journal)

Across the Sea (Wall Street Journal)

Silicon Valley Firms Stash Billions Offshore but Don’t Report Tax Benefit (by Ken Broder, AllGov California)

Super-Rich Hide at Least $21 Trillion in Tax Havens (by Noel Brinkerhoff, AllGov)


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