USA Berates Cayman
Friday, July 2, 2004
A recent United States Federal Government report produced by its General
Accounting Office (GAO) shows that the Cayman Islands is home to subsidiaries of
more than 150 US corporations, leading to criticism from officials in that
country.
Twenty-four of the 100 largest contractors with the US Federal Government,
including Altria Group, Oracle and Procter & Gamble, have subsidiaries in the
Cayman Islands according to report by the GAO, the US Congress's investigative
arm.
Those 24 companies received a total of $35 billion from the US government in
2001, the GAO found.
"They are shortchanging our country even as they profit from it," said
Senator Byron Dorgan, a Democrat from North Dakota, in an article in the New
York Post.
Oracle spokeswoman Deborah Lilienthal said the database software maker's
Cayman subsidiary owns a minority share of a foreign company she declined to
disclose.
Procter & Gamble spokesman Douglas Shelton said the household goods maker's
Cayman subsidiary is an inactive holding company.
"We're currently exploring dissolution of that entity so it doesn't raise
questions in people's minds," he added.
The 100 US contractors own 464 subsidiaries in offshore tax havens, according
to the GAO report. The offshore subsidiaries often serve the sole purpose of
allowing companies to avoid paying US taxes, said Senator Carl Levin, a Democrat
from Michigan.
“Many (offshore subsidiaries) are little more than a post office box set up
to allow corporations to move profits to the low-or-no-tax havens rather than
reporting that income in the United States,” he added.
JP Morgan Chase & Co estimated in a June study that $650 billion of profit
earned abroad by US companies over decades had never been taxed by the US.
That's up from a cumulative total of $500 billion cited by JP Morgan in a study
a year ago.
In 2001, almost half of the money US companies earned money outside of that
country - 47 percent - was accounted for in offshore tax havens such as the
Cayman Islands, which has no corporate income tax, said Martin Sullivan, a
former US Treasury Department economist, citing Commerce Department data.
As a result, companies didn't have to pay the 35 percent US corporate income
tax. Sullivan said his research shows the Cayman Islands is being used for US
tax avoidance.
Coca-Cola, the world's largest soft-drink maker, manufactures syrup in two
Irish plants owned by Coke's Cayman-based subsidiary, Atlantic Industries. Coke,
based in Atlanta, saved $500 million in US taxes last year by earning 63 percent
of its income through foreign subsidiaries, according to its 2003 annual report.
Intel, the world's biggest computer chipmaker, uses a Cayman subsidiary to
run plants in Ireland, which has a 12.5 percent corporate income tax. Intel,
using its offshore units, avoided $792.6 million in US taxes from 2001 to 2003,
according to SEC filings.
Based in California, Intel did not deny why it uses a Cayman subsidiary. “I
can only assume it’s for tax purposes,” said company spokesperson Chuck Mulloy
in a Bloomberg News article.
Forty-five percent of US corporations with revenue exceeding $50 million or
assets of more than $250 million paid no federal income tax in 2000, according
to another GAO study. That has increased each year since 1996, when it was 33
percent, the GAO found.
Parmalat, the Italian food company that collapsed in December after telling
investors it had lied about its finances, used three Cayman subsidiaries to
misrepresent assets, according to Italian prosecutors.
Enron used 441 Cayman affiliates to help hide $2.9 billion in losses, US
Senate investigators said.
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