Report Finds Major U.S. Companies Have Offshore Tax Havens; Some are receiving bailouts

[DeepModem Mom]

Source: Washington Post

A majority of America's largest publicly traded companies and the U.S. government's largest federal contractors -- including some receiving millions in federal bailout money -- use multiple subsidiaries in offshore tax havens to conduct business and avoid paying U.S. taxes, a new report finds.

The new Government Accountability Office (GAO) report, released today by Sens. Byron L. Dorgan (D-N.D.) and Carl M. Levin (D-Mich.), lists Citigroup and Morgan Stanley as having set up hundreds of tax haven subsidiaries, along with American International Group and Bank of America. Also in the tax-haven list are well-known companies and such federal contractors as American Express, Pepsi and Caterpillar.

GAO, searching publicly available data filed with the Securities and Exchange Commission, determined that 83 of the 100 largest publicly traded corporations and 63 of the 100 largest federal contractors maintain subsidiaries in countries generally considered havens for avoiding taxes. Dorgan and Levin said they requested the updated report from one several years ago because they are focused on combating offshore tax abuses, which they estimated cause $100 billion in lost U.S. tax revenue each year.

GAO auditors did not review the companies' transactions to independently verify that the subsidiaries helped the companies reduce their tax burden. The GAO said only that the companies had subsidiaries located in jurisdictions considered tax havens and that historically the purpose of those subsidiaries is to cut tax costs.

The practice is legal, but Dorgan and Levin are hoping to gain the support of President-elect Barack Obama for legislation that would outlaw it....

To illustrate the problem, Levin said the report found that Citigroup has set up 427 tax haven subsidiaries to conduct its business, including 91 in Luxembourg, 90 in the Cayman Islands and 35 in the British Virgin Islands. He said other havens include Switzerland, Hong Kong, Panama and Mauritius....

Read more: http://www.washingtonpost.com/wp-dyn/content/article/2009/01/16/AR2009011602602.html?hpid=topnews

[redqueen]

1. That tax haven nonsense has got to stop.

Is there any good reason for it at all?

[naaman fletcher]

34. here is how it works, and why this happens..

Take company X. It is a US company that for most of its existence has sold products in the US. It pays its tax on those profits to the US. Now, it wants to do business in China. Let's say it is going to produce and sell cars in China. If it sets up factories in China, makes cars, and sells them in China, it is entirely a Chinese operation, yet it will pay US taxes on it.

If it sets up an offshore subsidiary that owns the Chinese operation, it does not pay US taxes on that money. Well, if the money is ever reptariated to the US, for example to distribute to shareholders, it will pay taxes on it.

Company X still pays US taxes on its profits, and all companies, no matter where the are domiciled, do.


Take company Z. Company Z is French. It has car factories in france and sells cars in France. It pays French taxes on those sales.

Company Z also has a factory in China, and sells cars in China. But, France does not tax it on its foreign profits.

So, if company X is taxed on its foreign profits by the US, and Company Z is not taxed on its foreign profits by France, then company X can't compete with company Z, and goes out of business. This is bad for the US in the long run, as our companies can't compete overseas.

So, what happens if the US says to company X "we will tax you on all profits made anywhere, by any subsidiary"? Well, the company will stop doing business overseas or, it will leave the US altogether.

I know nobody likes this reality, but that is the reality.

[provis99]

46. you're completely ignoring international tax treaties

The US has tax treaties signed with all the economically important nations, so that corporations pay tax only to the US or their host countries, and not both. Tax havens are designed so that they pay taxes in neither country.

[naaman fletcher]

48. No.

All the tax treaties due is imperfectly try to prevent double-taxation. That is, If I pay 40% tax rate in Germany, the US won't come after me for another 40%. In Saudi Arabia, and other places without really any taxes, I'll pay US income tax because I have no foreign tax i.e. there is no double taxation. (the US gives individuals up to a 90K or so exemption on overseas income).

OK Fine.

But here is the problem.

Most other nations don't tax you on your income earned outside of the jurisdiction at all.

The problem is other nations, Canada included, let you get away with not paying taxes on money you earn overseas. The US does not. These tax strategies are all designed to get around that.

