The American government loses a stunning amount of $90 billion of tax income each year because multinationals divert part of their earnings to subsidiaries in countries with more tax friendly laws. Bermuda and Cayman Islands seem to be very popular for big companies to divert their income to.

Apple is the biggest winner with a total revenue of $181.1 billion parked in non-American subsidiaries. At the tax rate of 35%, this makes a total of $59.2 billion lost in tax income for the country.  In the tax havens they only have to pay 2.3% tax on these revenues.

But Apple is not the only company that uses this loophole in tax laws.

The advocacy group Citizens for Tax Justice published following numbers :

  • Second place goes to General Electric with $119 billion abroad.
  • Microsoft’s capital abroad expanded from $7.5 billion to $108 billion over the last 7 years, resulting in a third place on the US-tax embezzlers list.
  • Pfizer has $74 billion in offshore subsidiaries
  • Pepsi has $37.8 billion hidden for the tax collector.
  • While American Express keeps $9.7 billion away from the US government,
  • Nike ‘only’ hides $8.3 billion.

Each year, these multinationals become more creative: in 2009 Google reported to have 25 subsidiaries outside the States. In 2010 only 2 were reported, while the 23 others were still operational. Microsoft used the same trick and reduced its reported subsidiaries from 10 to 5 while at the same time multiplying its capital abroad by a factor 14.

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72% of the Fortune 500 companies, of which 358 are US companies, together have 7622 subsidiaries in tax havens.

This loss of income is devastating for the American economy, which is struggling to survive. Several education programs have been suspended because of budget cuts.

President Obama thinks it is time the multinationals take their responsibility and contribute their share of tax revenues just like any other company. Earlier this year the president announced he will address this tax evasion in 2016 with 2 simple rules:

  • A single taxation of 14 % on the capital abroad
  • Yearly taxation of 19% on profits gained in offshore subsidiaries, reduced by the amount of taxes paid in the offshore country.

Obama intends to use this new income for investing in American infrastructure.