Hill: Small Businesses Pay the Price for Offshore Tax Havens
Tuesday, April 14, 2015
By Hill Abell - Special to the American-Statesman
It’s Tax Day, and while Texans, including individuals and small business owners, have been busy preparing and submitting their taxes, some of the nation’s largest and most profitable multinational corporations can consider today a holiday. These corporations rely on Texas and the rest of the nation to provide infrastructure, an educated workforce, security and benefit from our markets, but are able to use complicated gimmicks to avoid paying their fair share in taxes.
For years, some of the largest corporations that do business here in Texas have dodged taxes by booking profits made in Texas and across the United States to known tax havens like the Cayman Islands. These tax havens levy little to no tax and allow our wealthiest corporate entities to skirt their tax responsibility. For example, Exxon Mobile, Conoco Phillips, AT&T and several other companies based here in Texas maintain multiple subsidiaries in known tax havens.
Every year, these large corporations avoid paying an estimated $110 billion in state and federal income taxes by using complicated accounting tricks to book their profits to subsidiaries in offshore tax havens. Unfortunately for small business owners and ordinary tax payers, the lawyers and accountants necessary to take advantage of the loopholes aren’t cheap. This leaves small Texas businesses to compete on an uneven playing field, and they, along with the average taxpayer, end up picking up the tab in the form of higher taxes, cuts to public priorities, or bigger deficits.
In January, two of these offshore loopholes expired, along with a collection of dozens of other tax breaks that overwhelmingly cater to special interests. If Congress takes no action by the end of the year, these two loopholes—the ‘active financing exception’ and ‘controlled foreign corporation look-through rule’—will be gone from the tax code, saving small businesses and ordinary taxpayers more than $80 billion over the course of the next ten years.
As of 2013 72 percent of the Fortune 500 maintained subsidiaries in known tax havens jurisdictions. What’s worse than the fact that some of our country’s most profitable corporation are dodging their fair share of taxes? Small businesses are doubly harmed by the corporate abuse of tax havens. When large corporations don’t pay, small business owners get stuck with part of the bill, and are put at a competitive disadvantage.
Here in Texas the average small business would have to pay $3,104 to cover the cost of corporate tax dodging and while the biggest and most important reforms need to be handled at the federal level, Texas taxpayers could save $141.5 million from a simple state-based reform to crack down on offshore tax dodging. The reform, which has already been proven effective in Montana and passed in Oregon, would require companies to treat profits booked to notorious tax havens as domestic taxable income. By modernizing our state’s tax code, we can keep millions of dollars in Texas every year. While eliminating incentives for moving business offshore, we would be leveling the playing field for Texas
Offshore tax loopholes create winners and losers in our marketplace. The winners are large multinationals like banks, high tech companies, and pharmaceutical companies, and the losers are retailers, small businesses, and ordinary taxpayers, who are forced to pick up the tab for tax haven abuse.
Businesses should thrive based on the quality of their products and the strengths of their business model, but tax haven abuse turns this on its head. Ordinary small businesses suffer when they must compete on an uneven playing field against corporations that avoid paying their fair share in taxes by employing high-priced lawyers, accountants and lobbyists.
For years, some of the largest corporations that do business here in Texas have dodged taxes by booking profits made in Texas and across the United States to known tax havens like the Cayman Islands. These tax havens levy little to no tax and allow our wealthiest corporate entities to skirt their tax responsibility. For example, Exxon Mobile, Conoco Phillips, AT&T and several other companies based here in Texas maintain multiple subsidiaries in known tax havens.
Every year, these large corporations avoid paying an estimated $110 billion in state and federal income taxes by using complicated accounting tricks to book their profits to subsidiaries in offshore tax havens. Unfortunately for small business owners and ordinary tax payers, the lawyers and accountants necessary to take advantage of the loopholes aren’t cheap. This leaves small Texas businesses to compete on an uneven playing field, and they, along with the average taxpayer, end up picking up the tab in the form of higher taxes, cuts to public priorities, or bigger deficits.
In January, two of these offshore loopholes expired, along with a collection of dozens of other tax breaks that overwhelmingly cater to special interests. If Congress takes no action by the end of the year, these two loopholes—the ‘active financing exception’ and ‘controlled foreign corporation look-through rule’—will be gone from the tax code, saving small businesses and ordinary taxpayers more than $80 billion over the course of the next ten years.
As of 2013 72 percent of the Fortune 500 maintained subsidiaries in known tax havens jurisdictions. What’s worse than the fact that some of our country’s most profitable corporation are dodging their fair share of taxes? Small businesses are doubly harmed by the corporate abuse of tax havens. When large corporations don’t pay, small business owners get stuck with part of the bill, and are put at a competitive disadvantage.
Here in Texas the average small business would have to pay $3,104 to cover the cost of corporate tax dodging and while the biggest and most important reforms need to be handled at the federal level, Texas taxpayers could save $141.5 million from a simple state-based reform to crack down on offshore tax dodging. The reform, which has already been proven effective in Montana and passed in Oregon, would require companies to treat profits booked to notorious tax havens as domestic taxable income. By modernizing our state’s tax code, we can keep millions of dollars in Texas every year. While eliminating incentives for moving business offshore, we would be leveling the playing field for Texas
Offshore tax loopholes create winners and losers in our marketplace. The winners are large multinationals like banks, high tech companies, and pharmaceutical companies, and the losers are retailers, small businesses, and ordinary taxpayers, who are forced to pick up the tab for tax haven abuse.
Businesses should thrive based on the quality of their products and the strengths of their business model, but tax haven abuse turns this on its head. Ordinary small businesses suffer when they must compete on an uneven playing field against corporations that avoid paying their fair share in taxes by employing high-priced lawyers, accountants and lobbyists.