Tax Havens: Corporate Tax Loopholes Come Under Scrutiny on an International Scale

Jacob Harper |

IRS BuildingAs long as people have paid taxes, they’ve tried to find loopholes to pay less. One of the more common methods is to “hide” the money: after all, if the government doesn’t know the money is there, they can’t tax it. But on both the international and domestic scale, governments are looking to find that money, and make corporations – and wealthy individuals – pay their share.

The G8 Summit is currently in full swing. And Britain’s Prime Minister has made tax dodging one of his focal points. Two days ago PM David Cameron called on the summit to enact tighter regulations on notorious tax-havens, citing the British colonies the Cayman Islands, Bermuda, and the British Virgin Islands as examples. And according to the BBC, talks on tax havens will continue today. The issue affects every members of the summit, who would love to get a piece of the money made in their country then shipped off elsewhere.

Though it appears agreement on doing what it takes to close those loopholes – getting tax havens to release information on account holders, establishing information exchanges,  and getting tax havens to divulge the true owners of “shell companies” – won’t be happening this year for various political reasons, progress is being made. Even two years ago the idea of bringing up tax havens at the G8, which is dominated by talks on Syria, would have been unthinkable.  Obama even addressed the issue in May, outlining a plan to raise $108 billion a year in tax revenue by closing corporate tax haven loopholes. Unsurprisingly, the plan has met opposition from the corporate sector, who would like to see a more corporate-friendly tax situation in the US before transferring money Stateside.



While no major US corporations have been definitely proved to illegally use tax havens to hide profits in recent times, there have certainly been strong implications. The following companies, among others like Oracle and General Electric, have been accused of utilizing international loopholes:

Apple (AAPL): Reports that Apple used a tax subsidiary in Ireland to hide some of its $74 billion in profits have been widely circulated, and the Senate even called hearings this May with CEO Tim Cook to address the issue.

Nike (NKE): According to Citizens for Tax Justice, Nike avoids paying taxes on nearly $5.5 billion in “unrepatriated” income.

Microsoft (MSFT): According to a Senate panel last year Micorsoft saved nearly $7 billion by using a variety of offshore accounts to hide cash.

Hewlett Packard (HPQ): The same Senate panel found that over a 30 month period , tech dinosaur Hewlett Packard  avoided millions in taxes by bouncing loans between two offshore accounts

Amgen (AMGN): The California biotech company has been accused of skirting tax law by only paying an effective tax rate of 15.9 percent. 

Were accusations of criminal activity on the part of these corporations ever to pan out, it would have major implications for the US economy, and the bottom line of the corporations involved. Apple has $144 billion in cash, and over $100 billion of it is overseas. Bringing that cash back to the US would result in being slapped with a tax bill at the top rate of 35%. But it’s a moot point – the hearings themselves found that Apple’s actions weren’t illegal. Just not in the best interests of their home country.

While personally and domestically, tax loopholes like claiming residence other than where you really live have continued to tighten, limits on socking away money internationally have not. An international change in tax policy could likely only take place at the G8. Barring a major development, it won't be happening anytime soon. And thus corporate funds will continue their trip abroad. 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
AAPL Apple Inc. 120.00 0.96 0.81 34,138,677
NKE Nike Inc. 53.65 0.73 1.38 9,887,546
AMGN Amgen Inc. 154.80 -1.32 -0.85 3,402,555
HPQ HP Inc. 14.58 -0.19 -1.29 11,976,799
MSFT Microsoft Corporation 62.53 -0.17 -0.27 20,623,303
UMDI USmart Mobile Device Inc n/a n/a n/a 0

Comments

Emerging Growth

NXT-ID Inc.

Nxt-ID Inc provides products, solutions, and services that have a need for biometric secure access control. Its lines of business include mobile commerce; law enforcement and biometric access control applications…

Private Markets

WayBetter

The spark hit Jamie when he saw co-workers competing to lose weight. Instead of pizzas and subs, they were eating salads and jogging along the river. Some were sneakily leaving…

D-Wave

D-Wave Systems is the first quantum computing company. Its mission is to integrate new discoveries in physics, engineering, manufacturing, and computer science into breakthrough approaches to computation to help solve…