The magnitude of profit shifting by American companies “may be significant,” a US Congressional Research Service (CRS) report has concluded.
The report, released April 30, found that about 50 percent of the $1.2 trillion in overseas profit reported by American multinationals in 2012 was attributed to seven tax haven or tax preferred jurisdictions, while only about 5 percent of employees hired outside the US worked in those jurisdictions, and only one percent of property owned by US companies outside the US was located there.
These same seven tax haven jurisdictions — the Netherlands, Luxembourg, Bermuda, Ireland, UK Caribbean Islands, Singapore, and Switzerland — accounted for 47 percent of the foreign direct investment positions of American companies. The Netherlands held more American FDI than Australia, Canada, or the United Kingdom.
The report also discusses the pros and cons of modifying the US tax system to prevent tax avoidance. Moving to a more pure-form worldwide system would encourage inversions, while movement to a more pure territorial system would lead US corporations to allocate more investment to lower-tax countries, the report states. The report also discusses the possibility of formula apportionment, a minimum tax, modifying Subpart F rules, and lowering corporate tax rates.
The report further addresses the impact of the OECD’s base erosion and profit shifting initiative on American companies, and presents data showing that profit shifting is not limited to US companies.
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