It's no secret that many multinationals have become particularly adept at exploiting tax loopholes. Nor is it a surprising that the U.S. federal deficit is widening as a result. What's not as publicized, however, is that developing nations are also feeling the heat.
Developing countries have lost hundreds of billions of dollars due multinational corporations' ability to both legally and illegally avoid taxes, and a lack of adequate monitoring by regulators, according to a recent report from the European Network On Debt and Development.
Between 2005 and 2007 in sub-Saharan African countries alone, nearly $27 billion was shifted illegally due to trade mispricing -- or when companies manipulate trade access borders for profit -- the report found. But multinational corporations are also using legal means to pay less in taxes, including setting up subsidiaries and administrative units in countries with near-zero tax rates and allocating the value of what the company creates to the most favorable region.
The report mirrors others indicating that many multinational corporations are getting increasingly skilled at avoiding taxes. Nearly 300 of America's most profitable corporations paid an average tax rate of 18.5 percent between 2008 and 2010, according to an October study from Citizens for Tax Justice. That's compared to the actual corporate tax rate of 35 percent, nearly double the rate actually paid.
The CTJ report also found that 30 highly-profitable companies paid a negative tax rate between 2008 and 2010, even though they took home a combined $160 billion in pre-tax profits.
Some corporations are pushing for more ways to make it easier for them to avoid taxes. Companies such as Apple and Google have hired more than 160 lobbyists to encourage Congress to reinstate a repatriation tax holiday, according to Bloomberg. The tax holiday on offshore profits would save the companies more than $1 trillion if passed.
But corporations already take advantage of a variety of tax loopholes. Some use the "active financing exception," which allows companies to avoid paying taxes on overseas profits if the company got those profits by "actively financing" a deal, according to The New York Times.
Companies also commonly take advantage of the "accelerated depreciation" rule, which allows them to write off investments faster than they wear off, according to The Washington Post. The companies then subtract the falling value of the investments from their taxable income.