A new Senate investigation into corporate tax procedures has revealed how some of the United States’ biggest companies save billions of dollars. It’s perfectly legal practice, but the findings are leading some politicians to ask if such actions need to be stopped.
In the United States, the base tax rate for corporations is 35 per cent. However, in other parts of the world that tax rate is often much lower. That’s why firms like Microsoft move their cash to places like Puerto Rico, Ireland, Bermuda, and Singapore.
According to a new report from the United States Senate’s Permanent Subcommittee on Investigations, this practice saved Microsoft — one of America’s biggest companies — an estimated $6.5 billion over the last three years. The Senate report shows that Microsoft keeps 89 per cent of its cash stored outside of the United States.
And by no means is Microsoft alone. Hewlett-Packard (HP), one of the world’s major producers of personal computers, keeps 100 per cent of its cash outside the U.S. Cisco, eBay, Dell, and Oracle also keep at least 80 per cent of their cash elsewhere. Apple does this with about 67 per cent of its cash. Google is the major exception, with only 48 per cent of its cash kept overseas.
Chairman of the Senate committee Carl Levin (D-MI) admits that there’s nothing illegal about this behavior. However, Levin is drawing attention to the impact such practices can have on American citizens.
“Major U.S. corporations are increasingly earning their profits here but shipping them overseas to avoid paying the taxes they owe,” Levin noted in the report.
“At a time when we face such difficult budget choices, and when American families are facing a tax increase and cuts in critical programs from education to health care to food inspections to national defense, these offshore schemes are unacceptable.”
According to Levin, the problem is that when America’s major firms avoid paying their taxes, they shift the responsibility onto other groups, including smaller businesses and families.
Levin says that together American multinational firms keep as much as $1.7 trillion offshore.
Microsoft, which has been at the center of the Senate investigation, insists this is all part of operating in a global business environment.
“Microsoft’s tax results follow from its business, which is fundamentally a global business that requires us to operate in foreign markets in order to compete and grow,” a company representative said.