Final Extenders Deal Still Includes Corporate Tax Haven Loopholes
Washington, DC – The FACT (Financial Accountability and Corporate Transparency) Coalition expressed its disappointment today with the passage of the tax extenders package as it still includes two wasteful offshore loopholes that allow U.S. companies to dodge billions worth of taxes.
The two loopholes, the CFC Look Through Rule and the Active Financing Exception, are part of a larger package of temporary tax breaks, ostensibly designed to stimulate the economy and encourage business investment. These two loopholes alone will cost taxpayers $6.2 billion this year and are not paid for by closing other corporate loopholes elsewhere.
“It’s shameful that in a year when Congress has decided there isn’t enough money to fully fund Head Start slots that support young children in getting a good start on their school careers and has asked hungry families to get by with less food on their tables, they instead come up with billions of taxpayer dollars to reward businesses for shifting jobs and profits offshore,” said Scott Klinger, Director of Revenue and Spending Policies at the Center for Effective Government, and a member of the FACT Steering Committee.
Passive income such as interest, dividends, and income on intangible assets is meant to be taxable even if it is kept offshore. But two exceptions, resulting from intense lobbying and never permanently added to the tax code, let multinational corporations avoid this rule.
The CFC Look-Through Rule allows corporations to avoid U.S. tax on income from intangibles if it is paid by a related company to an offshore subsidiary. Multinationals are able to shift income earned in the U.S. and elsewhere to low or no-tax countries for tax purposes. The corporations that take advantage of this loophole seldom have employees, operations, or real economic activity taking place in these tax haven nations. Instead, most of these “places of business” contain only a mailbox.
The Active Financing Exception allows banks and other financial services businesses like General Electric to also avoid U.S. tax on interest income. They book such income to foreign subsidiaries, providing another avenue for tax avoidance.
“When Congress chooses to add billions of dollars to the deficit, taxpayers end up picking up the tab down the road through cuts to public priorities or higher taxes,” said Jaimie Woo, Tax and Budget Advocate for U.S. PIRG. “Tax breaks deserve the same amount of scrutiny as spending items, and the package shouldn’t be rubberstamped without taking out the pure giveaways to special interests.”
Founded in 2011, the Financial Accountability and Corporate Transparency (FACT) Coalition unites civil society representatives from small business, labor, government watchdog, faith-based, human rights, anti-corruption, public-interest, and international development organizations. We seek an honest and fair corporate tax code, greater transparency in corporate ownership and operations, and commonsense policies to combat the facilitation of money laundering and other criminal activity by the legitimate financial system.