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Entries tagged "Tax Havens"

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A Response to Disputes by Corporations over our Methodology

September 2, 2011 ·

Since the release of Executive Excess 2011, several of the corporations included in our study have raised questions about our methodology. We first address the three concerns we have heard and conclude with a comment on the value that improved tax transparency would have on corporations and stakeholders alike.

Responses to Specific Concerns
We have heard three general complaints from corporations

“We have taken a provision for income taxes, far greater than the number you cite.”
Ameriprise and General Electric have both expressed this position in response to our report.

The corporate provision for income taxes is comprised of two numbers, the current taxes paid in a given year and the deferred taxes which may or may not be paid in the future. The provision for income taxes does create a liability for the corporation, an acknowledgment that there may be taxes to pay in future years, and does record a charge to earnings. But the money for deferred taxes remains in the company’s hands where it can be put in the bank and earn interest, or buy additional equipment to expand. We have been clear in our report that we are focused on the current taxes as the best approximation of the net result of what corporations actually paid in a given year.

Why do we say deferred taxes may or may not be paid in the future? Because some forms of deferred taxes can be put off indefinitely. For instance, taxes on funds held offshore do not become due until those funds are brought home to the U.S. If these funds are never brought home, the taxes are never paid.

To create an analogy using two friends, one friend may give another friend a note saying they will give him or her $100 in 20 years. With this promise of deferred payment they’ve created a liability for themselves, but no reasonable person would seek to claim that the first friend paid the second the $100 in the current year. We have sought to measure that which actually changes hands, not that which might change hands years down the road.

One more word here: even the current tax reported is an approximation. For companies with a December fiscal year, tax filings are generally made in September, while 10-K reports with the SEC are filed in February or March. Thus, what makes its way into the 10-K report is the best guess at the time of the year’s tax position. But in most if not all cases, adjustments continue to be made up until the tax form is filed with the IRS.

“You’ve excluded all the taxes that we pay to states and foreign governments”
Several companies have responded by pointing to the large amounts they pay in state and local taxes, taxes to foreign governments and even payroll taxes. Verizon and eBay have both raised this objection.

Again we believe we have been clear that our focus is on corporate income taxes paid to the U.S. federal government.  We did not investigate or make any claims about the taxes corporations paid to state, local, or foreign governments. The background for our report is a time when there is heightened focus on the federal government’s fiscal situation. Massive cuts to government programs are underway, including programs and government investments that benefit businesses. Our intent was to call into question whether corporations are paying their fair share toward the cost of government.

“Our tax refunds were the result of accounting adjustments and settlements.”
Accounting adjustments and tax settlements are common elements of corporate tax reporting and they do affect corporations year-to-year. eBay has issued a public statement saying that their refund in 2010 stemmed from a settlement pertaining to previous years’ tax returns.

In our report, we took a snapshot of a single year and did not attempt to adjust the numbers reported in the current tax provision for any of the companies in the study. We have noted in the report both that all of the ways corporations reduce their taxes are legal and also noted that in our opinion some are more legitimate, while others are not. We have not attempted to explain the reasons behind the particular current tax number for any of the companies in the report.

Clearer corporate tax reporting is in the interest of all
Objections by corporations to the way their taxes are calculated are not new. It happens almost every time a story is written about a particular corporation’s tax position. Journalists are caught in the middle of a “he said – she said” dispute and the public is left confused about who to believe.

We are reminded in our 18 years of work on executive pay that the disputes we now see about taxes used to happen around how CEO pay was calculated. The SEC stepped in and required that obtuse proxy statements, written in legalese, be re-written in plain English. Many corporations complained it couldn’t be done, but it has been and with great success. There remain today different ways of calculating CEO pay, but the differences are minor and the disputes over accurate numbers have all but disappeared.

We believe we are at the same point today with corporate tax disclosure that we were with executive pay a decade ago. There is obviously an enormous public appetite for more and clearer information on what corporations actually pay in taxes each year, and not just in this country, but in all of the taxing jurisdictions of the world. For instance, it would be informative to know what share of profits and taxes are being paid in places like the Cayman Islands or Luxembourg.

While the public is demanding more and clearer disclosures, corporate tax reporting has, in fact, grown more opaque and indecipherable, even to those with advanced degrees in corporate tax law. Some reporters who called us for clarifications reported to us that the corporate media relations officers that contacted them could not themselves explain what the numbers in the tax footnote meant. It is time for a change.

We are fortunate to have the work of the Extractive Industry Transparency Initiative (EITI), a cooperative effort between the activist community and energy and mining companies, that has established standards for report on taxes and other payments made on a country by country basis throughout the world. Country by country reporting has made a huge difference in understanding corporate activities and in cracking down on corruption in many nations.