If these Tax strategies are eliminated, the US won't be able to compete with most European Companies in any locale that has low tax rates.

[thesquanderer]

47. not sure I get it, naaman

You say "if company X is taxed on its foreign profits by the US, and Company Z is not taxed on its foreign profits by France, then company X can't compete with company Z, and goes out of business"

Why would a profitable company necessarily go out of business, just because it's not *as* profitable (i.e. can't keep as much of its profit) as another?

[naaman fletcher]

49. cost of capital..

If company X and company Z are both going to compete for a project, because company Z will get a higher return on that project due to the low tax rates, it can get equity and debt capital at a lower cost than company X, and can therefore bid higher on the project. That is, it will be less interest on its debt and/or it will be less costly to raise equity capital.

If both are going to compete in the same marketplace, company X will be paying higher interest on its debt since the operation is not as profitable, and will thus have a worse cost structure than company Z, and eventually lose ground.

[Idealism]

2. Hard to stop tax havens

We can't dictate what a foreign government policy is on taxing corporations. Dubai, Bermuda, etc will never submit to that, and on the opposite end of that thought, the US gov't will never ask for that. Our politicians are in the pocket of these transnationals.

You can't stop them, just like you can't really raise corporate taxes much, because the companies will pick up and reincorporate in Dubai (like Haliburton did). It is for this reason we should simultaneously raise corporate taxes and impose tariffs.

[mbperrin]

6. Charge them an exit tax. Figure how much the company has fed off

the infrastructure of the country, including benefits from education, roads, patents, law enforcement, everything, top to bottom and make them pay it before they go.

Enforcement? Make it a 50 year mandatory federal prison term for the CEO and all other managers in the second tier if not paid in full BEFORE the exit. And no, previous local, state and federal taxes don't count. Those were ongoing payments for a continuing enterprise. This is an exit charge for irreplaceable assets.

Quit letting them steal our brains and bricks, one load at a time!

[Idealism]

8. I would be all for that, but like I said, I don't think it will happen

Our politicians would never do that :(

[KakistocracyHater]

28. use the Patriot Act to track them down

& collect what is owed, including court expenses. I am looking at this as if it were 50 years ago: America was dragged to the edge of destruction by a corrupt bunch of Neocons with their fake Lefty helpers; there is a truly desperate need for money-war without end tends to bankrupt nations-yet there is a strange, almost insane, reluctance to follow thru.......the money is there & it is needed for America....but it seems like they'd rather keep it privately, for their own family & friends..................so much for the good of the many.............

[acmavm]

37. 'fake lefty helpers'. Thank you. I've been looking for something that

adequately describes them that is quick and dirty.

[notesdev]

40. We could do so much more with what we have

If a majority of it wasn't wasted by criminals who write laws.

The political elite class has turned this into a banana republic.

[WriteDown]

41. Uh....

Would you support the same for citizens? That is a bad road to go down.

[FailureToCommunicate]

15. So...what you're saying is they don't want to pay US taxes but they're okay with

Our soldiers dying for them. They don't want to pay taxes and we can't make them. Wow. Sounds so great. I think lots of Americans
who are now burdened with billions of new bailout debt will just shrug and say "oh well, what ever CAN we do?'

[Idealism]

25. I am simply the messenger, sir

The ultra-wealthy have been evading taxes since we started taxing them. Shortly after WWII ended, the top marginal tax rate was 91%. Do you truly believe those who made over $3.2m per year paid 91% of their income to taxes? No.

Another example. In Florida, during the 1980s, the state implemented what was called an Intangible tax. It was akin to a luxury tax, only the wealthy paid it. What did the rich do to avoid this? They had their lawyers set up trusts to hide their assets and it worked. Some of the wealthiest Floridians never paid a cent of the tangible tax until it was stricken from the books.

[depakid]

16. Add to that restrictions on government contracting

If they want to play the offshore game- OK. Just don't expect to be bidding on taxpayer funded contracts....

[leveymg]

22. Pay to play. Refuse to pay, and the CIA will forment a coup in your boardroom

and the NSA will release the tapes of your nocturnal pillow talk with your mistress.

If they want to act like bullies, we'll return the favor.

