BUSINESS
06/11/2018 06:53 am ET

U.S. Companies Shelter 40 Percent Of Foreign Profits, Study Finds

The massive Republican corporate tax cut won't likely encourage the return of sheltered money to America.

Multinational companies based in the U.S. and elsewhere hide close to 40 percent of their foreign profits in overseas tax havens, according to a new study, and the massive U.S. corporate tax cut is unlikely to change that.

American companies are among the most aggressive in keeping billions of dollars in profits sheltered where it can’t be taxed by the U.S., and the so-called profit-shifting is the highest for U.S.-based multinationals, according to the study by economists at the University of Copenhagen and the University of California in Berkeley.

In 2015, the study said, a total of more than $600 billion in profits were shifted to tax havens.

The companies aren’t moving operations from the U.S. to low-tax countries. They’re using accounting maneuvers to “artificially” shift profits to tax havens.  In 2016, Google’s Alphabet made $19.2 billion in revenue in Bermuda, where it “barely employs any worker nor owns any tangible assets, and where the corporate tax rate is zero percent,” the study noted. 

“Machines don’t move to low-tax places, paper profits do,” the economists wrote.

The Republican cut in the U.S. corporate tax rate from 35 percent to 21 percent won’t likely woo money back to America to stimulate the domestic economy, the study concluded. That’s because the offshore havens have tax rates as low as 0 percent to 10 percent.

“There are still large incentives and big possibilities for firms to shift profits to low-tax places,” Berkeley economist Gabriel Zucman told The Wall Street Journal.

The research found that sheltering profits isn’t an inevitable consequence of the global economy, but a lack of enforced policies to collect taxes on corporate profits. 

The new U.S. tax law includes a discount formula that aims to entice overseas profits back home that starts at a rate of 10.5 percent. Zucman said it would be years before the effect of the law on overseas profits could be determined.

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