Patriotism vs. the bottom line. Should big U.S. companies be allowed to evade taxes by keeping profits overseas?

U.S. companies are making unprecedented profits, but don’t expect Americans to benefit from the taxes they pay on those sums.  That’s because more than ever corporations have elected to stash their earnings overseas, effectively sheltering their loot from the I.R.S.  It may be legal, but is it ethical?  Are they fleecing the American people by dodging  their domestic tax obligations?

In a report released by J.P. Morgan Chase & Co. analyst Dane Mott, 600 out of 1,000 U.S. multinationals are retaining foreign profits overseas at a rate of about $588 billion a year, or approximately 60% of their total earnings.  That’s a significant number when you consider that only about 30% of that revenue was actually made abroad. 

But the plot thickens if we zoom in on the biggest offenders, “big” both in their overall profits and how much they shield in offshore tax havens, many of which are island nations “with a lot of coastline,” banking systems set up specifically for the purpose of multinational evasion. 

These companies, and many others, are stashing their flow abroad at rate that’s steadily climbing.  Comparing 2007 to 2012, U.S. corporations held an additional $130 billion in foreign banks, totaling near $1.45 trillion as they buffer against a faltering U.S. economy and stagnating labor market. 

Citizens for Tax Justice, a liberal-leaning research group, states that at least 18 companies are guilty of stashing profits in those international tax havens, where loose regulations and laws allow them to pay little or no taxes.  Here’s the part that stings: if those companies followed the letter of the law and brought those earnings back to the U.S., where they’re required to pay taxes on it, the result would be about a $92 billion boon to our tax base. 

Nike, Microsoft, and Apple have been named as big offenders, to name a few, but the list is long and distinguished.  Apple was slammed during a Senate hearing for paying just 2% in taxes on the $74 billion in profits it made last year, which it holds in an Irish subsidiary bank that doesn’t have official residency anywhere in the world.  Apple argues that they’re not directly violating any laws, just utilizing a loophole in the tax codes, and that their presence and ability to shift funds abroad creates a lot of U.S. jobs and stimulates our economy. 

The SEC has released a list of 235 companies who are on its watch list, withholding funds abroad that would be taxed about $1.35 trillion if that money was re-patriated.  Here’s the mind boggling part – those are just the companies who have complied with the SEC’s profit and tax estimate disclosure process, because another loophole allows them to basically “opt out” of such documentation, citing that those calculations would be too complicated. 

To over simplify, when a company makes money abroad or makes money in the U.S. but shelters those profits in foreign national banks, they are only required to pay taxes in those nations, not the United States.  But many of these countries with tax haven banking systems charge little or nothing.  If the company moves their money back to a United States bank, they’ll be required to pay the standard corporate tax rate on the money, about 35%.  If they’ve already paid taxes on the money abroad, then they’re just required to pay the difference between 30% and what was already paid. 

The U.S. government has concluded that the current tax system discourages repatriation of funds from U.S. companies and lowers our tax base, but CEO’s, businessmen, and Congress can’t seem to figure out a fix.  The Obama administration has tabled a proposal to lower the tax rate to 28% but expand the tax reach to all income earned or held overseas.   Lawyers for these companies, however, argue that nothing less of complete free reign to move profits into and out of the United States without tax consequence would be the best for the American people – and their balance sheets.

So is this just smart business?  Counter to the interests of the U.S. public, akin to tax treason?  If the U.S. people are expected to pay their taxes, should big corporations be obligated to do the same?  Or do they legitimately create enough jobs and contribute to our economic growth that they should receive lawful tax amnesty?  We’d love to hear your opinion.

Here’s a list of the top firms holding profits overseas:

Apple

Total Cash: $137.1 billion


Industry: Technology


Percent Overseas: 69%

Microsoft

Total Cash: $68.3 billion


Industry: Technology


Percent Overseas: 89%

Google

Total Cash: $48.1 billion


Industry: Technology


Percent Overseas: 65%

Pfizer

Total Cash: $46.9 billion


Industry: Healthcare/Pharma


Percent Overseas: N/A

Cisco

Total Cash: $46.4 billion


Industry: Technology


Percent Overseas: 85%

Oracle

Total Cash: $33.7 billion


Industry: Technology


Percent Overseas: 80%

Qualcomm

Total Cash: $28.4 billion


Industry: Technology


Percent Overseas: 65%

General Motors

Total Cash: $27.4 billion


Industry: Automotive


Percent Overseas: N/A

Amgen

Total Cash: $24.1 billion


Industry: Healthcare/Pharma


Percent Overseas: $78%

Ford Motor Company

Total Cash: $22.9 billion


Industry: Automotive


Percent Overseas: N/A