In contrast, five traditional economies (Australia, Canada, Germany, Mexico, and the United Kingdom), where American multinational companies employed 40 percent of their foreign workers and placed 34 percent of their foreign investments, accounted for only 14 percent of those companies reported overseas profits.
Tax breaks for options?
Offshore holdings arent the only way for a big company to avoid paying income tax. Facebook didnt pay any federal or state income tax for 2012, despite earning $1.1 billion in profits. In fact, the company will receive $429 million in refunds. How? It exploited a tax break for compensating its executives with stock options, many of which were cashed out after the social networking giants IPO last year. Other young companies may duplicate this method of compensation to achieve the same end.
Tax Haven Mavens
The Center for Investigative Reporting and The Bay Citizen published a report last month that studied the offshore holdings and tax savings of 50 of the largest publicly traded tech companies in Silicon Valley. The study found that most of the companies in the study keep massive amounts of their cash parked oversees, and that they often use exemptions to avoid reporting the detailsand the tax-savings implicationsin their SEC filings.
This chart shows the amounts of cash that eight tech companies have permanently reinvested overseas, rendering those funds permanently safe from U.S. taxation. Comparisons can be drawn between the cash amounts reinvested offshore and the total cash held by the companies.
You can see a full interactive presentation of this data from 50 Silicon Valley companies developed by Matt Drange and Shane Shifflett at the Center for Investigative Reporting.
Few companies in that list of 50 actually report how much tax theyre avoiding by permanently investing it overseas, but a few are frank about it. Apple, for example, reports that it would owe the government an additional $13.8 billion if were taxed on its foreign earnings. Adobe would owe an additional $700 million.
This is a very serious issue at a time when the United States struggles to fund basic entitlement programs and looks for ways to pay down its staggering debt. Executives at the tech companies defend their tax-avoidance strategies by pointing at that they are simply abiding by existing laws and looking out for the interests of their investors. Is it time for U.S. lawmakers to close the loopholes in the tax code that allow tech companies to pay less than their fair share?
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