By David Evans
On a January afternoon in George Town, the capital of the Cayman Islands, the sun beats down on three cruise ships anchored at Hog Sty Bay. Along the waterfront on Church Street stands a five-story office building called Ugland House.
From the outside, there's no way to see it's the official address of 12,748 companies. Ugland and other office buildings in George Town are home to subsidiaries of more than 150 U.S. corporations, including Coca-Cola Co., Intel Corp. and 10 more of the 30 companies in the Dow Jones Industrial Average.
Scores of the biggest U.S. companies use havens like the tax-free Cayman Islands, a British crown colony 150 miles southwest of Cuba, to escape billions of dollars in U.S. taxes, says Sen. Byron Dorgan, a Democrat from North Dakota.
Parmalat Finanziaria SpA, the Italian food company that collapsed in December after telling investors it had lied about its finances, used three Cayman subsidiaries to misrepresent assets, according to Italian prosecutors.
Enron Corp., the Houston-based energy company that went bankrupt in December 2001, used 441 Cayman affiliates to help hide $2.9 billion in losses, U.S. Senate investigators say.
Twenty-four of the 100 largest contractors with the U.S. federal government -- including Altria Group Inc., Oracle Corp. and Procter & Gamble Co. -- have subsidiaries in the Caymans, according to a March report by the General Accounting Office, Congress' investigative arm.
Those 24 companies received a total of $35 billion from the U.S. government in 2001, the GAO found. "They are shortchanging our country even as they profit from it," says Dorgan, 62, the top Democrat on the Competition, Foreign Commerce and Infrastructure Subcommittee of the Committee on Commerce, Science and Transportation.
Oracle spokeswoman Deborah Lilienthal says the database software maker's Cayman subsidiary owns a minority share of a foreign company she declined to disclose. Procter & Gamble spokesman Douglas Shelton says the household goods maker's Cayman subsidiary is an inactive holding company.
"We're currently exploring dissolution of that entity so it doesn't raise questions in people's minds," he says. Altria spokesman Tim Kellogg says the food and cigarette maker's Cayman subsidiary is a holding company.
The 100 U.S. contractors own 464 subsidiaries in offshore tax havens, according to the GAO report. The offshore subsidiaries often serve the sole purpose of allowing companies to avoid paying U.S. taxes, says Sen. Carl Levin, 68, a Democrat from Michigan.
"Many are little more than a post office box set up to allow corporations to move profits to the low- or no-tax havens rather than reporting that income to the United States," he says.
J.P. Morgan Chase & Co. estimated in a June study that $650 billion of profit earned abroad by U.S. companies over decades had never been taxed by the U.S. That's up from a cumulative total of $500 billion cited by J.P. Morgan in a study a year ago.
In 2001, almost half of the money U.S. companies earned outside the U.S. -- 47 percent -- was accounted for in offshore tax havens such as the Cayman Islands, which has no corporate income tax, says Martin Sullivan, 45, a former U.S. Treasury Department economist, citing Commerce Department data.
As a result, companies didn't have to pay the 35 percent U.S. corporate income tax.
Asked why Intel, based in Santa Clara, Calif., has a Cayman subsidiary, spokesman Chuck Mulloy says, "I can only assume it's for tax purposes." He adds, "Unless we absolutely need it onshore, we'll keep it offshore to avoid paying a 35 percent tax."
Source: The Charlotte Observer