[acmavm]

35. Nonsense. WE can do a lot of things. First off, take away all their 'rights'

as American corporations. Treat them as foreign entities. Take away all their tax breaks. If they want to do business here, then they need to be classified as a 'foreign' corporation.

[Idealism]

50. Tax breaks are pittance compared to not paying federal income tax

Corporate federal income tax levels are among the highest in the world, although most companies pay nowhere near the law mandated level due to loopholes. To not pay any taxes on income is a lot more money not paying the government than the companies who are still headquartered in the states get in tax breaks and incentives.

[acmavm]

52. I know, boy, do I know. Omaha is home to the Union Pacific Railroad,

ConAgra, Gallup, and a shitload of other corporations that headquarter here because the people who run this state feel everything up to and including the taxpayer's firstborn child should be sacrified at the altar of corporate Amurika. Years ago it was estimated that we loose 70 to 90 million a year in tax revenue by whoring up to these corporations and letting them screw us. These loopholes need to be closed EVERYWHERE in the United States so that they can't pull this shit.

[karynnj]

42. It needs an international solution as it hurts all countries and Senator Kerry intends to work on it

on the SFRC. (I wonder if this might be why he hired as investigator someone who wrote a book on BCCI.)

It really is an international problem and it will require an international solution. (Also consider that the ability to hide income and assets to avoid taxes - also means it is a national security issue as it can facilitate international money laundering. That was discussed in the July 24 2008 Finance committee hearing on the Cayman Islands. (scroll down to July 24 2008 on this link http://finance.senate.gov/sitepages/hearings.htm )

The most interesting parts are Jack Blum's and Senator Kerry's. Blum was Kerry's chief investigator on BCCI. Kerry in November ( http://www.youtube.com/watch?v=m5ZlrbkdBNk ) spoke of using wanting to use his SFRC chair to investigate international tax havens. It would be great if he and Obama's foreign policy team could negotiate an international agreement on this.

Like you, I think it will be tough to get international cooperation, but we need to try. The fact that it hurts most countries means that if there is a good proposal and good diplomacy - they might at least stop some of it.

[Idealism]

66. The problem is motivation for foreign governments

Why would Dubai want to discourage private investment in their lands? Why would Bermuda? These places that offer the no corporate tax havens are most often small states that have little offer other than financial incentives (although Dubai has wonderful artificial islands, now :D).

I would love to see international cooperation on this effort, but every government on earth is influenced by the biggest transnationals, and it is in their best interest to continue along with the status quo.

[Baby Snooks]

3. So why are they being bailed out?

Citigroup must have a couple of hundred billion lying around in some of these "subsidiary" banks. There really is something wrong with the picture. There has been from day one. The first thing wrong is Congress. The second thing wrong is our incoming president who should have threatened a veto if Congress gave away another dime of the taxpayer's money. Let all these crooks eat cake instead of the American people.

[leftstreet]

31. Agree - there's something wrong with this picture

I don't think we're getting the whole story, nor do I expect our Ministry of DisInfo M$M to give us anything but the approved talking points.

[JerseygirlCT]

59. That's the real kicker.

I think, like any gov't grantee, these cos should be accounting for every penny of the money they received. Every single penny. And if the money is found to have been used for something outside the "grant", it should have to be returned.

Why is that so hard an idea?

[riverdeep]

4. Can I get in on these offshore tax haven deals?

Can the average person? No, of course not. The average sucker, er, person, is where the politicians get their money from. We tighten our belts, and they loosen theirs from all the gluttony.

[Dover]

5. Want to find out how this ever became legal?

You are not gonna believe this. And you have to ask...IF this is legal, then why all the secrecy?

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=114&topic_id=46457

[redqueen]

10. Thanks for the links, Dover! (nt)

[karynnj]

45. Nice link

Jack Blum, the expert cited in the article spoke of this more recently to a hearing at the Senate Finance Committee on July 24 2008 on the Cayman Islands - here is a link to the hearings page - you need to scroll of July 24, 2008 to hear it. http://finance.senate.gov/sitepages/hearings.htm

Blum, who was Kerry's chief investigator on BCCI, was great.

[Malikshah]

7. Simple solution: Freeze their assets. They are economic terrorists

And they must pay.

Their families can learn to live like the rest of us.