One of the changes we advocate in our report is adopting country-by-country reporting standards for all corporations. Making these audited numbers available would reduce, if not eliminate, the disputes that we’ve seen in recent days over how much corporations really pay. While the vast majority of corporations oppose country-by-country reporting, we welcome any of the companies featured in our report joining with us to call upon Congress to enact country-by-country reporting, one of the provisions of the Stop Tax Havens Abuse Act discussed in our report.

Working together we might be able to bring the same clarity and transparency to corporate tax reporting that we have achieved in executive pay disclosures. Such transparency would benefit corporations and stakeholders alike.

Big Bucks to Dodge Taxes

September 1, 2011 ·

Infograpic: How CEOs make big bucks to dodge taxes.

 

Sign the Petition

Tell Congress: No More Corporate Tax Havens

"I'm tired of Congress enabling these corporate tax cheats. It's long past time to pass the Stop Tax Havens Abuse Act."

Add your voice and receive periodic updates about IPS' economic initiatives.

Petition delilvered in partnership with The Other 98% and US Uncut.

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<a href="http://www.ips-dc.org/campaigns/tax-dodging-ceos/"><img title="Big Bucks to Dodge Taxes" src="http://www.ips-dc.org/files/3562/executive-excess-infographic.jpg?width=500" alt="Infograpic: How CEOs make big bucks to dodge taxes." width="500" height="2011" /><br /></a> Source: <a href="http://www.ips-dc.org">Institute for Policy Studies</a> with the Other98 and USUncut.<br />

Fracking the IRS

August 31, 2011 ·

As the Super Congress eyes trillions in budget cuts that will undermine the quality of life for most Americans, here's a stunning fact to contemplate: 25 hugely profitable U.S. companies paid their CEOs more last year than they paid Uncle Sam in taxes.

In other words, the more CEOs dodge their civic responsibilities, the more lavishly they're paid. That's the key finding of a new Institute for Policy Studies report, Massive CEO Rewards for Tax Dodging, which I co-authored.

These artful dodgers include the CEOs of Verizon, Boeing, Honeywell, General Electric, International Paper, Prudential, eBay, Bank of New York Mellon, Ford, Motorola, Qwest Communications, Dow Chemical, and Stanley Black and Decker. Their average annual compensation totaled $16.7 million, well above last year's average of $10.8 million for the CEOs of S&P 500 companies.

Instead of paying their fair share, these companies spend millions lobbying for additional tax breaks and loopholes. Twenty of the 25 companies spent more lobbying Congress last year than they paid the IRS in federal corporate taxes. General Electric invested $41.8 million in lobbying and got $3.3 billion in tax refunds. Boeing spent $20 million on lobbying and got a $35 billion contract from the U.S. government, while paying a paltry $13 million in U.S. taxes for a company with $4.3 billion in U.S. income last year.

Eighteen of the 25 companies aggressively use off shore tax havens to shift profits around the globe to avoid U.S. taxes. These 18 companies together had 556 subsidiaries in the Cayman Islands, Singapore, Ireland, and other havens. The offshore scam works like this: companies pretend their profits are earned in low-tax or no-tax jurisdictions — and then feign losses from their U.S. operations at tax time.

Whatever happened to corporate civic leadership? A previous generation of CEOs would have been ashamed to be compensated so lavishly while their companies abandoned responsibility for paying their fair share. They would have been embarrassed to go year after year contributing little or nothing to the public investments that make the United States a vibrant business environment.

Here are a few examples of these champion tax-dodgers:

  • Chesapeake Energy paid its CEO Aubrey McClendon $21 million last year but paid zero federal corporate income tax in 2010. Chesapeake is fracking the tax code, drilling it for every possible subsidy it can extract — while lobbying to preserve antiquated tax breaks for oil and gas industry.
  • Online retailer eBay paid its CEO John Donahoe $21.4 million last year while collecting a federal tax refund of $131 million. eBay' 31 subsidiaries in Switzerland, Singapore, and seven other tax havens facilitate its efforts to move money around the planet as a tax-dodging strategy.
  • Insurance brokerage Marsh & McLennan paid its CEO Brian Duperrault $14 million yet collected a $90 million tax refund from Uncle Sam. The company has 105 subsidiaries in 20 off shore tax havens, including 25 in Bermuda — a favorite locale for insurance companies seeking to avoid both taxes and regulation.

These super-moocher companies happily benefit from the privileges and advantages of doing business in the United States. If a competitor tries to steal their product or idea, these corporations rush to the U.S court system and law enforcement agencies for remedies and justice. The U.S. military guards their global assets.

They use the fertile ground of publicly funded research and infrastructure to bolster their own profits. They create new products from a foundation of Uncle Sam's investments in medical and scientific research and government funded technologies like the Internet. Our taxpayer-funded roads, ports, and bridges bolster their business environment. Our public schools and universities educate the workers these companies rely on. In fact 16 of these 25 CEOs attended public universities. They personally were educated with help from U.S. tax dollars.

These CEOs profess to love America. But when it comes time to pay the bills, they'd rather outsource that job over to you or the small business down the road.

