CHARLESTON, W.Va. -- How do corporations evade billions in U.S. taxes? Here's one way:
Some U.S. pharmaceutical firms register their patents in foreign nations where corporate income taxes are tiny, far below the U.S. rate of 35 percent. If a drug company earns $1 billion profit from American sales, it can send $900 million to its foreign office as "fees" for the patents held abroad. Thus the firm's U.S. tax bill is cut by nine-tenths, and it pays a pittance in foreign taxes.
Many other types of offshore tax-ducking are employed by American corporations -- all perfectly legal.
Ugland House, a dumpy five-story building on Grand Cayman Island, is the address of 19,000 subsidiaries of American corporations. It's a sham -- merely a mailbox service allowing the firms to pretend they have foreign branches. Profits funneled through the Cayman Islands elude the 35 percent U.S. corporate tax.
About $100 billion per year in American taxes is dodged by overseas transfers, the Institute for Policy Studies estimates. Other American taxpayers must make up this shortage.
"In total, American corporations have stashed more than $1.4 trillion offshore," the institute says. "While some of this loot is derived from U.S. corporations selling goods and services to people abroad, much of it is reaped from accounting tricks."
The U.S. firms can't bring the $1.4 trillion back to America without paying 35 percent corporate income tax. So they hire armies of big-money lobbyists, trying to persuade Congress to give them special tax holidays during which they can return the cash at low rates.
Such a tax holiday was granted in 2004, on grounds that the returning money would create American jobs. However, "58 U.S. corporations that enjoyed 70 percent of the tax breaks from the 2004 tax holiday eliminated nearly 600,000 jobs in the seven years that followed," the institute reported.
Today, a business coalition called WIN America has spent $50 million for more lobbyists seeking another one-time tax-return holiday. What a travesty.
Reformers in Congress have drafted the Stop Tax Haven Abuse Act, which "would blockade money earned in America from leaving here in the first place," the institute reports. " ... And it would outlaw the fake business of pretending that authentic businesses can consist of a brass nameplate and a post office box on a tropical island."
We hope West Virginia's senators and representatives get solidly behind this plan to prevent slick operators from evading their share of American taxes.