Bailed-Out Firms Have Offshore Tax Havens, GAO Report Finds
Saturday, January 17, 2009
Most of America's largest publicly traded corporations -- including several that are receiving billions of dollars from U.S. taxpayers to finance their recovery -- have set up offshore operations that could help them avoid paying U.S. taxes on their profits, a government study released yesterday found.
American International Group, Bank of America, Citigroup and Morgan Stanley are among the companies that are getting bailed out by U.S. taxpayers while having subsidiaries in locations where they can avoid paying U.S. taxes, according to the Government Accountability Office.
Of the 100 largest public companies, 83 do business in tax-haven hotspots like the Cayman Islands, Bermuda and the British Virgin Islands, where they can move their income into tax-free accounts.
It is all legal, but it could come to an end, given the dire condition of the U.S. economy and President-elect Barack Obama's campaign pledge to close this popular business tax loophole. The Treasury estimates that it loses $100 billion a year in tax revenue as a result of companies shipping their income off shore, and congressional leaders are vowing to introduce legislation forcing big companies to pay full freight.
The GAO did not independently review company transactions to see if the companies purposely created tax-haven businesses to avoid U.S. taxes. But it said that historically, offshore subsidiaries are used for reducing tax costs and shielding transactions from public view.
Several of the companies are household names, including Pepsi, Exxon, Dell and Dow Chemical. In the list of 100 companies that GAO studied were 63 with major federal contracts, including Caterpillar, BearingPoint, Boeing, Merck & Co. and Kraft Foods.
Legislators gave particular attention to the 14 companies on the list that received bailout money from the Treasury in the recent financial meltdown. Sens. Byron L. Dorgan (D-N.D.) and Carl M. Levin (D.-Mich.) requested the GAO study as a launching pad for their effort to curtail what they call "tax-dodgers."
The bailout recipients on the list include Bank of America, which received $45 billion; Citigroup, $45 billion; American Express, $3.4 billion; and Goldman Sachs, $10 billion, according to the Taxpayers for Common Sense watchdog group.
"This is kind of like economic patriotism," Dorgan said. "Americans were told you have to pony up some money to help these companies. And it's rather infuriating for them to find out now that those companies, when they were profitable, didn't want to pay taxes and found clever ways to hide their money overseas."
Several companies said they are engaged in legitimate business operations around the world, and rejected the premise that they are trying to avoid paying their share of U.S. taxes.
Representatives from two companies reported in interviews that they couldn't say whether their foreign operations ultimately reduced their total tax bill.
"We do business around the globe," AIG spokesman Nick Ashooh said. "It's absurd that we're being accused of using these as tax havens. Now what the net tax impact is, that's extremely complicated."