Push multinational corporate tax dodgers over the fiscal cliff

The Wall Street Journal
December 5, 2012

By Carl Levin

America stands at the edge of a fiscal cliff with drastic budget cuts and painful tax increases on the middle class unless we can agree on a comprehensive, balanced deficit-reduction plan.
This challenge lends new urgency to cutting loopholes and gimmicks to avoid paying taxes.

Tax loopholes are one significant cause of the budget deficit, and they add to the tax burden ordinary Americans bear.

The Senate Permanent Subcommittee on Investigations, which I lead, this year exposed how multinational corporations have taken advantage of loopholes in tax law and weaknesses in enforcement to shift their profits overseas to avoid paying taxes.

The first step in shifting profits offshore is when a U.S. company sells or licenses a valuable asset, such as software developed in the United States, to a subsidiary in a low-tax jurisdiction for a price below fair market value.

Profits from the software's sale are shifted to that tax haven.

We showed how Microsoft used this process, called "transfer pricing," to shift $8 billion in income from products developed in the United States to subsidiaries based in Singapore and Ireland to dodge taxes.

We also showed how, through complex transactions, Microsoft was able to use a subsidiary in Puerto Rico to shift nearly half the profits from Microsoft products sold in the United States to Puerto Rico, avoiding a stunning $4 million a day in U.S. taxes.

The second step involves games played with profits shifted from one offshore entity to another.

Under our tax law, companies with income offshore normally don't have to pay U.S. taxes until they bring that money home to the United States.

If the income consists of royalties, licensing fees or other funds that don't require the active involvement of the business, that "passive" income is supposed to be taxed, even when it's offshore.

Our hearing showed how some companies use an IRS regulation, which changed a provision in the tax code, to dodge those taxes.

Literally, they're able to check a box on an IRS form and make offshore subsidiaries, and their taxable income, invisible for tax purposes.

From 2009 to 2011, Apple has been able to defer taxes on more than $35.4 billion using this loophole.

Google has deferred more than $24.2 billion in the same period.

For Microsoft, the number is $21 billion.

Yet many multinationals have at the same time launched a massive lobbying effort, promising to bring billions of offshore dollars back to the United States if they get a "repatriation tax holiday," a large tax break for returning offshore funds to the United States.

These companies assert they intend to indefinitely or permanently invest this money offshore while planning to bring it home as soon as Congress grants them a tax holiday.

That's not any definition of "permanent" that I understand.

We simply can't afford these corporations' offshore tax dodges.

Carl Levin is the senior U.S. senator from Michigan and chairman of the Senate Armed Services Committee. Write him at Russell Senate Office Building Room SR-269, Washington, D.C. 20510; call him at (202) 224-6221; or e-mail him at http://levin.senate.gov/contact/.

 

SCSBCC joins Senator Carl Levin in announcing the Stop Tax Haven Abuse Act

Yesterday morning Frank Knapp of the SC Small Business Chamber of Commerce joined Senator Carl Levin in a Washington, DC press conference to announce the introduction of the Stop Tax Haven Abuse Act. Below are Mr. Knapp’s comments that he made yesterday to the Washington press corp.  Click here to view video.
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I’m Frank Knapp, President, CEO and co-founder of the SC Small Business Chamber of Commerce.

While our members are in South Carolina, small businesses across this country, from California to Washington, DC understand that while they are paying their taxes, many US-based, multinational corporations are not. That’s not fair and it makes us angry.

When multinational corporations don’t pay their taxes, when they use offshore tax havens to cheat, small business have to pay more in taxes.


Frank Knapp (l) and Senator Carl Levin at the
July 12, 2011 Press Conference

Elected leaders like to say how small business is the engine of our economy and they look to us to create most of the new jobs.

Well, we’re tired of subsiding government services for multinational corporations that rely on our courts, our national defense, our infrastructure, and our education system, all of the essential government services that these multinational corporations want and need to be successful.

Small businesses want tax parity with these corporate giants.

We can compete with our goods and services with any multinational corporation but not if we don’t require them to pay their taxes.

These multinationals and their highly paid advocates warn us that creating the transparency needed to spot illegal tax evasion and avoidance, better defining US profits and increasing penalties for offshore tax cheating would somehow hurt our country’s economy.

We’re not talking about any new taxes the money these multinationals are investing in American jobs. We only want the taxes they owe on money squirreled away in post office boxes in the Cayman Islands or Bermuda, profits that aren’t being invested in our economy.

The SC Small Business Chamber is from South Carolina, but this issue resonates with every small business across the nation. Today we are America’s Small Business Chamber and we are patriotically proud to support Senator Carl Levin’s Stop Tax Haven Abuse Act.