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Ask The Edd Attorney-How Are Major Us Corporations Parking Money Off Shore And Avoiding The Payment Of Us Taxes

By Robert S. Schriebman

Most of the clients of this office pay their taxes. They may grumble about it, but they either pay their taxes in full or they make installment payment arrangements. We do not represent anyone who wants us to set up an elaborate system to avoid paying their fair share by parking otherwise taxable income offshore. I was upset to read the recent article published by Jeff Clarson, a member of the News Staff of Commerce Clearing House (CCH). CCH has been the publisher of my books since the early 1980s. I trust the integrity of the company, and I believe what they put in print. This is why I am reproducing verbatim Mr. Carlson's excellent article that reports the results of a recent study that says 70 percent of Fortune 500 companies use offshore tax havens. Here is what Mr. Carlson had to say:

"Tax loopholes encouraged more than 70 percent of Fortune 500 companies to maintain subsidiaries in offshore tax havens as of 2013, according to "Offshore Shell Games," a study released on June 5 by the U.S. PIRG Education Fund and Citizens For Tax Justice. Collectively, the companies reported booking nearly $2 trillion offshore for tax purposes, with just 30 companies accounting for 62 percent of the total, or $1.2 trillion.

Offshore tax loopholes used by U.S. corporations annually cost $90 billion in lost federal tax revenue. The new study shows that, while most very large companies use tax havens, a smaller subset are most aggressive about using offshore tax havens to avoid taxes. "Our tax code is broken, and it's hurting the public," said Dan Smith, Tax and Budget advocate for the U.S. PIRG Education Fund and report co-author. "We've made it too easy for American multinationals to dodge taxes by setting up shell companies in tax havens."

The report found that at least 362 Fortune 500 companies operate subsidiaries in tax haven jurisdictions, as of 2013. All told, these companies maintain at least 7,827 tax haven subsidiaries. The 30 companies with the most money booked offshore for tax purposes collectively operate 1,357 tax haven subsidiaries. The 30 companies with the most money booked offshore for tax purposes collectively hold nearly $1.2 trillion overseas. Only 55 companies disclosed the amount they would expect to pay in U.S. taxes if they did not report profits offshore for tax purposes. All told, these 55 companies would collectively owe $147.5 billion in additional federal taxes.

As an example, the study shows that Nike reported having $6.7-billion booked offshore, on which it would otherwise owe $2.2 billion in U.S. taxes. Nike does this in part by licensing the trademarks for some of its products to 12 subsidiaries in Bermuda to which it must pay royalties. Other examples in the report show that Pfizer, the world's largest drug maker, operates 128 subsidiaries in tax havens and currently books $69 billion in profits offshore, the third highest among the Fortune 500. Citigroup reported operating 427 tax haven subsidiaries in 2008 but disclosed only 21 in 2013.

The report concludes that, to end tax haven abuse, Congress should end incentives for companies to shift profits offshore, close the most egregious offshore loopholes, strengthen tax enforcement and increase transparency. The report can be found here."

On June 12, 2014, Mr. Carlson published another CCH report concerning Walgreen's possible move to renounce its American corporate legal status and move its headquarters to Switzerland. Switzerland is a notorious tax haven. If Walgreens follows through with its plan to move it will cost the American taxpayers $4 billion in lost tax revenue over a five-year period. How can Walgreens get away with not paying its fair share of U.S. taxes? Apparently, there is a loophole in the Internal Revenue Code that allows American companies to re-incorporate in a foreign country when just 20 percent of its stock is owned outside of the United States. Who owns this 20 percent? Walgreens is in the process of completing its purchase of Europe's largest pharmaceutical retailer and wholesaler Alliance Boots which is expected to happen in early 2015. Alliance Boots has itself come under stiff criticism for tax avoidance (not tax evasion), when it relocated from the U.K. to Switzerland in 2008.

I remember a course I took in college. It was a course in literature. Something that the professor mentioned has always stayed with me, and I pass it on to you. He was paraphrasing a quote from the author Honoré de Balzac 'For every great fortune there is a great injustice.'

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An EDD lawyer, Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States.

As a trusted EDD attorney, has successfully dedicated more than 30 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, "IRS Tax Collection Procedures - A Manual for Practitioners" published by Commerce Clearing House and the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See "California Tax Collection Practice and Procedures" and "California Taxation Practice and Procedure," both published by Commerce Clearing House.