The Tax Free Tour
The Tax Free Tour is an hour long Dutch documentary (in English) about the highly specialized field of corporate tax avoidance. I found it astounding how many US corporations use overseas tax havens to avoid paying tax in the US. Some of the better known names include Walt Disney, Wells Fargo, Google, AT&T, Apple and even companies that promote themselves as socially responsible, like Starbucks and Amazon.
Apple, one of the worst offenders, pays only 1.9% of their annual income in corporate tax. As a US company headquartered in Silicon Valley, Apple should be liable to the standard 35% corporate tax rate. Their secret is diverting nearly all their income to a subsidiary in Ireland (which has one of the lowest corporate tax rates) - after first passing all their royalty income through a Netherlands subsidiary (the Dutch charge virtually no tax on intellectual property revenue) and a company listed in Virgin Island s and back to Ireland. In the accounting trade, this is known as a Double Irish with a Dutch sandwich.
The filmmakers calculate that profits offshored for tax avoidance purposes totaled more than $20 trillion in 2010. Approximately 100 of the world’s largest companies have subsidiaries in Netherlands, owing to their low taxes on royalties from intellectual property. Walmart has six Dutch companies, even though they don’t have a single store there. Starbucks also diverts all their royalty income there. Because they have a trademark on “frappuccino,” they declare a certain percentage of the price as a “royalty” (and pay no tax on it).
My favorite part is near the end when a British Select Committee is challenging a Starbucks executive on his claim that their British coffee houses have been running at a loss for fifteen years. After asking why they don’t shut the stores down, she gets him to admit they avoid $1.6 million pounds in corporate taxes by diverting their British income to the Netherlands. He won’t tell her how much tax they pay the Dutch government. Allegedly they have a secret agreement not to disclose the amount. She sternly reminds him of the free public services Starbucks makes use of in the UK, at the expense of other taxpayers.
Amazon avoids corporate tax by diverting a sizable portion of their revenue to Luxemburg. Google shelters their profits in Bermuda. Other favored corporate tax havens include Cyprus (no, it wasn’t just the Russian mafia that stashed money there), the Cayman Islands Mauritius, Singapore, Hong Kong, the UAE and Kenya.
The irony of all this is that most of this income can’t be transferred to shareholders. Paying it out as dividends would necessitate repatriating the revenue to the company’s home country – and paying the prevailing corporate rate. Thus much of this money is loaned (as treasury bonds) to deeply indebted western countries – who struggle to balance their books owing to the trillions of dollars lost from tax avoidance.