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News : US Economy Last Updated: Jan 4, 2013 - 8:32 AM

US Senate investigation of tech giants' tax strategies close to conclusion
By Michael Hennigan, Finfacts founder and editor
Jan 4, 2013 - 8:23 AM

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Source:US Senate Budget Committee, May 2011

US-based multinationals have "dodged billions of dollars in taxes by shifting profits to low-tax jurisdictions overseas, and have used loopholes in the law to avoid taxes on repatriated income that should be subject to taxation," information uncovered by the US Senate Permanent Subcommittee on Investigations was revealed last September. The year long investigation is now reported to be close to conclusion.

“Major US corporations are increasingly earning their profits here but shipping them overseas to avoid paying the taxes they owe,” Senator Carl Levin, the subcommittee chairman, said in September. “At a time when we face such difficult budget choices, and when American families are facing a tax increase and cuts in critical programs from education to health care to food inspections to national defense, these offshore schemes are unacceptable."

The subcommittee highlighted case studies of offshore tax avoidance schemes by Microsoft and Hewlett-Packard at a hearing which sought to show "how wealthy individuals and multinational corporations use offshore tax schemes to dodge paying the taxes they owe. The hearing showed how corporations use weaknesses in tax law concerning “transfer pricing”- -  "the shifting of property from a US parent company to overseas subsidiaries - - and other loopholes in tax law and accounting rules to earn substantial US profits without paying substantial US taxes."

The subcommittee said in a statement that "tax avoidance has helped push corporate income tax revenue, as a share of all federal revenue, to historically low levels, meaning corporations bear a much smaller share of the tax burden, leaving more for American families to carry.  According to the Congressional Research Service, the share of corporate income taxes has fallen from a high of 32.1% of federal tax revenue in 1952 to just 8.9% in 2009.  Meanwhile, payroll taxes -- which almost every income earner, rich, middle-income and poor, must pay - - have skyrocketed from 9.7% of federal revenue to 40%."

In fiscal year 2011 which ended on September 30, 2011, the US effective corporate tax rate on domestic profits fell to 12.1% - - the lowest since 1972 and well below the 25% companies paid on average from 1987 to 2008. The low rate reflected accelerated investment writoffs that were introduced during the recession.

US corporate taxes were above 6% of GDP in the early 1950s but since the early 1980s have averaged about 2%.

Finfacts, Sept 2012: US Senate panel slams Microsoft's 'tax gimmickry' in Ireland, Singapore and Puerto Rico

The New York Times reports today: "The Senate Permanent Subcommittee on Investigations inquiry now drawing to a close began more than a year ago and involves at least a half dozen technology companies, according to people with firsthand knowledge of it, who declined to be identified.

Those people said the subcommittee had subpoenaed or otherwise asked the companies to explain methods they used to avoid domestic taxes. They said Apple had become a focus of the inquiry and was cooperating with the subcommittee, which is expected to issue wide-ranging recommendations that are likely to play a significant role in Congressional tax code negotiations.

Apple’s domestic tax bill has drawn the interest of corporate tax experts and policy makers because although the majority of Apple’s executives, product designers, marketers, employees, research and development operations and retail stores are in the United States, in the past Apple’s accountants have found legal ways to allocate about 70% of the company’s profits overseas, where tax rates are often much lower, according to corporate filings."

The newspaper says that the subcommittee is also known to be looking at Google, Hewlett-Packard, Microsoft and firms in such fields as biotechnology.

The NYT adds: "Although technology is now one of the nation’s largest and most highly valued industries, many tech companies are among the least taxed, according to government and corporate data. Over the last two years, the 71 technology companies in the Standard & Poor’s 500-stock index — including Apple, Google, Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a third less than other S& P companies’, according to a New York Times analysis. (Cash taxes may include payments for multiple years.)"

Finfacts reports:

Irish Economy: Sustainable growth dependent on foreign firms since 1990; Now FDI has peaked

Irish Economy: Pharmaceutical patent cliff no growth threat; High exports have low impact

Irish Economy: Export growth insufficient to pull domestic economy out of recession

Irish Economy 2012: At least a third of value of Irish services exports is overstated

Dell remains Ireland's biggest manufacturing exporter despite closing Limerick plant

Irish Economy 2012: Only 50,000 Irish direct workers responsible for 69% of annual Irish exports

Check out our subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.

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