Relocating corporate headquarters to overseas tax havens like Ireland or the U.S. Virgin Islands is an accepted practice to lower corporate tax rates without penalty. Companies like Pfizer, Apple, and other Fortune 500 public companies save billions on taxes by declaring revenue through unremitted foreign earnings. This isn’t news. But the amount of money denied to the IRS through this common practice certainly is.
How can we determine what corporations would owe the Government if they kept their operations within U.S. jurisdiction? Let’s look at the public data, use some assumptions, and show you the staggering amount of the IRS’s lost opportunity cost.
We’ll start with the difference in tax rates which will underlie our assumptions. According to the U.S. Tax Foundation, the U.S. has the third highest general top marginal corporate income tax rate in the world at 39 percent. The average worldwide tax rate is around 22.9%. This is a conservative baseline, as much of Europe’s tax rates are much lower.
Using idaciti, we can capture the unremitted foreign earnings data of the 293 companies that estimated UFE in their SEC filings in seconds. We were also able to capture the data for 1400 companies who did not prepare this estimate, but did report UFE. The following charts summarize our findings:
The Estimated Liability is the aggregate unremitted foreign earnings for all companies by each year, multiplied by 20% - an estimate of what we can assume they’ve paid in statutory corporate tax and what they’d pay if they came back to America. So, for instance, if they paid Irish tax of 11% already on the foreign earned income, they would then pay the difference between 11% and 33% for the income they would bring back to the US.
The Disclosed Tax Liability represents the actual estimate that companies made (and disclosed) on how much they would have to pay if they brought back the earnings to the US. Note that the Financial Accounting Standards Board (FASB) allows companies to avoid disclosure of this information if it is impractical to estimate this number. Nevertheless, of the 293 companies that disclosed this information, they themselves estimate in aggregate that the total tax liability if they were to bring back the earnings to the US amount to nearly $170B (which is clearly biased downwards as certain tax havens have a much lower corporate tax rate and create a larger difference).
That’s $170 billion for 293 companies. There are 1402 companies that had UFE at one point or another over the past 5-6 years. This represents a materially significant amount of tax revenue not paid to the United States. And we found it in minutes with idaciti.
When companies relocate overseas, it’s common knowledge that they’re creating specific, measurable and dramatic tax benefits. With a tool like idaciti, now it’s easy to see those benefits in seconds.
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