BOSTON — Too many corporations dodge both state and federal taxes by shifting U.S. earnings to subsidiaries in offshore tax havens. However, a State House legislative committee held a public hearing today on a new bill that could help the state recoup $699 million dollars even without further reforms from Congress. The bill, HB 3787, An Act relative to tax havens and complete reporting, filed by Representative Josh Cutler (Duxbury), would move the state to a “Complete Reporting” system, eliminating loopholes that allow companies to book profits made in the state offshore.
This measure would recoup $669 million in tax revenue each year, according to a report called A Simple Fix for a $17 Billion Loophole, released in May by MASSPIRG. The report was authored by U.S. PIRG Education Fund, the Institute on Taxation and Economic Policy (ITEP), SalesFactor.org and the American Sustainable Business Council (ASBC).
“When large companies use off-shore tax havens to avoid paying their taxes they leave both businesses and individual taxpayers to foot the bill for vital services including transportation, education, and public safety,” said Deirdre Cummings, MASSPIRG’s Legislative Director. “Everyone should play by the same rules.”
“Small businesses already face plenty of challenges, we should not ask them to compete in a rigged marketplace favoring a few corporate giants that can afford to exploit our tax code in this manner,” said State Representative Josh Cutler (Pembroke), Chief sponsor of the bill. “It’s time to close this loophole and let our Bay State businesses compete on a level playing field. This legislation will help ensure that the burden of paying for our state’s roads, bridges, schools and public services is shared equitably. Let’s promote innovation and creativity in the marketplace, not in our tax code.”
“Every year, corporations use complicated schemes to shift U.S. earnings to subsidiaries in offshore tax havens—countries with minimal or no taxes—in order to reduce their state and federal income tax liability by billions of dollars,” said Nathan Proctor, USPIRG, and one of the report’s authors. In 2017, a U.S. PIRG study found that Fortune 500 companies had accumulated $2.6 trillion offshore.
A complete report requires a company to report their total, global profits, and the portion of that overall business done in a given jurisdiction. If, for example, a state makes up 2 percent of a company’s global business, then 2 percent of their taxable profit would be subject to the state’s tax rate.
Because this approach doesn’t let companies decide where to book their profits, but instead requires them to use a formula, they cannot declare that profits fairly earned in Massachusetts were earned abroad. An Act relative to tax havens and complete reporting, HB 3787 builds on the domestic combined reporting system Massachusetts already has in place to prevent profit shifting to low-tax states, but closes the water’s edge loophole that allows companies to continue to hide profits offshore.
“As lawmakers face tough questions on the budget, this part should be easy. We can start by making our tax code more fair by making all companies play by the same rules,” concluded Cummings.