Pure and simple.

[OhioChick]

9. This is fucked up. n/t

[lonestarnot]

11. So that should entitle Americans receive a jubilee from paying them. I have to pay my damn taxes,

why shouldn't they?

[BadgerKid]

12. More bailout and lowered taxes!!

:sarcasm:

I'm tired of having my blood boil. Can we boil some Republicans in oil instead for once? j/k

[Fire1]

13. Also, Xerox and Haliburton

[Hansel]

14. Well then these companies should be creating tons of jobs.

Isn't that the Republican mantra? Giving big corporations tax breaks means they'll have more money to create jobs in the good old US of A? Sadly, they create fewer jobs because they have to pay so much in taxes. But in reality they are very altruistic people. It's not because they are the greedy self-absorbed pieces of garbage they appear to be. It's because they just don't have the money.
:sarcasm:

Well they are giving themselves huge tax breaks and most of these companies are laying people off or are heavy out-sourcers. So I guess that blows that theory all to hell. And yet there are still plenty of people out there still willing to swallow this crap hook, line and sinker.

They had the privilege to use American resources to make their billions. They can pay their f*cking taxes. I'm sick of these jerks getting a free ride and then whining about it. Biggest "welfare queens" on the face of the earth. Disgusting.

[ColbertWatcher]

17. I can see this on D.U.

I can see many people read and replied and recommended it.

Can any of the GOP voters see it? Are they reading it?

If they didn't know before, they can know now, but only if they read it? Will they?

[OhioChick]

18. They only "see" and "read" what they want to.

They could probably find a way to justify this.

[ColbertWatcher]

26. Disgusting. n/t

[alfredo]

27. I just sent it to my veteran's group.

[PinkyisBlue]

30. No, the Repubs are too busy focusing on the welfare cheats.

The only way they would pay any attention to a story like this is if Rush Limbaugh blasted this on his show. But then that would never happen because he and the other media personalities are all in the pockets of these wealthy corporations. I don't know if Maddow or Olbermann would be allowed to discuss something like this on their shows. Their stories must be censored to some extent.

As an aside, Bank of America is the worst bank in the world. It should be named Bank Against America.

[blendermax]

19. In America, the wealthy don't pay taxes

welcome to the most regressive tax system in the western world

[Barack_America]

20. Just another reason for me to love Carl Levin.

[L. Coyote]

67. And Dorgan. n/t

[benld74]

21. Conress began to look into stopping off shore tax havens years ago,,,

but of course it went nowhere. Look folk, the only reason to set up a tax haven account is to utilize it in SOME MANNER or else why even have one, right?! So if they are recieiving bail out money, shut the damn things down. Force them, I mean get real, show some balls for a change!

[Rosa Luxemburg]

23. most of thes ecompanies go offshore like the Cayman Islands, Isle of Man, Virgin Islands etc

how else are they going to evade tax?

[NOW tense]

24. Let them burn

Our economy is so bad off right now. Let's just build a new one with the people that don't suck.

[1776Forever]

29. Can you imagine the prisons they would have to set up for us middle class people if we didn't pay?

Instead of prison's these bastards get to go on spa sabbaticals at 5 star hotels!

[acmavm]

32. Then they are committing fraud at the very least. And our 'government'

are aiding in that fraud. In fact, I'd even call it economic terrorism.

[blendermax]

58. The other candidates will no doubt call Obama on this in the 2012 presidential debates

I can hear the 2012 debates now:

"Barack Obama promised he would put an end tax breaks for companies that off-shore, but after getting elected he voted to give those very same companies 700 billion in taxpayer dollars."

[Hosnon]

33. Simple solution: In the federal bidding evaluation, give preference to companies that don't

participate in this kind of behavior.

And no federal bailout money should go to those that do.

[ohio2007]

36. Congress approved this ?

[2Design]

38. we the ordinary people know this but our leaders and congress critters

choose to ignore it - they gave government business to Accenture when it was the failed Arthur Anderson and was off shored to Caymen island and getting government money - they know this crap and think we don't - they continue to scam us - I am hoping beyond hope that this new CENTRIST admin will do something about it - I will wait and see 100 days

[ihavenobias]

39. K & R

Good information.

