With all the U.S. corporate cash piling up on tiny Caribbean islands, it's a wonder the beaches can still accommodate sunbathers.
Apple, Nike, Citigroup and a few hundred other Fortune 500 companies have created a whopping 7,827 offshore shell companies to stash nearly $2 trillion in places like Bermuda and the Cayman Islands in order to avoid paying U.S. taxes, according to a new report from the U.S. Public Interest Research Group and Citizens for Tax Justice, advocacy groups pushing for tax reform. The amount of cash offshore has doubled since 2008.
All this sheltering costs the U.S. Treasury an estimated $90 billion in lost revenue per year, according to Kimberly Clausing of Reed College, cited in the report.
Not all of these numbers are new, but some of the details in the report are, including the striking number of tax-haven subsidiaries, which were created by just 362 companies.
The study marks the latest attempt by tax-reform advocates to estimate how much money U.S companies are stashing abroad, and how much taxpayers suffer as a result. Because only a relative few companies fully report how much they benefit from shelters, the report's authors pulled other tax-related information from regulatory filings to calculate the sums held overseas.
The 30 companies with the most money money officially booked offshore for tax purposes collectively operate 1,357 subsidiaries, according to the study. Apple, General Electric, Microsoft, Pfizer and Merck have stashed away the most offshore cash: more than $400 billion all told, with Apple alone accounting for $111 billion of that.
Such maneuvering is made possible under U.S. tax law that lets domestic companies hold profits earned abroad offshore indefinitely. As a result, many U.S. companies establish shell operations in low-tax countries, and then devise ways to shift profits to those entities.
Nike, for example, has licensed the trademarks for some of its products to 12 subsidiaries in Bermuda, to which it then pays royalties, according to the report. Several of those subsidiaries have the same names as Nike shoes, including an operation called "Air Max Limited" and one called "Nike Flight."
Pharmaceutical companies often follow a similar route: selling or licensing patents on medications to foreign subsidiaries, and then paying those subsidiaries big fees in order to lower their domestic tax burden.
After the report was released, The Tax Foundation, a libertarian-leaning tax nonprofit, blasted it as inaccurate. "The report reiterates misleading claims based on a flawed data source and contradicts IRS data," the group said in press releases. The Tax Foundation said the report relies on a too-broad definition of tax haven and a too-small sample of corporate tax filings.
But the claim by Citizens for Tax Justice and U.S. PIRG that domestic companies realize huge tax savings with the help of clever tax lawyers is not unique to those organizations.
A U.S. Senate report last year found that Apple had paid next to nothing on profits it has booked offshore. Between 2009 and 2012 the company shielded at least $74 billion in profits from U.S. tax authorities by routing the cash through Ireland, the Senate report found.
Citizens for Tax Justice and U.S. PIRG estimate that Apple has parked $111 billion offshore. The company is technically not permitted to spend that cash domestically, but for this rule, too, there is a loophole. The company recently borrowed $17 billion to fund a stock buyback. The offshore cash hoard let the company borrow at extra-low rates, according to one analysis.
An even easier work-around to the rule requiring that companies keep cash offshore if they want to avoid U.S. taxation is to just ignore that rule. The Wall Street Journal reported last year that several companies, including Google and Microsoft, are keeping more than three-quarters of the cash held by foreign subsidiaries in U.S. banks, held in U.S. dollars or parked in U.S. government and corporate securities.
Updated with a response from the Tax Foundation.