This has become the go to move of some of the top corporations of the United States as these companies are costing the U. S over one hundred fifty billion dollars of revenue each year. (1) Last year alone it was concluded that the top fifteen multinational companies held $776 billion dollars offshore in various subsidiaries that totaled around 859. With that in mind, the top one hundred companies held about 1. rillion dollars offshore. (2) Corporate taxes in the U. S. are taxed at a rate of thirty five percent, where on average the offshore tax havens are taxed at a mere 6. 9 percent. (2) These offshore accounts can be seen as “nominal, hyper-portable, multi-jurisdictional, often quite temporary locations of networks of legal and quasi legal entities and arrangements that manage and control private wealth”. (3) Tax havens have become a major issue in the U. S. as the top corporations of the country show no sign of slowing in their games of tax avoidance schemes.
Applicable Issue: Even though the corporate tax code makes offshore tax havens legal in the U. S. by allowing them to convey their profits overseas, they are exploiting these subsidiaries making the average taxpayer and also small business owners take on the tremendous tax burden. The practice of shifting these corporations income overseas has cost the U. S. Treasury an estimated ninety million dollars annually. (2) With such a great debt left by these havens and the avoidance of taxable income, everyday taxpayers are being jammed with a higher tax rate.
Along with higher taxes, government programs are being orced to shut down causing a numerous loss in jobs. Another correlation to these havens would be the federal debt that continues to rise on a daily basis with no help from the multinational corporations. An article by Forbes gave an interesting fact about such offshore tax havens, “If small business owners were to pick up the full tab for offshore tax avoidance by multinationals, they would each have had to pay an estimated $3,067 in additional taxes last year’. 2) With almost every multinational company depending on a majority of their income coming from the U. S. that is home to the largest consumer market, the average taxpayer shouldnt have to worry about the chance of a tax increase due to these companies false and differing tax practices. (2) Primary Authority: Tax Havens U. S. Tax Code 1 1 states that any corporation where their taxable income exceeds ten million for one year should be taxed at thirty five percent. 4) “In the case of a corporation which has taxable income in excess of $1 5,000,000, the amount of the tax determined under the foregoing provisions of this paragraph shall be increased by an additional amount equal to the lesser of i) 3 percent of such excess, or (ii) $1 00,000″, (4) with most of the top fifteen corporations exceeding this mark, barely any are actually paying the thirty five percent or additional three percent due the constant use of the offshore tax havens. The avoidance of this tax has causing key tax increases throughout the IJ S. ust to make up for the loss of taxable income these corporations are avoiding. These corporations are playing a never-ending game of rigging the U. S. tax system to their advantage to keep their profits protected. The Foreign Account Tax Compliance Act puts all of its focus on U. S. taxpayers and corporations that have foreign accounts that are not complying with the regulations of the tax code. (5) It was later added to appropriations bill making it an amendment to help with offshore accounts. 5) ‘ ‘The objective of BATCA is the reporting of foreign financial assets; withholding is the cost of not reporting. ” (5) This law was put into action when the suspicion of the tax havens were being used to hide billions of dollars from normal U. S. tax rates. Under this act not only do the corporations shifting their profits overseas have to be reported but also the financial nstitution that is holding the money has to report to the Internal Revenue Service. Even with the rules and regulations of this act, corporations are still finding loopholes in the system allowing them to still avoid the major taxes. The Abusive Tax Scheme Program is concerned about taxpayers who exploit secrecy laws of offshore jurisdictions in an attempt to conceal assets and income subject to tax by the United States. ” (6) This program was set up to catch any or all corporations or wealthy individuals who are secretly holding their profits in offshore accounts without letting the IRS know. In these cases hey “create structures making it appear that a nonresident alien or foreign entity is the owner of assets and income, when in fact and substance, true ownership remains with a IJ.
S. taxpayer. ” (6) This is another way corporations avoid paying taxes on their income by hiding it away in undercover havens. The providers of these offshore havens know they are protected from tax authorities with certain banking and commercial secrecy laws that make U. S. corporations drawn to them. (6) In attempt to slow down the use Of offshore havens specific provisions have been placed in the Internal Revenue Code hat triggers recognition of gain that would have been deferred or not taxed at all. 6) Secondary Authority: Tax Havens There is more to tax havens then just low tax rates that these corporations have to consider, confidentiality, banking currency control, communications, and treaty networks are all take into effect before sending money to these accounts. “Taxpayers and investors need to cautiously examine the economic and political stability of the nation, its geographic accessibility to worldwide markets, the availability of labor, the risk of nationalization of assets, and government cooperation. 7) Corporations take all these factors into effect before they avoid the U. S. tax rate. Even thought this seems to be discouraging to the major corporations, they continue to put in the effort just to not pay a systematic tax rate in the U. S. The U. S. is not only the one suffering from the use of these tax havens but there is more of a struggle on a worldwide basis. “Unreported income in offshore tax havens could top $32 trillion worldwide”, (8) showing that these offshore tax havens are bad not only to the host country but all the countries that are involved.
This makes for a constant dilemma to the world and its axpayers as millions are being lost in the attempt to use these havens. If the thirty two trillion would earn a modest rate of return of three percent, the revenues from this would range from 190-280 billion dollars worldwide. (8) The negative effects of these tax havens are triumphing any positive effects that may come from the use of offshore accounts. The issue that is presented with tax havens is the border between if it considered a tax haven or actually a tax evasion. In the legal language there are ever- increasingly met the current economic notions of tax havens, offshore companies, ffshore law or double taxation. These concepts are encountered, however, in legislative efforts of combating domestic and international business and tax evasion”, (9) in these cases havens are virtually impossible to control making people question are they legal. Theyre many characteristics that define what a haven is but with so many different versions it is easy for some to be misleading. With the ongoing effort to eliminate offshore tax havens to sustain better economic wealth in the U.
S. and other countries, there is still no stopping these havens in the near future. Conclusion: Offshore tax havens can have multitude effects on the individual taxpayers and small business owners. The major results from these havens are a higher tax rate for all U. S. taxpayers, as they have to make up for the millions that are being lost offshore. Higher tax rates cause a ripple effect on the economy as job loss, program shut downs and an annual increase in federal debt. These havens have become a huge tax burden to whoever is not participating in offshore tax avoidance schemes.
Certain acts and programs have been set in place to fix this immense problem but corporations are still finding more nnovative ways to get around these new schemes.