As per a recently published report by a US-based institute, some of the biggest US companies like Apple, Google, Pepsi, Coke, Mcdonald’s etc. are presently holding over an enormous $2.6 trillion in offshore accounts. Talking about the report by Institute for tax and Economic Policy (ITEP), 322 out of the top 500 US companies have large offshore holdings. The report also shows up that the $2.6 trillion is the highest ever amass by any US company and it has priced at the country’s government a net tax loss of marvelous $767 billion. The report reveals the data from the 10-K filings that are the reports filed by US companies with the US Securities and Exchange Commission.
— Sujan Chinoy (@SujanChinoy) May 7, 2017
If you have not noticed yet about the untaxed funds from the US companies, then let us inform you that it is more than India’s GDP, four times the US budget on Defence and is approximately equal to the $2.45 trillion compulsory spending by US government in 2015 on unemployment, food, social security, and medicare. The most common and biggest question arises in the mind is that how these companies kept their profits abroad and evaded the country’s taxes? It could be because these companies must have found a loophole in the US tax code that worked in the favor of the companies immensely. In an interview with the Times of India, ITEP’s Richard Phillip talked about the loophole.
He said there’s a provision in US tax code named as ‘deferral’, where companies are allowed to not pay additional US taxes on their offshore earnings until that money is sent back. And the companies only have to pay when the money gets technically repatriated; the companies need to pay the full taxes, excluding those that are already being paid like any foreign taxes. To get the money that is stashed abroad and to bring it back, the US President Donald Trump has proposed an amnesty scheme where companies can bring their offshore earnings by giving out a one-time 10 percent tax.
The current tax rate for corporate taxes in 35 percent in the US, but 10 percent one-time tax scheme is offered by the government to get back the offshore earnings of these companies. In 2004, the former US President George W Bush also made the similar amnesty scheme where companies just had to pay one-time 5.25 percent tax. As per the financial experts, the scheme turned out to be a big failure as many of the companies that stashed more cash in the abroad were optimistic that the government would come up with tax holidays to bring back the money in the country.
The financial experts believe that the best way to make this practice right is by making the companies pay their taxes immediately on their offshore earnings. There should not be any window time given to them to postpone these taxes under the current law. If the tax avoidance freedom is taken away, then the companies have to bring back their cash into the country.