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April 14, BALTIMORE – As Tax Day approaches, it’s important to remember that small businesses end up picking up the tab for offshore tax loopholes used by many large multinational corporations. Today, Maryland PIRG released a new study by the Maryland PIRG Foundation revealing that the average Maryland small business owner would have to pay an extra $1,599 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 Maryland PIRG Director Emily Scarr.
Every year, corporations avoid paying an estimated $108.1 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.
Maryland can take measures locally to reclaim some of the revenue lost to tax havens. Maryland PIRG research has found that by passing a simple, proven reforms already on the books in other states, Maryland could save $27.3 million annually.
Maryland State Senator Paul Pinsky introduced such a reform through legislation in the general assembly to require combined reporting in Maryland. But with session coming to an end on Monday night, the bill had not been voted on.
"Passing Combined Reporting -- and closing this corporate tax dodge -- would have brought in over $100 million annually, money that could be spent on improving education or cleaning up the state's environment,” explained Senator Pinsky. “It appears that this well-situated sector of multi-billion dollar corporations will get away -- again -- without paying taxes that every other small and medium-sized businesses dutifully pays every year. It's a shame."
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.
“Congress should stand with taxpayers and small business owners by keeping these special interest tax breaks out of our tax code,” said Scarr.
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, introduced by Sen. Whitehouse in the Senate (S.174) and Rep. Doggett in the House (H.R. 297). The House bill is cosponsored by Maryland congressmen Edwards (MD-4), Van Hollen (MD-8), and Cummings (MD-7).
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Maryland PIRG, the Maryland Public Interest Research Group, is a non-profit, non-partisan public interest advocacy organization that takes on powerful interests on behalf of its members, working to win concrete results for our health and well-being.
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