I have long wondered why corporations avoiding state and federal taxes by incorporating overseas is not a bigger problem than it is. The recent decision by Starbucks to re-locate their European HQ to the UK (in order to pay a ‘fairer’ amount of tax) indicates stakeholders elsewhere are bringing pressure to bear on firms that seek to avoid contributing to the economies in which they operate. In the U.S., however, this issue has lagged. In the face of inaction by the federal government, individual states are gradually beginning to recoup their share of the lost revenue, which is significant:
“Offshore tax shelters cost the federal government $30 billion to $90 billion annually, according to a 2013 Congressional Research Service report. The U.S. Public Interest Research Group, which tracks corporate taxes, puts the amount that states lose at $20 billion a year.”
The states are doing so by passing legislation that counts revenues booked in overseas countries as taxable income that must be declared on the firms’ state income tax returns:
“Oregon enacted a bill last June for the 2014 tax year identifying 39 countries and territories—including Barbados, Liberia, and the U.S. Virgin Islands—as corporate shelters. The state counts profits that corporations and their subsidiaries stash in shelter countries as taxable income, and companies that do business in the state must report it on their state tax returns and pay up.”
Some firms will face significantly higher tax bills as a result:
“Microsoft, Apple, and IBM accounted for $37.5 billion, or 18.2 percent, of the total increase during the past year. Caterpillar avoided $2.4 billion in U.S. taxes over more than a decade by shifting profits from a parts business to a subsidiary in Switzerland, according to a report issued on March 31 by a Senate committee.”
There is scope for many other states to follow suit:
“Few of the states that have passed or are contemplating tax-haven legislation are home to a large multinational such as Microsoft, which is based in Washington, or Apple in California, IBM in New York, or Caterpillar in Illinois. Those states would stand to collect far more from such measures. California lost the most to offshore havens in 2011, an estimated $3.3 billion, the Public Interest Research Group reports.”
The graphic that accompanies the article provides additional detail:
Take care
David
David Chandler & Bill Werther
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U.S. States Target Corporate Cash Stashed Overseas
U.S. States Target Corporate Cash Stashed Overseas
By Mark Niquette
April 17, 2014
Bloomberg Businessweek
