“Tax Extenders” Deal Could Permanently Enshrine Outrageous Tax Dodging Loophole in Tax Code, Extend Another One for Five Years
Congressional Negotiators Ignore a Hundred Thousand Letters from Constituents Calling for an End to Egregious Offshore Tax Loopholes
WASHINGTON, DC – Civil society groups assailed a backroom congressional tax deal released early this morning as an egregious giveaway to multinational tax dodgers at the expense of U.S. taxpayers. The so called “tax extenders” deal could permanently enshrine in the tax code an offshore loophole known as the “Active Financing Exception”, which is abused by multinational companies to artificially shift profits overseas and dodge taxes at the expense of the American public. The deal also extends for five years another offshore loophole, known as the “CFC Look-Through Rule”, which also allows corporations to use accounting tricks to avoid paying taxes.
While the legislation, negotiated in tandem with the omnibus spending bill, is likely to pass through Congress before the holidays, the FACT (Financial Accountability and Corporate Transparency) Coalition urges lawmakers to vehemently oppose the two international tax measures, which, because they leave the door open for tax avoidance, will collectively cost taxpayers an estimated $100 billion over a decade.
“This tax package is a raw deal for the American people,” said Clark Gascoigne, deputy director of the FACT Coalition, which unites over 100 leading small business, faith-based, human rights, investor, anti-corruption, public-interest, government watchdog, labor, and global development organizations from across the ideological spectrum. “At a time when offshore tax avoidance is increasingly rampant, Congress should be be closing tax loopholes, not permanently enshrining them into our tax code. When Congress incentivizes multinationals to continue avoiding paying taxes by manipulating their tax bills, small businesses and average American taxpayers have to pick up the bill in the form of cuts to public programs, higher taxes, or more debt. Congress’s job is to represent the interests of the American people—that’s clearly not what happened here.”
This sentiment is shared by tens of thousands of Americans who wrote 100,000 letters to Congress over the past two weeks calling on lawmakers to reject efforts to renew both the Active Financing Exception and the CFC Look-Through Rule.
“When corporations dodge their taxes, the public ends up paying,” said Ana Owens, tax and budget advocate with the U.S. Public Interest Research Group (PIRG). “The American multinationals that take advantage of tax havens use our roads, benefit from our education system and large consumer market, and enjoy the security we have here, but are ultimately taking a free ride at the expense of other taxpayers. American citizens understand this; that’s why tens of thousands of them are standing up and saying ‘enough is enough.’”
“The ‘CFC Look-Through’ and ‘Active Finance’ provisions actually get in the way of restoring crucial infrastructure and education spending—investments that would greatly improve U.S. productivity,” said David Levine, CEO and co-founder of the American Sustainable Business Council. “We should insist that tax cuts be designed to increase productivity and competitiveness of the U.S. economy, as the clean energy provisions are.”
“When Congress gives away offshoring loopholes as holiday goodies, the rest of us have to pick up the tab,” said Nathan Proctor, national campaign director with Fair Share. “How can we address the real issues facing us—from investing in education, to rebuilding roads and bridges—while large companies are given deficit-busting loopholes so they can hide their profits overseas? Everyone should pay their fair share.”
“It’s outrageous that the ‘CFC Look-Through Rule,’ which enables profit shifting to tax havens, and the ‘Active Financing Exception,’ a giveaway to Big Banks, may be extended. Those two tax loopholes benefit multinational corporations at the expense of small businesses and average taxpayers. It’s especially egregious that active financing, nicknamed the ‘GE Loophole,’ could be made permanent,” said Susan Harley, deputy director of Public Citizen’s Congress Watch division, a member of the FACT Coalition that engaged citizen activists to oppose the loopholes. “More than 16,700 of Public Citizen’s members and supporters called on congress to allow these loopholes to remain lapsed. Instead of listening to their constituents, some lawmakers want to agree to a tax deal that will stick the American public with a $10 billion a year price tag for keeping open the floodgates of tax avoidance schemes.”
“This bill takes a step in the wrong direction by rewarding corporations who shift jobs offshore,” said Amanda Ballantyne, national director for the Main Street Alliance. “Small businesses across the country are proud to pay taxes and invest in their communities; they only ask that corporations pay their fair share as well.”
Notes to Editors:
- Click here to read an HTML version of this press release on our website.
- Click here (PDF) to read the full text of the “Tax Extenders” legislation.
- 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 perpetually defer paying tax on interest booked in foreign subsidiaries, providing a method in which multinationals can manipulate their tax bills and thus avoid paying their U.S. taxes.
- The “CFC Look-Through Rule” allows multinational corporations to create “stateless income” by treating income (at least for tax purposes) as having been earned in a foreign low- or no-tax country, where the company may have no employees, no operations, and no real economic activity taking place. Indeed, many of these “Controlled Foreign Corporations” are nothing more than a mailbox in a tax haven.