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Tax Extenders Package Would Renew Two Wasteful Tax Haven Loopholes




December 2, 2014


Tax Extenders Package Would Renew Two Wasteful Tax Haven Loopholes

Congress Should Reject New One-Year Deal

Washington, DC – The FACT (Financial Accountability and Corporate Transparency) Coalition today called on Congress to reject the tax extenders package that includes two wasteful offshore loopholes that allow U.S. companies to dodge billions worth of taxes.

The tax extenders are a set of 54 temporary tax breaks, which are ostensibly designed to stimulate the economy and encourage business investment.  These extenders usually last for a year or two, and the last set expired at the end of 2013.  Although the Senate Finance Committee passed another two-year extension, the full House voted to make many of them permanent.

In prior years, these extenders have escaped scrutiny and were passed in the dead of night.  That this package, which will cost taxpayers approximately $45 billion over the next decade, is now being debated out in the open has shown that many of the provisions are specialized corporate loopholes, and have been described as special interest spending earmarks.

Two of the most egregious loopholes allow U.S. multinationals to avoid U.S. taxes on their profits by making it appear as though they were generated offshore.

The first is what is known as the CFC Look-Through Rule, which allows corporations to create “stateless income” by treating income, at least for tax purposes, as having been earned in a low or no-tax country where the company has no employees, no operations, and no real economic activity taking place.  Instead, most of the places contain only a mailbox.

The Active Financing Exception is the second offshore loophole.  While passive income (interest, dividends, royalties, etc.) is meant to be taxable even if it is kept offshore, the Active Financing Exception allows multinationals to make it appear as though it was generated in foreign subsidiaries, providing another way in which they manipulate their tax bills and thus avoid paying their taxes.

“Congress has missed an opportunity to take a stand against corporations that shift profits offshore and avoid paying their fair share of taxes,” said Nick Jacobs, Communications Director for the FACT Coalition.  “It’s hard to see how Congress can preach fiscal austerity while adding $44.7 billion to the deficit in the form of tax breaks to already profitable corporations.  President Obama promised to veto an earlier incarnation of this package.  This version is no better and should be vetoed, too.”

“When Congress incentivizes corporations to continue avoiding their taxes by manipulating their tax bills, average American taxpayers have to pick up the tab in the form of cuts to public programs, higher taxes, and more debt,” 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 specifically taking out the most egregious loopholes that are just simply special interests giveaways.”

“I don’t understand why Congress would want to reinstate loopholes that reward companies for hiding profits offshore and cost us billions annually as part of the tax extenders package,” said Fair Share National Campaign Director Nathan Proctor. “Let’s make everyone pay their fair share. Let these loopholes that reward offshore tax havens stay expired — that’s where they belong.”


Media Contact:

Nick Jacobs

FACT Coalition



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.