Corporate profits

Corporate profits take permanent vacation in Cayman Islands and Bermuda: the two-way: NPR


George Town in Grand Cayman, Cayman Islands, is home to many international banks and offshore companies. New study shows the Caymans have $ 46 billion in multinational corporate profits, far more than their own $ 3 billion economy.

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David Rogers / Getty Images


George Town in Grand Cayman, Cayman Islands, is home to many international banks and offshore companies. New study shows the Caymans have $ 46 billion in multinational corporate profits, far more than their own $ 3 billion economy.

David Rogers / Getty Images

Tax evasion made the news from Apple to Donald Trump. A new study from Citizens for Tax Justice examines just how widespread this practice is.

The study looked at Fortune 500 companies and how they used subsidiaries of tax havens to avoid paying taxes on their income in 2015. One of the practices that has become the norm for large corporations is to create subsidiaries in a country that has no corporate or income tax.

According to the study, 367 of the Fortune 500 companies have at least one of these subsidiaries. The study found that these companies hold $ 2.5 trillion in accumulated overseas profits for tax purposes.

Here are the highlights of the study, titled Offshore Shell Games 2016:

“In total, these 367 companies maintain at least 10,366 tax haven subsidiaries.

“The 30 companies with the most money officially reserved abroad for tax purposes collectively operate 2,509 tax haven subsidiaries.

“The most popular tax haven among the Fortune 500 is the Netherlands, with more than half of the Fortune 500 declaring at least one subsidiary there.

“About 58% of companies with subsidiaries in tax havens have established at least one in Bermuda or the Cayman Islands – two particularly notorious tax havens. Profits that all US multinationals – not just Fortune 500 companies – have collectively reported have gained in these two islands According to the most recent data, the nations respectively totaled 1,884% and 1,313% of the total annual economic production of each country. ”

Matt Gardner, executive director of the Institute on Taxation and Economic Policy, is one of the study’s authors. He says: “In many tax havens it is easier to set up a branch than to get a library card. Very often, little is asked of the company in terms of ownership. [and] what they do with it. “

The Securities and Exchange Commission requires public companies to disclose how they interact with the federal tax system: how much they pay in taxes in the United States, how much they pay abroad, how much money they hold abroad. foreigner for tax purposes. The study analyzed disclosures primarily from company reports.

Gardner says that a characteristic of Bermuda and the Cayman is that they have little tax system. According to the study, almost half of the money held abroad is parked in one of the two island nations.

“Is there any chance that they are actually doing something real in these countries? And quite clearly, the answer is: no.” Gardner said. He points to the fact that the Cayman Islands’ entire economy is worth $ 2.7 billion, according to the country’s economy and statistics office. According to the study, U.S. multinationals claimed to have earned $ 46 billion in the Cayman Islands, a figure that far exceeds the size of its economy as a whole.

“Very clearly, these are profits that are made in the Cayman on paper only,” Gardener explains, “and the economic activity generating those profits is taking place elsewhere, most likely in the United States.”

Gardner points out that this activity is completely legal, but he says his group is fighting for changes in federal tax laws. To those who say that avoiding taxes is the responsibility of business leaders, Gardner replies, “Hiding their profits in a post office box in Bermuda can be a very effective strategy to avoid taxes, but it is a terrible strategy to avoid taxes. start a business “.

Gardner says the billions of dollars held on these two islands are effectively “hidden in a suitcase under a bed.” He says companies could invest significantly, for example by building infrastructure in the United States or other countries, investing in research and development, or adding production capacity. “They don’t do that with this money,” he laments. This, he argues, is “fundamentally contrary to the interests of their shareholders.”