Offshore Subsidiaries Commonplace Among US Companies

by Mike Godfrey, Tax-News.com, Washington

21 January 2009

The US Government Accountability Office has concluded that the majority of America's largest companies have set up subsidiaries in offshore jurisdictions, although not always for the purposes of avoiding tax.

The GAO report, released by Congressional auditors last week, found that eighty-three of the 100 largest publicly traded US corporations in terms of 2007 revenue reported have subsidiaries in offshore jurisdictions.

"Many US corporations operate globally and have foreign subsidiaries. The subsidiaries may be created, for example, to take advantage of sales opportunities or favorable labor conditions. In some cases they may be used to reduce taxes," the report summary stated.

The report was a follow up to a similar investigation by the GAO in 2004, and was requested by long-standing anti-tax haven campaigner Senator Carl Levin, the Michigan Democrat who chairs the Senate Permanent Subcommittee on Investigations, and Senator Bryan Dorgan.

According to Dorgan, the report is evidence that American companies, including those banks which have received public funds under the bail-out program, are continuing to avoid "their fair share of taxes" in the US.

However, the GAO's report did not attempt to determine if US corporations were attempting to avoid domestic taxes, and suggested that a company's decision to set up an offshore subsidiary is driven by much more complex factors.

"Since subsidiaries may be established in listed jurisdictions for a variety of nontax business reasons, the existence of a subsidiary in a jurisdiction listed as a tax haven or financial privacy jurisdiction does not signify that a corporation or federal contractor established that subsidiary for the purpose of reducing its tax burden," the report summary stated.

The report also points out that there is no accepted definition of what constitutes a "tax haven" or "offshore privacy jurisdiction."

However, new legislation intended to punish US multinationals for exploiting offshore and low-tax jurisdictions is supported by incoming President Barack Obama, and it is expected that a bill will introduced into Congress sometime in the near future.

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