Multinationals Costing U.S. Billions

Large American multinational corporations are evading their domestic tax obligations through a variety of schemes costing the U.S. Treasury billions of dollars each year, according to a report released last week by the Joint Committee on Taxation.

Companies are shifting profits to nations with lower tax rates, sometimes cutting their tax U.S. tax obligations in half each year, the report found.

"I always find it impossible to explain why a pharmacist in Bastrop, Texas, or a small retail store in San Marcos is having to pay higher rates on the income that their hard-working small business owners are earning than some multinational that can duck and dodge taxes in Bermuda or the Cayman Islands," Rep. Lloyd Doggett (D-TX) said, according to The Kansas City Star.

The study, which analyzed the tax filings of six American multinationals that have remained anonymous, found that the tax havens could cost the nation as much as $60 billion annually in tax dollars, but some estimates put that number upwards of $100 billion.

Companies have skirted their tax obligations by shifting income through licensing agreements with subsidiaries in low-tax nations. A company will develop a product in the U.S., licensing the rights to a subsidiary that manufactures the products and finally buy the product back off of the subsidiary.

“Taxpayers that develop unique intangible property rarely, if ever, transfer that property to third parties,” the report said.

Unfortunately, the problem could get worse if the proposed Panama free trade agreement is passed.

Panama is well-known as a tax haven. Recently, it was one of 13 countries listed on all of the major tax-haven watchdog lists that also does not have U.S. tax transparency treaties. Panama also happens to be the only country on that list that the American government is currently seeking to finalize a “free trade” agreement with. If it does, the U.S. would be ceding potentially trillions of dollars.

A recent report by the U.S. Public Interest Research Group Education Fund found that the U.S. Treasury Department loses approximately $100 billion each and every year due to American businesses utilizing tax havens.

A good portion of that likely winds up in Panama, where 350,000 foreign subsidiaries are located in the country to take advantage of the nation’s lax tax laws, usually in the form of offshore shell companies and fake headquarters. That makes it the second most popular destination in the world for multinational corporations seeking to avoid taxes, behind only Hong Kong.

American companies operating in Panama and taking advantage of its tax haven status include giants such as Caterpillar, Dell, General Mills, Johnson & Johnson, Kraft Foods, Merck, PepsiCo, and Proctor & Gamble.