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Tax Evasion and Profits

Folder tabs with focus on offshore account tab. Business concept image for illustration of tax evasion.US-based companies added $206 billion to their offshore profits last year, shielding earnings in low-tax countries.

Bloomberg News reports that multinational companies have accumulated $1.95 trillion outside the US, up 11.8 percent from last year. Three companies—Microsoft Corp., Apple Inc., and International Business Machines Corp.—account for 18.2 percent of the total increase.

Tax Loopholes

“The loopholes in our tax code right now give such a big reward to companies that use gimmicks to make it look like they earn their profits offshore,” said Dan Smith, a tax and budget advocate at the U.S. Public Interest Research Group, which seeks to counteract corporate influence.

Many of these companies are moving patents and other intellectual property to low-tax locales. US multinational companies reported earning 43 percent of their overseas profits in Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland.

“If you can choose between San Antonio and Shanghai, and you pay no taxes one place and 25 to 35 percent at home, you’re encouraged to move jobs overseas,” said Paul Jacobs, CEO of Qualcomm Inc., in his Mar. 4 farewell address. For US corporations, these overseas profits are building up and they are choosing to not bring the cash home and face the tax consequences. Because of this, CEOs like Jacobs are urging Congress to pass legislation that allows American companies to be able to bring money back to the United States without tax penalty. Doing so, they argue, would decrease tax evasion and increase domestic investment.

22 Companies

The majority of the offshore profits are held by a small number of companies. The top 22 corporations in Bloomberg’s analysis have more accumulated earnings outside the US than the other 285 combined. Under U.S. accounting rules, companies don’t have to assume they will pay federal taxes on profits they have deemed indefinitely reinvested outside the U.S.