Apple and Microsoft have more offshore cash, pay lower foreign tax rates, than almost any other Fortune 500 companies
Like money in politics and bad Hollywood remakes, some problems in America are at once so destructive and so impossibly difficult to solve that they're too depressing to even think about.
So it is with companies that keep massive stockpiles of cash in foreign countries in order to avoid paying US corporate tax rates. In fact, the only thing that prevents this issue from being relentlessly bleak is the absurdity of what some of these companies get away with. For example,according to the advocacy and lobbying group Citizens for Tax Justice (CTJ), American corporations claim to have earned so much profit selling goods in tax-free zones like the Cayman Islands and Bermuda that the figure amounts to 16 times these countries' total GDPs -- which defies reality.
Granted, at 35 percent, the United States has the highest nominal corporate tax rate of any developed nation. But 35 percent is not what corporations really pay. Thanks to loopholes, tax breaks, and offshore tax havens that let companies put a few hundred miles of ocean between Uncle Sam and their profits, corporations only paid an effective tax rate of 12.1 percent in 2010 -- which is lower than virtually any country in Europe and the lowest in America since 1972. All this, despite record corporate profits, sliding employee wages, and unprecedentedly high CEO compensation packages in America.
Many Americans know no other way to respond than to throw up their hands in frustration. Or worse, in some circles it's considered gauche to complain about offshore tax havens at all, and those who express justifiable outrage over this issue are labelled as naive or simple-minded. Arrogant retorts like "Are you really surprised?" or "That's just the way the world works" (which are also invoked by defenders of the NSA) are used by the church of the savvy to attack those who rightly bemoan these outrageous corporate practices.
But if there's one time of the year when guileless critics of corporate tax shelters should refuse to be silenced it's now, as millions of Americans participate in the time-honored civic ritual of filing tax returns. And so without an ounce of shame, let's behold a new report by CTJ that not only reveals which companies keep the most cash in foreign lands, but also which companies pay the lowest foreign tax rates -- thereby proving that their offshore cash stashes are less the result of legitimate international sales, and more indicative of cash stashes in tiny countries where corporate taxes don't even exist.
Some of the figures in the report are already well-known, like that 304 Fortune 500 companies hoard a whopping $2 trillion in profits in countries with lower tax rates than America's. That allows corporations to avoid paying up to $600 billion in aggregate taxes to the federal government -- which could buy a whole lot of roads, schools, and bridges.
CTJ did more than identify aggregate numbers, however. It was also able to identify specific corporations that hoard impressively large amounts of cash offshore, while also paying exceedingly low foreign tax rates. After all, keeping profits in foreign lands doesn't prove anything on its own. It could mean that the company merely had a great year for international sales.
But the report found that at least twenty-eight Fortune 500 companies paid wildly low corporate tax rates of ten percent or less on foreign-held profits last year -- meaning that these profits are likely concentrated in low-tax shelters as opposed to countries where legitimate sales of goods were made. These profits amounted to $470 billion -- which means nearly 25 percent of the $2 trillion held abroad was generated by just 5.6 percent of the Fortune 500.
If that sounds surprising, keep in mind that two firms in particular weighted this amount by having an enormous amount of cash that is likely put away in low-tax offshore havens. And they're both two of the most prominent and storied tech firms in the world: Apple and Microsoft.
At the end of its most recent fiscal year, Apple held an astounding $157.8 billion in profits offshore -- beating out all Fortune 500 firms -- while paying a foreign tax rate of only 2 percent. Meanwhile, Microsoft held $92.9 billion while paying a foreign tax rate of only 3 percent. Other top cash hoarders that paid less than ten percent included the Manhattan-based banking conglomerate CitiGroup with $43.8 billion and a 9 percent tax rate and the Silicon Valley software giant Oracle with $32.4 billion and a 4 percent tax rate.
So how did these companies -- which keep billions of dollars that could be used for any number of public works -- so foolishly expose themselves to CTJ's analysts?
It wasn't foolishness at all, but honesty -- or possibly arrogance. Apple, Microsoft, and twenty-six other companies all but admitted to paying these low tax rates in their most recent annual 10-K financial reports. They did so by simply following required accounting standards and disclosing the US tax rate they would pay if their profits were repatriated back to America. All it took was a little basic arithmetic for CTJ to calculate the foreign tax rate.
As for the hundreds of other companies, a few of them like Ford Motor Company and PPG Industries joined Apple and Microsoft in disclosing these repatriation amounts but had little to hide, paying foreign tax rates that weren't much lower than the nominal tax rates in the US. But 247 of the 304 Fortune 500 companies who maintain profits offshore refused to disclose these figures, stating that it isn't "practicable" to calculate these figures. CTJ isn't convinced, writing that "these companies almost certainly have the capacity to estimate these liabilities."
So when you're calculating your taxes over the next two weeks on a MacBook Pro or with the help of Microsoft Excel, don't forget how little these companies actually give back to the country where their profits are made.
[illustration by Brad Jonas]