By Raman Jokhakar, Tarunkumar Singhal, Chartered Accountants
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53 Offshore tax shelters much too inviting
American companies, especially those receiving federal aid,
should be expected to pay a fair share of U.S. taxes.
Pretty well buried under all the hoopla of President Barack
Obama’s inaugural was a report last week that could help the U.S. Treasury tame
its way-out-of-whack balance sheet. The Government Accountability Office report
looked at U.S. companies that stash money in foreign countries to shelter them
from U.S. taxes.
U.S. Sen. Carl Levin, D-Mich., who requested the report along
with fellow Democratic Sen. Byron Dorgan of North Dakota, estimates that such
companies are avoiding $ 100 billion in U.S. taxes. And many of them — including
Bank of America and Citigroup — have lately been on the receiving end of
billions of dollars in federal bailout money or fat federal government
contracts.
Now, $ 100 billion may seem like pocket change when you’re
running a trillion-dollar budget deficit and carrying a $ 10.4-trillion national
debt. But you know, every billion counts when you are trying to spend your way
out of a recession. Unfortunately, this offshoring of taxable assets is entirely
legal, which Levin and Dorgan hope to do something about.
Common sense, not to mention common decency, would seem to
dictate that if you take tax dollars you also pay your full share of tax bills.
According to the report by the GAO, which is the
congressional watchdog agency on government programmes and spending, 83 of the
100 largest publicly traded U.S. corporations and 63 of the 100 largest publicly
traded companies with government contracts have subsidiaries in places that are
regarded as tax havens. There is no official definition of such places, but they
have common characteristics, such as no or low local taxes, political stability,
laws that keep financial dealings secret, and a tendency to promote themselves
in the right circles as great places to keep your money out of reach of Uncle
Sam or other tax-grabbing governments.
Bermuda, for example, has no income tax on foreign earnings
and allows foreign companies to incorporate there under an ‘exempt’ status. Plus
the island is not a bad place to have to go to visit your money. The British
Virgin Islands, the Cayman Islands, Switzerland and Luxembourg are among other
places that attract extraordinary amounts of foreign corporate capital. None of
the countries identified in the GAO report as tax havens appears to have much in
the way of a military or other things that take a lot of tax dollars. When they
have emergencies, they probably just call us.
To be fair, the GAO report says some companies have
legitimate business reasons to operate in places that also happen to have
favorable tax and privacy laws.
But does insurance giant AIG, for example, recipient of $ 85
billion in federal bailout money, really need five subsidiaries in Bermuda and
three in Switzerland, as listed in the GAO report ? Does Boeing need six in
Bermuda and 16 in the U.S. Virgin Islands ? The report shows Midland-based Dow
Chemical with 35 subsidiary operations in countries identified as tax havens,
Ford with two, General Motors with 11, and GMAC — in which the U.S. Treasury now
has a $ 5-billion stake — with two, one in Bermuda and the other in Switzerland.
How many car loans can you make in such places ?
There are those who will say that if the United States had
more reasonable tax laws, Uncle Sam wouldn’t be driving all this money into
offshore shelters. But there are those, too, who will say that no business will
pass up an opportunity to cut its own taxes.
Back in 2007, when Levin first started raising this issue
through the permanent sub-committee on investigations that he chairs, he had an
ally in the Senate behind legislation to at least make the companies disclose
their financial offshoring, which could have had an impact on their ability to
secure federal help. Levin’s bill was cosponsored by the junior Senator from
Illinois, a Democrat named Barack Obama.
So something tells that while the GAO report didn’t make much
of a splash, it will not be the last word on this issue.
(Source : Internet, 25-1-2009)
