Transparency Measures Have Broad Support from Financial Institutions, Law Enforcement, and Anti-Corruption Advocates
WASHINGTON, D.C. – Bipartisan pieces of legislation introduced on June 28, 2017 aim to crack down on one of the prime enablers of criminal money laundering and terrorist financing — the abuse of anonymous shell companies.
Profits booked offshore are growing at an even faster pace than previously predicted. Earlier this month, Apple made waves when it disclosed that of its more than $250 billion in cash worldwide, $239 billion is kept offshore. Some of the growth in cash booked offshore is likely due to the perception that Congress and the administration are inching ever closer to a deal that would allow these companies to return the money at a steep discount.
One plan presented by Democratic Representative John Delaney equates to a corporate hand-out of nearly $550 billion. In a recent blog, the Institute for Taxation and Economic Policy analyzes the plan disguised as a pay-for for infrastructure spending. There is no doubt with a backlog of $836 billion in much-needed repairs, investments in infrastructure need more funding. However, as ITEP argues, this plan will only make the problem of inadequate revenue worse.
Enabling Criminal Activity in the U.S. and Around the World
America is one of the easiest places in the world in which to form an anonymous shell company—this facilitates crimes that victimize ordinary Americans.
Last April, the world’s attention was captured by a global investigation revealing more than 11 million documents from a Panamanian law firm documenting a secret financial network reserved for the wealthy and corrupt. Now, one year later, the “Panama Papers” was just awarded the prestigious Pulitzer Prize for Explanatory Reporting, while experts are reflecting on how far we’ve come and how much farther we really need to go. There is no doubt that the “Panama Papers” release reverberated throughout the world, but—with the extent of the problem the information exposed—it’s clear not enough has been done.
In a statement marking the the anniversary, FACT’s Gary Kalman graded the global response to the Panama Papers a “C-”, calling the progress “more scattershot than comprehensive.” Though some real progress has been made, more must be done, especially when it comes to ending the abuse of anonymous companies. In a blog that followed, he further reflected on this past year and made a prediction for the future—saying he is optimistic that, by the next anniversary, our grade will improve.
For more than a decade we have seen a steep climb in the amount of money kept offshore by multinational companies. This has resulted in $2.5 Trillion to remain untaxed—at an estimated cost of $700 billion to the US Treasury. Throughout the 2016 election, both presidential candidates pledged to close loopholes that allow corporations to dodge taxes and stop companies from booking their profits overseas. Though the follow-through has yet to be seen. Many have even argued that Donald Trump’s victory was the result of a frustrated middle class that increasingly feels over-burdened, while they see the wealthy and corporations—following their own set of rules—shifting their responsibilities onto them.
A new report from U.S. PIRG Education Fund finds that multinational companies dodge an estimated $147 billion in federal and state taxes annually through offshore tax haven loopholes, shifting that burden instead onto small businesses and individual taxpayers. Titled “Picking Up the Tab 2016: Small Businesses Bear the Burden for Offshore Tax Havens,” the study estimates that each small business, on average, owes $5,186 more on its annual tax bill to collectively make up for the federal and state corporate tax revenue lost to offshore tax havens.
Increasingly the issues of tax avoidance and financial secrecy are drawing the attention of a broader audience. Both issues were repeatedly mentioned throughout the presidential election by both candidates. Donald Trump’s original tax plan even went as far as to end deferral, though updates to the plan in September omitted any position on it. With the results of the election in, FACT and our members are analyzing what they mean for reform here at home. More on that in the weeks to come.
The EU commission’s decision in August to force Apple to pay back $14 billion in dodged taxes to Ireland served as a wake-up call to many investors—tax avoidance is a serious risk. A recent article in the Financial Times, explained how several major funds and investment groups are deeply concerned with companies’ increasing reliance on tax avoidance schemes. One such fund, Nordea Asset Management—has written to a number of companies—including Alphabet and Apple. In the letter, they ask that companies lay out their tax risks and that—if they don’t comply by January—they “will rally other investors and propose shareholder resolutions in 2017.” Four other fund houses in the UK—representing almost £1tn of assets—have also written to the board of Alphabet to raise concerns about its tax arrangements.
