Tax Dodgers: U.S. Fears Firms Who Choose to be 'Un-American'

Thursday, July 24, 2014

Protesters dressed in baseball uniforms and cheerleading outfits calling themselves 'The Tax Dodgers' and 'Corporate Loopholes' perform a skit during a tax day demonstration. April 17, 2012 - NYC (Justin Sullivan/Getty)

A trend is catching hold among large corporations in the United Sates, and its consequences could be devastating for the corporate tax base.

U.S. companies are increasingly deciding to relocate overseas to cut their tax bills. It's called inversion, and it occurs when corporations merge with businesses overseas, which allows them to move their headquarters to countries with lower corporate tax rates.

Inversion is not new, but it is happening more frequently.

“The inversion virus now seems to be multiplying every few days,” said Senate Finance Committee Chairman Ron Wyden during a committee hearing Tuesday. “Medtronic, Mylan, Mallinckrodt and many more deals have either occurred recently or are currently in the works."

Earlier this week, Senate Majority Whip Dick Durbin, a Democrat of Illinois, sent a heated message to Walgreens, which is considering a merger that would move its headquarters from Springfield, Illinois to Switzerland. He weighs in on inversion, and what lawmakers are doing to fight it.

"Walgreens is, of course, originally an Illinois company that has expanded to have a nation-wide presence," says Sen. Durbin. "I've been very proud of this company because I think that they're responding to needs across the United States. Now, they've bought a company in Europe called Alliance Boots, and they are at least deliberating over whether they're going to renounce their American corporate citizenship and move to Switzerland."

The company is considering moving because they desire a lower tax rate, and they want to "avoid paying their fair share of U.S. taxes," says Sen. Durbin. 

Sen. Durbin says that as many as 60 U.S. companies have already relocated overseas to dodge American taxes, adding that the loss to the U.S. Treasury Department over time is estimated to be more than $20 billion.

If Walgreens were to relocate to Switzerland, Sen. Durbin estimates that the company would doge about $800 million in taxes each year.

"That is of course a huge some of money, and that seems to be the incentive for them to move," he says.

The Minnesota-based company Medtronic is also planning on moving its corporate headquarters, and the pharmaceutical research company AbbVie, formerly known as Abbott Labs, moved to the island of Jersey off the coast of France.

"We're dealing with companies that built their businesses in America, and relied on American investment for their profits," says Sen. Durbin. "The National Institutes of Health, which is funded by American taxpayers, provides the basic research to find new drugs which companies like AbbVie would then protect their rights to through the U.S. Patent Office."

Sen. Durbin also points out that Walgreens relies heavily on taxpayer-supported Medicare and Medicaid reimbursements to generate a profit. 

"They are trying to take advantage of everything in America—they just don't want to pay for America," says Sen. Durbin. 

The practices these businesses are taking up are a form of "corporate desertion," according Durbin. When it comes to discouraging this type of tax dodging, Sen. Durbin isn't sure that there's enough bi-partisan support.

"The reality is we're getting mixed signals from the Republicans as to whether or not they think this is a problem," says Sen. Durbin. "I think it is—I think these companies that are deserting the United States and renouncing their American citizenship are putting an added burden on the companies remaining."

Sen. Durbin says that representatives from CVS came to the U.S. Capitol recently. When asked by Sen. Durbin if they too would relocate, the pharmacy behemoth—and main competitor to Walgreens—said they have no plans to leave, yet.

"This gives a dramatic advantage to Walgreens in terms of more money that they can invest in the United States," adds Durbin.

Amending the law to stop this practice or make it more difficult is not likely to happen. 

"The reason, of course, is the Congress as we know it today, with the Tea Party domination of the House Republicans, makes it almost impossible to even say the two words 'tax code'—many of them live in moral fear that that just invites a primary contest," says Sen. Durbin. "If we are going to change the tax code to try and keep companies in America, and keep their profits subject to American taxation, I'm afraid we aren't going to find a very welcome course in the House of Representatives." 

In addition to moving to countries like Switzerland, many businesses like Fruit of the Loom have relocated to the Cayman Islands to avoid corporate taxes.

"There are these islands with businesses that consist of one building housing hundreds of businesses—it's a complete fiction," says Sen. Durbin. "It's a paper transfer, and it has nothing to do with a presence in the Cayman Islands. These are tax dodges that are allowed within loopholes in our tax code that we've been unwilling or afraid to tackle. I think it's long overdue to have real tax reform."

Without reform, companies are likely to continue to move to increase their bottom line—by any means necessary.

"Giving up our American corporate citizenship to make a few more bucks—have we reached that point?" Sen. Durbin concludes. "There should be some sense of corporate responsibility to this nation."

 

Guests:

Senator Dick Durbin

Produced by:

Megan Quellhorst and Kaitlin Roberts

Editors:

T.J. Raphael

Comments [7]

THOMAS PETERS from Jacksonville, FL

The unasked Question: "Senator, if the congress recognizes the problem, and has the power to solve it by decreasing the corporate tax rate, why don't you, our elected representatives, act to accomplish what you say is important?" No wonder the public thinks the national journalism elites are too far to the left. A perfect journalist's opportunity missed.

