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It’s Insane How Giant Corporations Avoid Paying Taxes–And No One Is Upset

You pay your taxes, right? Apple doesn’t. It’s keeping $59.2 billion from the government.

It’s Insane How Giant Corporations Avoid Paying Taxes–And No One Is Upset
[Photos: Picsfive via Shutterstock]

There are certain scandals that aren’t really scandals because nobody pays attention. Take the state of corporate taxation. Because of tax loopholes and the chutzpah of the tax-avoidance industry, many multinationals now pay remarkably little to the federal government. And yet this reality hardly registers in the public consciousness. Multinationals get a pass on the most basic social responsibility–a responsibility that almost all domestic companies and individuals share–and yet we say relatively little about it. It really is a scandal, if only we’d call it what it is.

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Consider a new report by Citizens for Tax Justice (CTJ), a Washington, D.C. nonprofit. It shows that 358 of the Fortune 500 companies operate a total of 7,622 subsidiaries in tax-haven jurisdictions. Fortune 500 companies are holding more than $2.1 trillion in profits offshore, maintaining a ridiculous pretense of having large businesses in places like Bermuda and the Cayman Islands. U.S. companies claim profits in Bermuda 16 times that island’s entire annual economic output.

CTJ’s report follows another from April that found 15 companies paid zero corporation tax in 2014, despite $23 billion in profits. Several, such as General Electric and Priceline.com, actually had a negative tax rate over the last five years: that is, they got a check from Uncle Sam.

Reed College professor Kimberly Clausing has estimated the use of tax havens by multinationals costs the public $90 billion a year. And it’s worth thinking what effect all this leakage has. It means individuals and domestic companies are effectively paying higher rates than they might, and that there isn’t money left over for roads, hospitals, or defense. “Every dollar in taxes that corporations avoid by using tax havens must be balanced by higher taxes on individuals, cuts to public investments and public services, or increased federal debt,” CTJ says.

The accumulated tax lost to tax havens is actually higher still. Fifty-seven of the Fortune 500 disclose what they would pay in U.S. taxes if they repatriated their profits: $184.4 billion. If we apply the same implied tax rate (6%) to all Fortune 500 companies, the total loss is $620 billion. Apple alone would pay $59.2 billion in U.S. taxes if it booked its $181.1 billion in offshore assets in this country. Indeed, as well as making the world’s nicest computers, Apple is also the world’s champion tax avoider. CTJ says Apple pays “no tax to any government on the lion’s share of [its] offshore profits.”

Because companies can forego paying taxes indefinitely as long as they keep those profits overseas, it encourages them to set up operations in low-tax places, rather than build factories and hire workers in this country. The Obama administration has proposed a way to bring some of the money in tax shelters back home. It would levy a 14% “transition tax” on untaxed foreign income in return for lowering corporate tax rates going forward. That would still reward companies for tax avoidance–the full rate is 35% on foreign income, minus what they’re already paid to foreign governments–but it would at least bring money home. At the moment, we have the worst of all worlds: high taxes for some, low or no taxes for others, and a big hole in the budget.

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About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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