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According to Picking up the Tab: Small Businesses Pay the Price for Offshore Tax Havens, a new report by the Arizona PIRG Education Fund, the average Arizona small business owner would have to pay an extra $2,213 in taxes to make up for the money lost in 2014 due to offshore tax haven abuse by large multinational corporations.
“When large companies shirk their taxes, small businesses get stuck with part of the bill and are put at a competitive disadvantage. Businesses should compete on innovation and the quality of their products, not on the cleverness of their tax attorneys,” said Diane E. Brown, Executive Director of the Arizona PIRG Education Fund.
Every year, corporations across the country 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. This leaves small 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 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.
Many of America’s largest and best-known corporations use these complex tax avoidance schemes to shift their profits offshore and drastically shrink their tax bill. GE, Microsoft, and Pfizer boast some of the largest offshore cash hoards:
· General Electric paid a federal effective tax rate of negative 7.3 percent between 2008 and 2014, despite being profitable all of those years. The company received net tax payments from the government. GE maintained 18 subsidiaries in tax havens in 2014, and parked $119 billion offshore. One of the company’s most lucrative loopholes is the ‘active financing exception’, which is poised to expire at the end of the year. GE alone hired 48 lobbyists to push to renew this loophole last year.
· Microsoft avoided $4.5 billion in federal income taxes over a three-year period by using sophisticated accounting tricks to artificially shift its income to tax-friendly Puerto Rico. Microsoft maintains five tax haven subsidiaries and keeps $92.9 billion there, on which it would otherwise owe $29.6 billion in additional U.S. taxes.
· Pfizer paid no U.S. income taxes between 2010 and 2012 because the company reported losses in the U.S. during those years, despite making 40 percent of its sales in the U.S. and earning $43 billion worldwide. In 2014, the company operated 143 subsidiaries in tax havens and declared $74 billion parked offshore, which remains untaxed by the U.S., according to its own SEC filing.
The report recommends closing a number of offshore tax loopholes. Many of these reforms are included in the Stop Tax Haven Abuse Act.
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