Inside Story America

The US tax trick

As big corporations legally avoid billions of dollars in tax every year, we ask if it is time to claw this money back.

US corporations are legally avoiding hundreds of billions of dollars in tax every year.

On Tuesday, business journalists focused on Apple’s latest profit figures, but what got less attention was the company’s announcement that it was going to start borrowing money as a mechanism to avoid tax.

... these companies are hoping that at some point there will be a tactility ... where there will be charged af low rate ...

by Steve Ellis , Vcepresident of Taxpayers for Common Sense

Apple announced $9.5bn in profits in the first quarter of 2013. According to corporate filings, Apple allocates more than 70 percent of its profits overseas to countries with lower tax rates.

These profits are held in subsidiaries in countries like the Netherlands and Ireland before being moved again to offshore tax havens in the Carribean – in a move Apple is said to have pioneered known as the ‘Double Irish with a Dutch Sandwich’.

According to an investigation by the NYT last year the company thus avoids a standard US tax rate of 35 percent.

Many other big corporations, such as Google or General Electric, also avoid paying billions in tax, largely by channelling income offshore to countries like Bermuda.

In 2010, General Electric raked in $4.2bn in profits – paid no taxes and in fact received a $3bn refund.

Meanwhile, investment bank Goldman Sachs made $4.9bn in 2008 – not only did they not pay any taxes but they also received a $785m refund.

And in 2011, Google made $12.3, they did pay $2.6bn in taxes, however they moved $8.5bn in profits overseas.

Overall, major corporations stashed an estimated $150bn into offshore accounts last year, costing the average taxpayer an estimated $434 more to cover the companies who are not paying their share.

It is estimated that offshore tax avoidance costs the US government $150bn annually.

But Apple is not only moving money overseas, the California-based company also moves profits across the state line to Nevada, which has no corporate tax.

Apple … have been so confident of their stature as a company, that they ... say ... they are going to pay taxes, that they probably will never pay ...

by Daniel Shaviro, professor of tax law

On Tuesday, despite the huge profits numbers, and its vast cash reserves of $145bn, of which some $102bn are stashed overseas, the company announced it would actually be borrowing money in the US for a stock buyback, and dividend payments to reward restive shareholders.

If the company was to ‘repatriate’ cash from its reserves overseas, Apple would be liable to a large US corporate tax bill.

Billions more are saved through a variety of tax breaks and loopholes that the corporations argue ensure they can stay profitable and keep the economy moving.

Meanwhile, the poorest in the society are being asked to sacrifice their medical care and pensions to help bring down the national debt; and the latest indicators show that it is only the wealthiest seven percent of the country who are seeing any financial benefit from what is called the US economic recovery.

So, is it time to look again at the tax burden of hugely profitable corporations? And as economic inequality grows, is it time to claw some of this money back?

Inside Story Americas, with presenter Shihab Rattansi, discusses with guests: Daniel Shaviro, a professor of Taxation at New York University Law School, and has worked on tax policy in Washington helping to draft the 1986 tax reform law; Jeffrey Robinson, a financial journalist and author of the The Swiss Wash Whiter, and Steve Ellis, vice president of Taxpayers for Common Sense. 

“Congress sets down the law, that says this is tax avoidance, this is tax evasion, and there is a very straight line in the sand between the two, it’s one way or the other… it gets murky when you get into the industry that has been been built up around the world … to accommodate tax avoidance when they get into tax evasion …”

” The Swiss financial industry …  is a $2.1 trillion business …  they have been cheating in an enormous way …  they were soliciting Americans to evade taxes, that’s where it gets very murky is to how this industry offshore goes across the line and starts helping people cheat. “

– Jeffrey Robinson,  financial journalist and author of the The Swiss Wash Whiter