Oh yeah , they're kidding us.
I know this stuff happens and I know why it happens, I'm mad, amazed and bemused. Think of the things that could be funded if these "legal" shelters could be taxed. No taxation, Shadowy representation.
One building, 12,748 companies
Posted Sunday, July 04, 2004
|
From the outside, there's no way to see it's the official address of 12,748 companies.
Ugland and other office buildings in George Town are home to subsidiaries of more than 150 U.S. corporations, including Coca-Cola Co., Intel Corp. and 10 more of the 30 companies in the Dow Jones industrial average.
Scores of the biggest U.S. companies use havens like the tax-free Cayman Islands, a British crown colony 150 miles southwest of Cuba, to escape billions of dollars in U.S. taxes, says Sen. Byron Dorgan, a Democrat from North Dakota.
Enron Corp., the Houston-based energy company that went bankrupt in December 2001, used 441 Cayman affiliates to help hide $2.9 billion in losses, Senate investigators say.
Twenty-four of the 100 largest contractors with the federal government have subsidiaries in the Caymans, according to a March report by the General Accounting Office, Congress' investigative arm. They received $35 billion from the U.S. government in 2001, the GAO found.
"They are shortchanging our country even as they profit from it," says Dorgan, 62, the top Democrat on the Competition, Foreign Commerce and Infrastructure Subcommittee of the Committee on Commerce, Science and Transportation.
The 100 U.S. contractors own 464 subsidiaries in offshore tax havens, according to the GAO report. The offshore subsidiaries often serve the sole purpose of allowing companies to avoid paying U.S. taxes, says Sen. Carl Levin, 68, a Democrat from Michigan.
A post office box
"Many are little more than a post office box set up to allow corporations to move profits to the low- or no-tax havens rather than reporting that income to the United States," he says.
J.P. Morgan Chase & Co. estimated in a June study that $650 billion of profit earned abroad by U.S. companies over decades had never been taxed by the United States.
In 2001, almost half of the money U.S. companies earned outside the country -- 47 percent -- was accounted for in offshore tax havens such as the Cayman Islands, which has no corporate income tax, says Martin Sullivan, 45, a former U.S. Treasury Department economist, citing Commerce Department data.
As a result, companies didn't have to pay the 35 percent U.S. corporate income tax.
David James, vice president of research at James Investment Research Inc., which manages $650 million, says he has mixed feelings about companies that use the Cayman Islands to avoid U.S. taxes.
"As an American, I hate to see it happen. As an economist, I see it as a sign U.S. taxes are too high. As a shareholder, I favor lowering taxes to boost the bottom line. If they can move to Mars and reduce taxes further, that would be fine."
Coca-Cola savings
Coca-Cola, the world's largest soft-drink maker, manufactures syrup in two Irish plants owned by Coke's Cayman-based subsidiary, Atlantic Industries.
Coke, based in Atlanta, saved $500 million in U.S. taxes last year by earning 63 percent of its income through foreign subsidiaries, according to its 2003 annual report.
Coke used the Cayman subsidiary to sell syrup to customers in 75 countries and avoid paying U.S. taxes on earnings from more than $1 billion in sales last year, according to a person familiar with Coke's finances.
Coke spokesman Ben Deutsch says it doesn't comment on tax strategies.
"When companies, including great companies like Coca-Cola, decide they want to minimize their participation in the payment of taxes for that which we enjoy in this country, it bothers me," Dorgan says.
Intel, the world's biggest computer chipmaker, uses a Cayman subsidiary to run plants in Ireland, which has a 12.5 percent corporate income tax. Intel, using its offshore units, avoided $792.6 million in U.S. taxes from 2001 to 2003, according to SEC filings.
Asked why Intel, based in Santa Clara, Calif., has a Cayman subsidiary, spokesman Chuck Mulloy says, "I can only assume it's for tax purposes."
Intel Chief Executive Officer Craig Barrett declines to comment, Mulloy says.
Tax payments falling
Forty-five percent of U.S. corporations with revenue exceeding $50 million or assets of more than $250 million paid no federal income tax in 2000, according to another GAO study. That has increased each year since 1996, when it was 33 percent, the GAO found.
"There's no reliable data on how many offshore subsidiaries serve as tax dodges versus valid business outlets," Levin says. "But recent research does show that U.S. businesses are reporting more and more of their profits in tax havens while paying less and less in U.S. taxes."
