President Obama--Close down tax havens

American Sustainable Business Council
1401 New York Ave., N.W. Suite 1225, Washington, DC  20005

June 7, 2013

President Barack Obama
The White House
1600 Pennsylvania Ave. NW
Washington, DC 20005

Dear Mr. President:

As business leaders, we are writing to urge you to support the efforts of Prime Minister David Cameron and other world leaders to develop shared strategies for ending offshore tax abuse and addressing corporate tax avoidance through aggressive profit shifting when you represent the United States at the upcoming G8 meetings.

When companies play one country’s tax laws against another, and have developed a system in which their international subsidiaries hold billions of dollars of profits untaxed in any nation, this is a problem for all nations. It is also a problem for our country’s small and mid-size businesses.

America’s businesses, especially small and medium sized companies, understand that the current corporate tax system is badly broken. It provides powerful incentives to shift investment and jobs offshore. The biggest crisis small business owners face is the lack of spending power in this country. It is easy to make the connection that unemployed and underemployed people can’t be our customers, and their lost income can’t circulate and enliven the economies of our communities.

American small businesses are angry that they are subsidizing large multinational corporations who have lobbied for, won and use tax loopholes that in many cases allow them to avoid paying any federal income taxes despite reporting billions of dollars of profits to shareholders. These very same companies are now using their political clout to argue for failed policies like a territorial tax system that would only accelerate current problems.

America needs one corporate tax system -- one that is fair for all businesses, large and small.
These views are shared not only by the businesses we represent, but small business owners regardless of affiliation or party. Last year, ASBC, together with other business organizations, commissioned a nationwide, scientific poll of small business owners. Ninety-one percent of the business owners surveyed said it was a problem when multinational corporations used accounting loopholes to shift their U.S. profits to offshore subsidiaries to avoid paying taxes. Republicans outnumbered Democrats in the poll. Offshore tax abuse is not a Democratic issue or a Republican issue, it is an American issue. We agree with Prime Minister Cameron that it is a global issue as well.

This year, ASBC jointly commissioned another poll of independent small business owners, this time on specific pending tax proposals. Eighty-five percent of small business owners said they opposed a shift to a territorial tax system for corporations (including two-thirds of Republican small business owners polled). More than three-quarters of small business owners polled support replacing the current corporate tax system with a system based on formulary apportionment, and almost two-thirds support ending deferral and taxing the global profits of multinational firms with full offset for foreign taxes paid, as a means of addressing the inequities of the current system.

The American Sustainable Business Council and its members represent 165,000 small and medium sized businesses in all 50 states. These and many other businesses face many unmet needs in running their businesses. They suffer from our deteriorating infrastructure, which causes shipping delays and the need to carry extra inventory. They worry about water main breaks or power system failures that would cause them to close their doors while repairs are made. And too many struggle with access to capital needed to fund their on-going businesses and support expansion opportunities.
As concerned business leaders, we hope we can count on you to support efforts to close down the world’s tax havens at the upcoming G-8 meeting and to insure that in this country we work toward revenue-positive corporate tax reform that demands that all businesses pay their fair share so that we have adequate revenue to invest in America’s infrastructure, schools and small businesses, allowing all of our businesses to thrive and to be competitive in the 21st century global economy.

Sincerely,

David Levine, CEO American Sustainable Business Council	Connie Evans, President and CEO Association of Enterprise Opportunity
Frank Knapp, CEO South Carolina Small Business Chamber	Holly Sklar, Executive Director Business for Shared Prosperity
Ajax Greene, Executive Director Re>Think Local (NY)	Michael Kramer, Executive Director Sustainability Association of Hawaii
Paul Tarnoff, Executive Director Iowa Sustainable Business Alliance	Mark McLeod, Executive Director Sustainable Business Alliance (CA)
Michael Lapham, Executive Director Responsible Wealth	Todd Larsen, Division Director Green America

Google Joins Apple Avoiding Taxes With Stateless Income

Bloomberg 

By Jesse Drucker - May 22, 2013

U.S. Senate scrutiny of Apple Inc. (AAPL)’s tax strategies turned the spotlight on a unit with $30 billion in profit since 2009 that’s incorporated in Ireland, controlled by a board in California, and doesn’t pay taxes in either place.

Apple officials acknowledged yesterday at a congressional hearing that the entity -- a key subsidiary in Apple’s offshore tax strategy -- is managed and controlled in the U.S., yet it still isn’t paying U.S. federal income taxes.

