Business

Report: US corporations rack up profits in tax havens

by Bernie Becker - 05/27/14 1:27 PM ET

The numbers for U.S. corporations’ offshore profits don’t compute, according to a new study from a liberal group.

{mosads}Using IRS data, Citizens for Tax Justice found that the earnings reported by U.S. subsidiaries in the Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands and Luxembourg outpaced those countries’ gross domestic product in 2010.

For instance, Bermuda’s gross domestic product that year was $6 billion, but subsidiaries of U.S. corporations claimed $94 billion worth of profit in the country.

In all, Citizens for Tax Justice found that 54 percent of U.S. corporations’ offshore profits were claimed in a dozen tax havens. Those 12 countries account for 4 percent of the economic production among the places where U.S. companies are active, the report found.

The other seven countries named in the report are Barbados, Cyprus, Ireland, the Netherlands, the Netherlands Antilles, Singapore and Switzerland.

“It is obviously impossible for American corporations to actually earn profits in a given country that exceed that country’s total output of goods and services,” the report said.

“The only plausible conclusion is that American corporations are engaging in various accounting gimmicks to make large amounts of their profits appear, for tax purposes, to be earned in these dozen tax-haven countries,” the report added.

Under current law, domestic corporations can defer paying taxes on offshore profits until the income is brought to the United States.

Republicans and business advocates have proposed shifting the U.S. to a so-called territorial system, which would further limit the amount of taxes corporations would pay on offshore income.

Corporations’ offshore tax practices have come under further scrutiny recently after the drug giant Pfizer tried to take over the British pharmaceutical company AstraZeneca, in a deal that would have allowed Pfizer to slash its tax bill.

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