[nightrain]

43. and we wonder why we're in such a financial mess!?

Is there no adult supervision of these children?!

[Pierre.Suave]

44. Recommended.

[Digit]

51. K&R

This sh*t makes me sick to my stomach.

[GreenTea]

53. Pigs! Stealing our tax dollars and hiding it...never enough for these republican pigs!

[Azlady]

54. Use to go to a Risk Management Trade Show back in the 90's

One always looked forward to 4 Exhibitors,
AIG,
Liberty Mutual
British Virgin Islands Financial Services
Barbados Financial Services.

They Had the biggest, best booths & gave away the best gifts.

I see that AIG is going to be at the Trade Show this year and their booth is as big as ever. :wtf:

Off-shoring of dollars is of course what British Virgin Islands & Barbados pushed & of course other services as well. I see they will be in attendance this year as well, providing their services of off-shoring dollars. It pissed me off then, knowing these services were legal, and it really ticks me off even more now.

I worked for small software company back then, it was a real eye opener then, finding out about these offshore financial shelters, ever since the bailout of AIG I have wondered how many endless piles of $$$$ they have in sunny Barbados & Virgin Islands. I want to puke! :puke:

Why we are bailing these asses out, knowing they have endless money offshore, well now there is even more $$$$ offshored since we "bailed them out"!

[UpInArms]

55. criminals - taking money without every contributing

they should be imprisoned - the CEOs the CFOs the Board of Directors

every damn one of them

[scotto2008]

56. I'm surprised anyone even considers this news!

"Where's My Bailout?" original song and video

http://www.youtube.com/watch?v=kIjbMRU1EgU

[JerseygirlCT]

57. Can anyone who is smart with this stuff give me one good reason this

shouldn't be outlawed tomorrow?

[blue97keet]

60. The Rise and Too Partial Fall of Bob Rubin

http://americaneconomicalert.org/blogger_home.asp?Prod_ID=37#3129
Alan Tonelson's Blog

The Rise and Too Partial Fall of Bob Rubin
Friday, January 16, 2009

Ain?t life just full of amazing coincidences? On January 9, Bob Rubin resigned in quasi- (and thus totally inadequate) disgrace as Senior Counselor and board member of the financial giant cum welfare queen Citigroup. The move came almost exactly ten years after the former Treasury Secretary was famously lionized ? along with former Fed Chairman Alan Greenspan and Deputy Treasury Secretary Larry Summers ? by TIME magazine as a pillar of the Committee to Save the World.

Those were indeed the days for these outspoken champions of outsourcing-focused U.S. trade deals and unfettered globalization. In case you forgot, Russia and much of East Asia and Latin America were convulsed by sequential financial crises during the late-1990s. The crackups were so big and unexpected and the contagion spread so rapidly that many feared a worldwide economic collapse. (Sound familiar?)

Thank heavens, TIME?s editors decided, Rubin and Greenspan and Summers were running the free world?s most powerful economy. They expertly steered the planet past the danger, saved the day, and even averted major systemic damage. In so doing, they once again demonstrated the virtues of free global markets, and taught a valuable lesson to those foolhardy Asian protectionists in particular.

How times change. Greenspan has now been exposed as the economic equivalent of a drug pusher. He enabled Americans? overspending addiction for most of this decade and created the illusion of prosperity by throwing unheard of amounts of cheap money at consumers. Savvy analysts recognize that he responded to the late-90s financial crisis essentially the same way ? by blowing asset bubbles.

Rubin and Summers also played key roles in this supposed strategy. In particular, they persuaded President Clinton to in effect bail out the bankrupt Asian and other third world mercantilists by keeping the U.S. economy fully receptive to their exports no matter what. Explained the president to a Tokyo audience in 1998:

?I made a decision with the full support of my entire economic team that we would do everything we could to leave America?s markets as open as possible, knowing full well that our trade deficit would increase dramatically for a year or two. I did it because I thought it was a major contribution we could make to stabilizing the global economy and the economies in Asia.?

