A study on tax avoidance by US multinationals has found that they hold as much as $2.1 trillion in profits outside the US. The study was carried out by non-profits Citizens for Tax Justice and the US Public Interest Research Group Education Fund. It reveals where companies’ tax subsidiaries are and, in some cases, an estimate of how much tax would be owed if the profits were repatriated to the US.

The study used the financial filings for Fortune 500 companies in 2014 to gather data. More than 70% of the companies were found to operate subsidiaries in tax havens, with 358 companies owning 7,622 subsidiaries.

The companies still owe tax on profits earned overseas, but don’t have to pay until they bring the profits back to the US. Accounting techniques are used to increase the amount of profit said to be generated from these subsidiaries and to find ways to allow companies to use these profits in the US.

More than 150 companies in the study have Irish subsidiaries.

The companies with the largest offshore profits, who also have Irish subsidiaries, include Apple, Google and Pfizer.

In Association with

Apple was found to have the most offshore profits, at $181 billion. If those profits were not held offshore, the study calculates that the US Treasury would gain $59 billion in tax income.

PepsiCo has 132 subsidiaries, 12 of which are in Ireland. The company parks $38 billion in profits offshore.

Pfizer has 151 subsidiaries, with 27 in Ireland, and has $74 billion in profits located offshore beyond the clutches of the US tax authorities

According to the report, from 2008-2014 Pfzier generated 41% of its sales in the US, but didn’t report any taxable income during that period.

Pfizer can transfer drug patents to one of its subsidiaries, and then pays that subsidiary licencing fees for drugs sold in the US. This enables the company to turn domestic profits into ‘fees’ paid to its own subsidiaries for its own licence, which then shifts those profits into overseas profits.

Morgan Stanley has 210 overseas subsidiaries, six of which are in Ireland. The bank has $7.4 billion of profits located overseas.

Disappearing Subsidiaries

The study points out that corporations with fewer disclosed havens don’t necessarily have less offshore profit. Companies may disclose fewer subsidiaries or have increased income to their subsidiaries.

Take the following companies, all with Irish subsidiaries as examples:

- Citigroup reported 427 tax subsidiaries in 2008 and 41 in 2014, while at the same time doubling the cash it held offshore. Two of its subsidiaries are in Ireland.

- Walmart reported having no tax haven subsidiaries for the last decade, yet a report by Americans for Tax Fairness revealed the retailer  operates as many as 75, one of which is in Ireland. Walmart’s offshore income has grown from $6.8 billion in 2005 to $23.3 billion in 2014.

- Bank of America, with one Irish subsidiary, went from reporting 264 tax havens in 2013 to 22 in 2014.

Tax Havens

A tax haven is a jurisdiction with very low or no taxes. Tax havens are said to, “encourage financial secrecy and inhibit an effective exchange of information about taxpayers to tax and law enforcement authorities”.

Tax havens are said to have a lack of transparency in legislative, legal or administrative practices, and don’t require business activities to be substantial, “suggesting that a jurisdiction is trying to earn modest fees by enabling tax avoidance,” according to the report.

While Ireland is referred to as a tax haven, it doesn't meet all the OECD criteria of a tax haven. It has a corporation tax of 12.5%. According to the Economic and Social Review, Ireland has been labelled a tax haven insome quarters due to the country's failure "to distinguish between legitimate and abusive transfer pricing; a misunderstanding of the role and regulation of IFSC; and a dated but influential academic paper from 1994 that incorrectly included Ireland in a list of tax havens, based on a reason that has long since lost any validity."

Offshore Profits

Companies that say they generate profits overseas don’t have pay US tax on these profits until they ‘repatriate’ the funds to the US.

According to the report: “Much if not most of the profits kept offshore are actually housed in U.S. banks or invested in American assets, but are registered in the name of foreign subsidiaries. In such cases, American corporations benefit from the stability of the U.S. financial system while avoiding paying taxes on their profits that officially remain booked “offshore” for tax purposes.”

In 2008, American multinationals reported 43% of their earnings in five countries - Bermuda, Ireland, Luxembourg, the Netherlands and Switzerland. Those countries accounted for 4% of the companies’ workforces and 7% of their foreign investments.

The study uses the example of Ugland House (pictured) to illustrate the at times farcical nature of tax havens. Ugland House is a five storey office building in the Cayman Islands that is the registered address of no less than 18,857 companies.

US multinationals with at least one subsidiary located in Ireland are listed below.