NEW YORK (Reuters) - U.S. corporations are increasingly shifting billions of dollars in profits to tax havens, far away from Uncle Sam and the Internal Revenue Service, according to a study of federal data from 1999 to 2002.
The study, done by Tax Analysts, a nonprofit organization, said the profits of U.S. corporations' foreign subsidiaries in 18 tax havens rose from $88 billion to $149 billion in 2002. Total profits of U.S. foreign subsidiaries worldwide stood at $255 billion in 2002. According to the Commerce Department, total nonforeign corporate profits in 2002 were $716.8 billion.
The study said a high percentage of foreign profits have shifted to places like Bermuda, Ireland, Luxembourg and Singapore, where the effective tax rate is lower than the 35 percent applicable corporate income tax rate in the United States.
The effective tax rate in Luxembourg is 1 percent, in Bermuda 2 percent, in Ireland 8 percent and in Singapore 12 percent.
"The figures for 2002 make it ever more clear...that corporations are increasingly capitalizing on their ability to shift profits to overseas tax havens," wrote Martin Sullivan, author of the study.
The report also highlights how subsidiaries of U.S. corporations now generate profits mainly in tax havens, rather than in the locations in which they conduct most of their business.
In Ireland, profits of subsidiaries of U.S. multinationals doubled in four years from $13.4 billion to $26.8 billion, while similar profits in Bermuda tripled from $8.5 billion to $25.2 billion.
One tax haven that's seen a decline in profits of U.S. companies' foreign units is Cayman Islands.
Tax Analysts suggests one reason for this could be Cayman's strong links with Enron Corp., which filed for bankruptcy in 2001. Some companies may have felt an association with Cayman Islands could trigger negative publicity for them, the report said.
The report also highlights the emerging importance of China. Profits of U.S. subsidiaries in China rose to $3.4 billion in 2002 from $1.2 billion in 1999.
China's tax rate declined from 21 percent to 16.8 percent over that period, an indication that apart from cheaper labor costs, lower taxes could also entice more U.S. businesses to decamp to China.
Source: CNN Money
