U.S. corporations evade paying taxes by setting up shop in the Cayman Islands.That has been said so often by so many people that it almost seems to be an urban legend.
The Cayman Islands is home to countless American corporations. As a matter of fact, the true number is unknown because Cayman laws ensure complete secrecy for financial transactions and it is virtually impossible for any foreign government to investigate the goings-on of any company, even those that undoubtedly have the greatest percentage of their operations within the inquiring home country.
The numbers that are known are pretty staggering. The nation of 47,000 people has 2 corporations for every resident and a mutual fund for every five residents. Merrill Lynch alone has 158 subsidiaries in the Cayman Islands. One address — the Ugland House in Georgetown — is home to 19,000 corporations, 9,000 of which are American. It is no larger than a resort hotel so, obviously, those 19,000 companies don’t do business there. Instead, they simply use it as a legal address and mailing address as a sort of claim for Cayman residency.
The Cayman Islands aren’t the only tax haven on Earth. Other commonly-used nations are Bermuda, Liechtenstein, Monaco and the Bahamas. All of them have one thing in common: They have low or no corporate taxes. U.S. firms set up shop (or at least say they do) in these places via subsidiaries through which are funneled impressive amounts of financial activity, mostly through the nebulous ether of accounting records. Since that corporation is supposedly headquartered in the haven (although business is actually done elsewhere), the U.S. government cannot collect a tax on it as the subsidiary is not a “citizen” of our country. It’s a simple shuffling of papers that prevents Corporate America from paying an untold amount (at least $70 billion) into federal coffers every year.
Among the biggest abusers of the tax haven loophole are the Wall Street financial institutions. Eighty-three of the 100 largest banks in the United States support subsidiaries in tax havens around the world. In 2008, Bank of America, Citigroup and Morgan Stanley each sported more than 100 such operations.
Ironically, these banks are among the Wall Street corporations that were awarded $700 billion in taxpayer money from the first bailout of the recession. Think about the hypocrisy of that: Banking execs made lucrative careers out of not fulfilling their tax obligations to the American people, yet, when things got tough they were the first in line to beg for U.S. tax dollars. They were determined to take from a system that they did not give to. Unfortunately, Washington officials were more than happy to oblige, adding merit to the ongoing evasion of taxes.
It should be noted that another corporation that savored government salvation (and somehow avoided public disdain) — General Motors — was a tax cheat, too. Prior to its collapse and the government buy-out, GM had 11 offshore subsidiaries while its financing operations had two offshore units. The government bent over backwards to save General Motors with our money on the basis that the company was 100 percent American. It’s obvious it wasn’t living up that mystique (or slick advertising).
Similarly, most large corporations aren’t living up to their responsibility to the American people. By seeking out tax havens and getting away with not actually doing business there, they are forcing the American working class and small businesses to pay for, among other things, the roads that corporations’ goods ship on or the public schools and colleges that create the workers used by those companies.
It’s a travesty. You and I can’t set-up a post office box in the Cayman Islands, renounce our American citizenship and at the same time maintain it so we don’t have to pay an income tax while living and working in the U.S. Yet, that’s what thousands of corporations are doing. It’s high time we demanded the closure of this loophole and forced those companies into choosing what nation they have their strongest — and actual — allegiance to by identifying where their actual work is being done.