Congress should pass the Stop Tax Haven Abuse Act which would limit some of these tax shenanigans. In the face of growing fiscal austerity, these companies should contribute to the solution and pay their fair share of U.S. taxes.

Chuck Collins is a co-author of the new Institute for Policy Studies report, Executive Excess 2011: The Massive CEO Rewards for Tax Dodging.

Wisconsin 2.0: Stop the Corporate Tax Dodgers

February 23, 2011 ·

This article was originally posted on Common Dreams.

The protests in Wisconsin could easily spread.  While not every governor will recklessly attack collective bargaining, all states are facing major budget constraints.

This is the strategic moment to dramatically juxtapose the pain of local budget cuts with the scandal of corporate tax dodging.   This April 15th Tax Day, let’s make our national focus be on stopping tax haven abuse and closing corporate tax loopholes.

States must close combined budget gaps of over $102 billion –and most are choosing deep budget cuts.  Meanwhile, thanks to ways that U.S. corporations game the system to reduce their taxes, overseas tax havens cost the U.S. treasury over $100 billion a year.

In England, the movement UK UNCUT, has galvanized street protests, media investigations and legislative action.  They have dramatized the scandal of billions lost thanks to overseas tax havens and corporate loopholes with the human face of federal and state budget cuts.

In every U.S. state, we should be doing the same.  Every time a politician complains that “there is no money” or “we must make these cuts,” we should be pointing to the corporate tax dodging that could immediately close our budget gaps.

We should name names and show up at their branches.  First there are the banks that wrecked our economy and accepted billions in taxpayer funded TARP funds.  These include Wells Fargo, Goldman Sachs and Bank of America.  Our message: Pay up!

Pay up! General Electric, Carnival Cruise lines, Boeing, FedEx, News Corp, ExxonMobil, Pfizer, Proctor and Gamble.  They pretend their profits are earned in tax havens like the Grand Cayman Islands and their losses are earned in the U.S., lowering their tax bills.

These US companies use our shared infrastructure, but don’t pay their fair share.  They enjoy our roads, national defense, emergency services, and federally-funded research.  They are profitable but don’t pay their full freight.  They undercut local businesses that pay their taxes while struggling to compete on an unlevel playing field.

 “There’s a direct connection between corporate tax dodging and what’s happening in people’s lives,” said Carl Gibson one of the founders of US UNCUT Mississippi. “If we close those loopholes, we wouldn’t have to be cutting back on firefighters, library hours and student loans.”

Gibson started a web site after being inspired by the movements in England. “I work three jobs and can barely cover my $450 per-month rent,” said the 23-year old Gibson. “But I still pay my taxes.  All I’m asking is that the wealthiest corporations pay what they owe, too.”

US UNCUT is launching the first wave of protests this Saturday, February 26th with a focus on Bank of America. There are actions planned in over 20 states. Bank of America has launched a glitzy PR campaign about how charitable and community-minded they are.  But we should remind them the only way back into our good graces is to “Pay up!”

The Tax Justice Network and Business and Investors Against Tax Havens have been pressing over the last year to keep these issues in the public spotlight. With US UNCUT teaming up with the Other 98 and other coalitions focused on corporate tax dodging, we can anticipate a lively April 15th Tax Day. 

SOTU: Use Newfound Corporate Tax Revenue to Invest in America

January 26, 2011 ·

In his State of the Union speech, President Barack Obama zeroed in on the ways that corporations have gamed the tax code, saying:

"Over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries. Those with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change."

It's encouraging that Obama is zeroing in on the myriad abuses in the corporate tax code.

Unfortunately, he repeats the tired canard of anti-tax groups that complain about our "highest in the world" tax rates. It is true that statutorily, the U.S. has a high 35 percent corporate income tax rate. But the effective rate — the percentage of income actually paid in taxes — is considerably lower than in most industrial countries.

How low? According to a Bush administration Treasury Department report from 2007, U.S. corporations paid an effective rate of 13.4 percent of their profits in corporate income taxes during the years 2000-2005. Corporations in OECD countries on average paid 16.1 percent of their profits in corporate income taxes.

President Obama called on lawmakers to simplify the system, eliminate loopholes and level the playing field. He pressed them to "use the savings to lower the corporate tax rate for the first time in 25 years – without adding to our deficit." By broadening the base and eliminating loopholes, Congress could lower the tax rates without reducing deficits. But revenue shouldn't just go back to corporations in the form of a rate cut. Some of this revenue should be used for long overdue investments in education, health care, and energy retrofits. Citizens for Tax Justice, in a report released shortly before Obama's speech, called for "revenue-positive reform of the corporate income tax."

On the positive side, he called for eliminating tax breaks for the oil industry — and shifting incentives to support clean and renewable energy. He was quiet about the overseas tax havens and global tax-dodging that has gotten completely out of hand.

Cracking down on corporate tax dodgers could be a unifying theme in the new Congress.

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