Some of the research Levin refers to is by economist Sullivan, who analyzed Commerce Department data and found that profits for Cayman subsidiaries of U.S. companies are soaring. They earned $5.1 billion in 2001, up from $300 million in 1993, he found.
Kerry, Bush disagree
Presidential candidates John Kerry, a Democratic senator from Massachusetts, and Republican President George W. Bush disagree about how much tax U.S. corporations should pay the United States.
Kerry, 60, says he would require U.S. corporations to pay U.S. taxes on all products.
"American companies should pay taxes on their profits in the same way whether they earn them in Bangalore or Buffalo," says Kerry aide Jason Furman.
Kerry would allow a one-time tax bonus for U.S. companies: If they bring home previous foreign earnings, they could pay a 10 percent tax rate on that money. Kerry would use new taxes on foreign income to help lower the U.S. tax rate to 33.25 percent -- minus credits for taxes paid to other countries.
Bush opposes break
Bush, 57, doesn't want U.S. companies' foreign subsidiaries to pay U.S. taxes if they already pay foreign taxes, says Tara Bradshaw, a U.S. Treasury Department spokeswoman.
Imposing income taxes on foreign subsidiaries of U.S. companies would place them at a disadvantage with foreign competitors that don't pay U.S. taxes, she says.
"This would be a serious blow to U.S. businesses seeking to compete in the global marketplace," she says.
Another tax dodge
A practice called transfer pricing also may be key to how U.S. corporations avoid taxes, Dorgan says. The practice lets companies buy and sell products and services with their own offshore subsidiaries and set prices themselves.
Companies abuse transfer pricing by shifting profits overseas to avoid U.S. taxes, Dorgan says.
In a March report on financial crime and international law enforcement, the U.S. State Department cited examples of transfer pricing abuses, without naming companies.
It said one company claimed to import dish towels from Pakistan for $153.72 each; another reported it had imported briefs and panties from Hungary for $739.25 a dozen; a third claimed it had paid $4,896 a unit for metal tweezers imported from Japan.
The report also cited a company claiming to export toilet bowls to Hong Kong for $1.75 each. The State Department report called those prices absurd and ridiculous.
The fabricated high prices of imports let companies report artificially high expenses in IRS tax filings. The exaggerated low prices of exports allow companies to report smaller profits.
"Criminal individuals, corporations and other enterprises engage in abnormal international trade pricing that transfers value and/or reduces U.S. tax liability," the State Department report said.
$53 billion tax loss
Transfer pricing abuses by corporations cost the U.S. Treasury $53 billion a year, according to Professor John Zdanowicz of Florida International University in Miami. The lost taxes are from more than $150 billion of profit on improper transfer pricing, he says. "It's a $150 billion shell game."
"We have to get on top of corporate accounting and manipulation of corporate books for the sole purpose of reducing taxes," says U.S. Senator Charles Grassley, 70, a Republican from Iowa and chairman of the Senate Finance Committee.
As long as U.S. companies are permitted to use loosely defined transfer pricing rules, massive tax evasion will continue, Dorgan says.
"The IRS is staggering around in a fog here," Dorgan says. "They don't have a ghost of a chance of addressing these issues. And the growth in avoided taxes is scandalous."
Caymans vs. NYC
There are more than 500 banks and trust companies with deposits of more than $1 trillion in the Cayman Islands, according to the Cayman Monetary Authority. That's more deposits than there are in New York City, says Manhattan District Attorney Robert Morgenthau.
"While some of this money may be there for legitimate purposes, much of it has been put there to avoid taxes and responsible regulation in this country," Morgenthau says.
In the Cayman Islands, the names of company officers, directors and owners are secret. The Caymans are home to about 40,000 residents and an equal number of foreign-owned companies.
U.S. multinational corporations will continue to legally stash profits overseas, out of the IRS's grasp, unless the United States changes the rules of the international tax game, says Douglas Shackelford, a business professor at the University of North Carolina in Chapel Hill.
Until the United States removes incentive for companies to shift income to low-tax or no-tax places, companies will have little reason to change their strategies.
"As long as there's a Cayman Islands, there'll always be some guys who'll give you secret banks and no taxes," Shackelford, 45, says. "They're the leak in the bucket."
