Prosperity Watch (Issue 66, No 2.): North Carolina Corporations Stash $31 Billion in Profits in Offshore Tax Havens

Oct. 10, 2016

At least 10 multinational corporations headquartered in North Carolina are among the more than 367 Fortune 500 companies that use tax havens to avoid paying federal and state income taxes. Altogether, these NC-based corporations have around $31 billion in profits earned in the U.S. sitting in nearly 300 foreign tax havens, according to a new report that assesses the use of offshore tax havens by Fortune 500 Companies. These significant profits mean these companies are avoiding nearly $6 billion in federal income taxes and around $1.2 billion in state income taxes.

The use of offshore tax havens is pervasive among profitable multinational U.S. corporations. Most of America’s largest corporations use foreign tax havens to shelter nearly $2.5 trillion in profits earned in the U.S., the report finds. The practice of shifting corporate income to tax havens allows U.S.-based multinational corporations to reduce federal revenue by an estimated $100 billion each year. In addition to reducing federal income taxes paid, the use of tax havens also reduces state income taxes, which means many states have a harder time ensuring adequate resources are available for public investments that help communities thrive.

U.S. corporations have done well during the Great Recession and even better in the ongoing recovery. In aggregate, corporations have seen their profits increase by nearly 100 percent – from around $1 trillion at its trough point in the wake of the Great Recession to more than $2 trillion for the first quarter of 2016, according to data by the Bureau of Economic Analysis.[i] The use of offshore tax havens allows these profitable corporations to reduce the amount of their profits that are subject to federal and state income tax.

In addition to using offshore tax havens, North Carolina-based corporations have also benefited from large income tax cuts at the state level. Since 2013, state lawmakers have passed multiple rounds of tax cuts that reduce the corporate income tax rate to 3 percent from 6.9 percent. This corporate tax cut will reduce state revenue by more than $700 million each year – resources that are no longer available to meet the needs of a growing state.

As the report highlights, U.S.-based multinational corporations are allowed to play by a different set of rules than small and domestic businesses or individuals when it comes to paying taxes. The large and powerful companies are able to have the tax code designed to enable them to book profits earned in the U.S. to subsidiaries located in offshore tax haven countries with minimal or no taxes. Policy actions that would crack down on tax haven abuse include ending incentives for companies to shift profits offshore and closing the most egregious offshore loopholes. Doing so would restore fairness to the federal tax system, ensure profitable corporations pay their fair share in helping fund valuable public programs, and possibly reduce budget deficits.

[i]  Corporate profits include inventory adjustment (IVA) and capital consumption adjustment (CCAdj)


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