Jul. 26 2014 02:08 PM
Tommy Chow from Ronkonkoma, NY

Another example of the hollowing out of America and their corporate cronies.

Jul. 24 2014 04:17 PM
peter mcclean from Norwalk, Ct

Senator Durbin like his colleagues on both sides of the aisle has no sense of reality when he tries to shame companies seeking economic benefit. Why do the exist in the first place and where does he think jobs come from? The Tooth Fairy? In addition to not understanding basic economics Senator Durbin treats the public with contempt by immediately stating changing US tax policy is impossible because the other party won't go along with such a proposal! Congress has no ideas and no solutions and are quick to throw up their hands and give up. The US has the world's highest corporate tax rates. Change US tax laws and streamline this vehicle of legalized corruption. Without a constructive solution Senator Durbin appears to only want to gain favor with his kind of voters through emotive cries of "desertion" or "treason". When it some to "desertion" of their duty perhaps we should start with Congress?

Jul. 24 2014 03:56 PM
Dan from East Greenville, PA

The problem we have is not that companies aren't paying enough tax...that's just a symptom of the problem. The problem is that we have a Congress/President who think they're smart enough to write clever enough laws that geniuses at the IRS can turn into brilliant tax code rules that will reward this type of corporate behavior or encourage that activity, or allow a special dispensation for this other thing....and they're all just actually pretty lousy at it. Or, at least, not as good as they think they are. The tax lawyers at GE and everywhere else it seems now scrutinize the rules that the IRS has created based on the laws the Congress/President have passed and it turns out that the corporate tax lawyers are a fair amount smarter than the Congress/President/IRS so....the companies don't pay much tax and the Congress/President blather on about needing MORE laws/rules to get'em to pay more tax and so they write MORE dense/obtuse legislation to do that and completely ignore the fact that they're STUPIDER THAN THE TAX LAWYERS and always will be and will always lose. If they made the tax code SIMPLER by a factor of 10 (or more) and removed a lotta the crap that in there now, the system would be harder to game.

Look at the whole IRS-targeting-the-Tea-Party scandal and campaign finance laws in general....its kinda the same thing. We have a Congress/President(and I don't just mean the current occupants) that thinks they're smart enough to create laws/rules regulating tax-exempt organizations and the 1st Amendment and behavior, etc. Demonstrably, they're not smart enough to do this and if they were half as smart as they THINK they are, they'd know this. And so we have the IRS categorizing groups into 501(c)4s and 501(c)3s and and whole host of other types and looking into their activities and then the campaign finance/tax lawyers just run circles around them.

If our elected officials and civil servants (and perhaps the electorate) would realize just how limited the federal government's talent's for large, complex, ambiguous problems actually is. Put a man on the moon? Fine, large and complex, but not particularly ambiguous. Give $15 million to a NGO with sketchy connections in Africa to work on clean drinking water? Who cares? It's ambiguous buts it's small. Our tax-code, however, (and it's no coincidence that the Affordable Care Act is largely administered through the IRS) is large, complex, and ambiguous and the sooner we realize that no matter how smart (we think) our elected officials are, they just aren't smart enough (and never will be) to achieve what they want.

(and were you to ask any corporate tax officer about their use of 'inversion' and Senator Durbin about using 'reconciliation' to pass the ACA, I'm sure the answers would be the same, that everything complied with the law and no rules were broken.)

Jul. 24 2014 12:41 PM
Larry Fisher from Brooklyn, N.Y.

What lessons do we learn from Corporations who have some fake address in The Cayman Islands, in order to get a tax break?

Some very bad people have figured out that the way to "get over" in America is to hide their name within a Corporate entity. They find their criminal selves and hide behind their lawyers, money, and power. They actually might see themselves as "The New American Dream," and maybe they are.

Jul. 24 2014 11:52 AM
Michelangelo from Miami FL

FACT: America is the best thing to happen to corporations. Just ask the corporations leaving Russia. Let them go! They'll soon enough learn how good they have (or had) it in the US. Better protections, better employees, better quality of life. Even if Uncle Sam lowered their taxes (more) these companies would still claim they were being overtaxed. They would claim that adding a 6th corporate jet would benefit the economy - except that they'd really just make the mechanic for the other five jets work more instead of hiring another mechanic.

Jul. 24 2014 11:35 AM
Bobby Vernon from Miami, FL

I very much enjoyed the interview with Senator Derbin this morning about U.S. companies and their "desertion". While I agree with the Senator that the U.S. government and the U.S. market in general is a great product, the reality is that 40% federal and state taxes plus an additional 15-20% tax on dividends is too expensive in the market where it competes and many other nations offer a much lower priced product. The U.S. needs to compete for it's business just like these very same companies do and work to increase efficiencies and lower costs in order to retain and ideally attract new corporate customers. The solution to this problem is obvious (a smaller, more efficient, and lower cost government) yet seemingly impossible to achieve in the current political climate.

Jul. 24 2014 10:01 AM

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