US Multinationals Shifting Profits Offshore

by Leroy Baker, Tax-News.com, New York

15 September 2004

A new report has shown that US firms have dramatically increased the amount of profits taken in offshore locations in recent years, whilst at the same time significantly cutting back profits taken in countries where they engage in most of their economic activity, a revelation likely to propel the international taxation issue back to the top of the election agenda.

According to the study published in ‘Tax Notes,’ based on Commerce Department data, during the period from 1999 to 2002, US corporations increased the amount of profits taken from offshore subsidiaries by 68% from $88 billion to $149 billion.

Total offshore profits earned by US multinationals rose by 23% in the same period.

Additional analysis of the Tax Notes data by the New York Times suggests that for each dollar of profit taken in Luxembourg in 1999, American corporations took $4.56 of profit in 2002.

In Bermuda this $1 increased to $2.96; in Ireland $2.01; and in Singapore $1.72. By contrast, in the UK and Germany, each dollar of profit taken in 1999 was equal to 67 cents and 46 cents respectively in 2002.

Martin A. Sullivan, a Treasury Department economist and author of the report, observed that 58% of offshore profits are taken in territories that are commonly perceived as tax havens, representing what he dubbed a “seismic shift in international taxation."

"There is no question but that the use of tax havens to lower tax rates makes investing offshore more lucrative," observed Mr Sullivan.

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