Do you ever get the feeling that things are, oh, I don't know, a tad unbalanced in this country?
A majority of America's largest publicly traded companies and the U.S. government's largest federal contractors -- including some receiving millions in federal bailout money -- use multiple subsidiaries in offshore tax havens to conduct business and avoid paying U.S. taxes, a new report finds.
The new Government Accountability Office (GAO) report, released today by Sens. Byron L. Dorgan (D-N.D.) and Carl M. Levin (D-Mich.), lists Citigroup and Morgan Stanley as having set up hundreds of tax haven subsidiaries, along with American International Group and Bank of America. Also in the tax-haven list are well-known companies and such federal contractors as American Express, Pepsi and Caterpillar.
GAO, searching publicly available data filed with the Securities and Exchange Commission, determined that 83 of the 100 largest publicly traded corporations and 63 of the 100 largest federal contractors maintain subsidiaries in countries generally considered havens for avoiding taxes. Dorgan and Levin said they requested the updated report from one several years ago because they are focused on combating offshore tax abuses, which they estimated cause $100 billion in lost U.S. tax revenue each year.
GAO auditors did not review the companies' transactions to independently verify that the subsidiaries helped the companies reduce their tax burden. The GAO said only that the companies had subsidiaries located in jurisdictions considered tax havens and that historically the purpose of those subsidiaries is to cut tax costs.
The practice is legal, but Dorgan and Levin are hoping to gain the support of President-elect Barack Obama for legislation that would outlaw it.
To illustrate the problem, Levin said the report found that Citigroup has set up 427 tax haven subsidiaries to conduct its business, including 91 in Luxembourg, 90 in the Cayman Islands and 35 in the British Virgin Islands. He said other havens include Switzerland, Hong Kong, Panama and Mauritius.