The shifting of profits by multinational companies is costing the U.S. and Europe at least $100 billion per year in lost tax revenue, according to Kimberly Clausing, an economics professor at Reed University in Portland, Oregon.

“Over the decades, Congress and governments around the world have allowed a system to develop which allows multinational companies to earn income tax-free by using contracts to shift the income, on paper, to companies in low-and zero-tax countries,” said Michael Durst, a retired international tax attorney based in Washington. The result “is eroding public confidence in the fairness of tax systems in the United States and around the world.”

Similar practices by an assortment of companies -- from Google Inc. (GOOG), owner of the world’s most popular Internet search engine, to Forest Laboratories Inc. (FRX), the maker of antidepressant drug Lexapro -- are drawing increased scrutiny from regulators in the U.S. and around the world, particularly as European nations face a backlash against austerity measures.

Tax Avoidance

Corporate tax avoidance is now being targeted on several fronts. The Organization for Economic Cooperation and Development, a think tank funded by governments around the world, is scheduled to release an “action plan” in July to deal with tax revenue lost to profit shifting. The plan came in response to a request by the Group of 20 nations.

The European Commission also is targeting key rules that enable corporate profit shifting.

In the U.S., President Barack Obama’s Treasury Department in April released a list of global tax loopholes to close, many of which it has targeted unsuccessfully in the past.

Meanwhile, the U.S. Senate Permanent Subcommittee on Investigations found that Apple avoided paying income taxes on $74 billion of profit during the past four years in part by moving patent rights to a web of offshore subsidiaries that pay virtually no income taxes.

Apple Chief Executive Officer Tim Cook yesterday maintained the company had done nothing wrong and said it pays “all the taxes we owe -- every single dollar.” The Cupertino, California-based company is also not alone in moving profits to such offshore units.

‘Double Irish’

Google, for example, has used a pair of tax shelters known by tax attorneys as the “Double Irish” and “Dutch Sandwich” that move foreign profits through Ireland and the Netherlands to Bermuda to avoid about $2 billion in income taxes a year, according to the company’s filings in the U.S.

Like Apple, Mountain View, California-based Google shifts profits into an Irish subsidiary that doesn’t pay taxes in Ireland. In Google’s case, it says the unit is managed in Bermuda, which has no corporate income tax.

Google has been questioned by the U.K. Parliament twice since November over its tax affairs and is in a more than $1 billion dispute with French tax authorities.

Yahoo! Inc. (YHOO) has funneled hundreds of millions of dollars in profits through a Dutch bookkeeper’s suburban home office en route to subsidiaries in Mauritius and Switzerland. Like Apple, Sunnyvale, California-based Yahoo has deposited profits in an Irish subsidiary that claims not to be a tax resident in Ireland, but instead in the Cayman Islands, filings show.

Forest Labs, Cisco

Forest Laboratories, based in New York, has used a virtually identical strategy to that of Google, claiming most of its profits are offshore, even as its sales are almost entirely in the U.S. It has also used an Irish unit that claims to be headquartered in Bermuda, and therefore not on the hook for Irish income taxes.

Cisco Systems Inc. (CSCO), based in San Jose, California, has avoided paying billions of dollars in income taxes by attributing about half its worldwide profits in recent years to a tiny unit at the foot of the Swiss Alps.

Cisco spokeswoman Kristin Carvell had no comment for this article. Yahoo spokeswoman Sara Gorman, Google spokeswoman Samantha Smith and Forest Laboratories Vice President Frank Murdolo didn’t return calls for comment.

The Irish Finance Ministry yesterday said there’s “no possibility” of special tax rate deals for companies, in an e-mailed response to questions on Apple’s tax treatment of profits of Irish affiliates.

‘Check-the-Box’

The companies have also depended on a U.S. tax regulation known as “check the box” -- cited by the Senate investigators in the Apple case -- that makes offshore transactions effectively invisible to the IRS.

Senate investigators drilled down into a crucial component of Apple’s strategy that Edward Kleinbard, a former corporate tax attorney and professor at the University of Southern California Law School, said may make the company vulnerable to taxation in the U.S. In the panel’s report, the top Irish subsidiary receiving offshore profits was found to have held almost all its board meetings in California, with its sole Irish board member rarely attending.

“Apple says their Irish subsidiaries’ ‘mind and management’ lies outside Ireland, but the real question is, do those subsidiaries have any mind of their own at all?” Kleinbard said. “If they are not really competent to make independent decisions to take on risks and make contracts on their own behalf, then the structure collapses of its own weight, and the income properly should be taxed to the United States.”