Rubin, Summers and the rest of the Clinton-ites supported these steps even though they must have known that these export-led economies would try to recover by flooding the United States with super-cheap goods. They also must have known that U.S. outsourcing multinational companies would try exploit such largesse to the max. Clearly, their own countrymen?s jobs and earnings ? not to mention the productive base of their nation?s economy ? weren?t even on their screens. No wonder that after a decade of such bipartisan economic irresponsibility, America and the world find themselves careening toward a second Great Depression.

Citi?s woes over the last year finally tarnished Rubin?s Golden Boy reputation. After all, if the Senior Counselor and board member was such a whiz, why did the company make such boneheaded moves? I mean, I could have ruined Citi in return for a much smaller payout.

Tragically, Washington remains way behind the curve. Since Citi literally began falling apart over the last year (the company just announced this morning a break-up into two units), Rubin has remained a policy heavyweight. His proteges, like Summers, Timothy Geithner, and Jason Furman, were all either major Obama campaign advisors or big-time economic decision-makers (especially Geithner at the New York Fed). And these and many other Rubin-ites have been tapped to staff the incoming administration at the highest levels.

Moreover, Rubin created and for several years has financed the so-called Hamilton Project, a think tank inside the Brookings Institution aimed largely at preventing the Democratic party from rejecting outsourcing-focused trade policies. The main Hamilton message? Yes, these policies have created many more economic losers than we promised, but the best response is compensating them with crumbs of welfare and false promises of job-training and reeducation. Nothing must interfere with the march of outsourcing. True, this thinking is simultaneously silly and cynical -- and utterly un-Hamiltonian. But it has greatly influenced the national trade policy debate, and Obama in particular -- largely because it has Rubin's imprimateur.

Rubin's resignation letter made clear that he has no intention of moving to the policy sidelines. ?...I intend to intensify my engagement with public policy,? he declared, ?for example, the type of activity we have done at The Hamilton Project, where we have charted a more effective way forward in many economic policy areas.?

Some wag once wrote that, in Washington, nothing succeeds like failure. We can hope the Obama administration has the good sense not to make Bob Rubin and the demonstrable sham of Rubinomics the latest example of this syndrome. So far, however, the president-elect?s instincts seem to be just the opposite.

A final irony: Several observers (but none I?ve seen in the mainstream media), have noted the suspicious circumstances that surrounded Rubin?s move to Citigroup to start with. After all, he and Greenspan were among the 1990s leaders pushing hardest to repeal the Depression-era Glass-Steagall restrictions on financial corporations. Among other stipulations, this legislation required the separation of investment banking and commercial banking.

Glass-Steagall was repealed in 1999, and enabled Citigroup and others to be created as ?financial supermarkets? in the first place. In the process, of course, they became ?too big to fail,? and we taxpayers are now bankrolling them ? sky-high executive compensation and all. Rubin?s tenure at Citi began that year, and earned him at least $115 million through last week. Sound fishy to you?

But here?s the irony: The main substantive argument that Rubin and others made reflected globalization-related considerations. How, they asked, could American financial institutions compete adequately against foreign counterparts not hamstrung by Glass-Steagall-like regs? In particular, how could they compete against the scale their competitors enjoyed?

Wall Street and its shills insisted that the only response was what I call ?globalization defeatism?: the United States has no choice but to adopt these foreign practices. For as everyone knows, America needs the rest of the world more than the ROW needs us.

Of course, Rubin & Co. had it (and still have it) completely backwards. The United States still holds at least the plurality of the cards ? despite the globalizers? best trade-related efforts to squander them. The answer to Wall Street?s 1990s competitiveness problem was to recognize that doing business in America for foreigners is a privilege, not a right, and to use U.S. leverage to require foreign entrants to conform to our standards. If they refused, that would be their decision to make. But would many of them really have let their pride shut them out of the world?s largest and deepest capital markets? Get serious.

[Zhade]

61. But "Thank God It Passed!"

We warned you, suckers.

[santamargarita]

62. This is what these Goddamn Fucking Republicans are about!

If these fascist pigs hate America that much, then let's kick them the fuck out!

[Solly Mack]

63. What a relief! I wasn't feeling quite fucked over enough but now...

Now I can sleep better at night.

[ProgressIn2008]

64. LOL. True, that. nt

[Norrin Radd]

65. kr. These companies are traitors.

[Blue_Tires]

68. cut off the bailout stream, then

if only....