Some of America’s most notorious offshore profit-shifters have found a new way to use the huge amounts of cash they’ve stashed in tax havens without paying the taxes they owe.
The latest is Microsoft, which is funding its takeover of LinkedIn by borrowing $26 billion, essentially using its $108 billion in offshore cash as collateral. By financing the purchase instead of paying for it outright, Microsoft will reportedly avoid $9 billion in federal income taxes this year and save more in years to come through tax deductible loan interest.
Microsoft is following in the footsteps of Apple, which used some of its more than $200 billion in untaxed offshore profits last year as implicit collateral to finance a $6.5 billion stock repurchase to boost its stock price. By structuring the deal as a loan, Apple avoided nearly $2 billion in taxes it would have had to pay if it used its offshore cash directly.
As law professor Edward Kleinbard told Bloomberg News, Microsoft’s (and Apple’s) borrowing is tantamount to “a tax-free repatriation.” Companies awash in untaxed offshore cash should not be allowed to use that money to back investments in the United States without paying the billions in taxes that they should pay.
Microsoft, for example, claims that, for tax purposes, 55 percent of its total profits are earned by three offshore tax-haven subsidiaries, despite the fact that these subsidiaries have only two percent of Microsoft’s workforce. This explains why Microsoft has paid only a 3 percent tax rate so far on the profits it pretends it earned offshore, meaning that the company owes $34.5 billion on that $108 billion cash hoard.
The problem of shifting earnings offshore to avoid taxes goes far beyond Apple and Microsoft. According to CTJ’s latest estimate, U.S. companies now hold $2.4 trillion in largely untaxed profits offshore, which has allowed them to avoid nearly $700 billion in U.S. taxes.
At this point, our international tax laws have almost no connection to reality.
Ordinary working people can’t pretend we make our money in the Cayman Islands or other tiny no-tax places. But sadly, multinational corporations can do so. And their preposterous offshore tax-avoidance schemes will continue to proliferate until our lawmakers wake up and stop letting multinational corporations shift their tax responsibilities onto the rest of us.