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U.S. companies are saving $100 billion a year by shifting profits overseas, report says

NEW YORK — U.S. multinational companies are saving $100 billion a year by shifting their profits overseas to lower their tax bills, according to a study released Tuesday that found that corporate tax-dodging is a bigger problem than previously estimated.

Most U.S. companies pay far less than the country’s 35 percent tax rate and are using a multitude of maneuvers to keep their tax bills low, according to the study by Kimberly A. Clausing, an economics professor at Reed College. The study will be presented this week by the Washington Center for Equitable Growth, a D.C.-based think tank.

In addition to merging or buying smaller foreign firms and moving their headquarters overseas to lower their tax rates, known as an inversion, companies also assign patents to subsidiaries in countries in which the profits made from them will be taxed at a lower rate, the report says.

“It is a much bigger issue than just inversions, that is just the tip of iceberg,” Clausing said in an interview.

Most of the profits are being shifted to countries — Bermuda, the Cayman Islands, Ireland, Luxembourg, the Netherlands, Singapore and Switzerland — where the effective tax rate is less than 5 percent, the report says.

“There is indisputable evidence that the erosion of the U.S. corporate income tax base is a large and increasing problem,” the report says.

Clausing said she analyzed survey data from the U.S. Bureau of Economic Analysis on U.S. multinational firms and found that the amount lost to these types of tax maneuvers has accelerated over the past decade.

Tax revenue lost to profit shifting in 2012 was $77 billion to $111 billion and will reach about $94 billion to $135 billion this year, despite repeated Treasury Department efforts to curtail such maneuvers, the study found.

The study strikes at a simmering battle among corporations, regulators and lawmakers over whether the U.S. tax system is too burdensome and hampers the competitiveness of American companies. The debate has captured the attention of the remaining Democratic and Republican presidential candidates and has long frustrated lawmakers.

Business groups complain that the current tax rate is too high, prompting many companies to refuse to bring their foreign profits back to the United States. The amount of unrepatriated foreign profits reached $2.4 trillion, according to Citizens for Tax Justice.

Others have pursued inversions. Recent Treasury Department rules have made these inversion deals more difficult, killing pharmaceutical giant Pfizer’s plan to merge with Botox-maker Allergan and move its headquarters to Ireland, for example.

But the study finds that U.S. corporations have plenty of other ways to lower their tax bills, and there is little expectation that Congress will act this year to address the issue.

Read more:

How U.S. companies are avoiding $695 billion in taxes

Obama: Inversions are one of the most “insidious tax loopholes out there.”

The Treasury Department has a new plan for stopping companies from giving up U.S. citizenship for lower taxes