March 02, 2023

Van Hollen Leads Push to Expose Corporate Abuse of Tax Havens, Job Outsourcing Incentives

Legislation sends strong signal ahead of upcoming Financial Accounting Standards Board rule-making

Today, U.S. Senator Chris Van Hollen (D-Md.) led 10 of his colleagues in introducing the Disclosure of Tax Havens and Offshoring Act, legislation to provide transparency around corporations’ use of tax havens and incentives to offshore jobs. This bill would require public companies to disclose their financial reporting on a country-by-country basis. Ensuring public access to this information would both provide investors the tools they need to understand the tax structures and risks of the businesses in which they invest and the give Americans insight into the extent to which the tax system is incentivizing the outsourcing of American jobs or enabling corporations to dodge U.S. taxes. The Senator’s legislation and support from Democratic colleagues sends a strong signal ahead of the Financial Accounting Standards Board’s anticipated rule-making on this issue. Senator Van Hollen was joined in introducing this legislation by U.S. Senators Dick Durbin (D-Ill.), Bernie Sanders (I-Vt.), Tina Smith (D-Minn.), Sheldon Whitehouse (D-R.I.), Amy Klobuchar (D-Minn.), Robert Casey (D-Penn.), Richard Blumenthal (D-Conn.), Tammy Baldwin (D-Wis.), Tammy Duckworth (D-Ill.), and Elizabeth Warren (D-Mass.). 

“For too long, big corporations have taken advantage of the U.S. tax code to hide their profits and ship their jobs overseas – and the Republicans’ 2017 tax scam gave corporations new incentives to offshore jobs. This bill will provide vital transparency to both the American public and investors as to how these corporations abuse our broken tax system and the risks they are taking in the use of offshore tax havens,” said Senator Van Hollen. 

“For too long, many of the world’s most profitable corporations have taken advantage of foreign tax havens to skirt paying their fair share here in the U.S.  And it only became easier when Republicans passed their tax plan, which was chockfull of new incentives for corporations to ship profits and jobs overseas,” said Senator Durbin. “We cannot let this go unnoticed.  With the Disclosure of Tax Havens and Offshoring Act, we can finally hold these corporations accountable.”

“Corporations should not be able to use accounting gymnastics to shift profits abroad and avoid paying the taxes they owe here at home,” said Senator Smith. “Thanks to provisions in the Republican tax law passed in 2017, U.S. companies were given even more incentives to exploit foreign tax havens and move jobs and investment overseas. This bill would help get us closer to the Biden administration’s goal of eliminating those incentives by requiring companies to publicly disclose tax information on their foreign operations, and making it easier to hold them accountable for tax avoidance." 

“Consumers in Wisconsin and across the country deserve to know if the corporations they support are re-investing in our communities or offshoring jobs and hiding capital to avoid paying taxes. Hardworking families pay their fair share, and this legislation will help ensure consumers and investors have full transparency about how corporations are abusing our broken tax system to pad their profits while sending jobs overseas,” said Senator Baldwin.

Under current law, a U.S. corporation may use foreign tax credits to reduce U.S. tax liability on foreign profits based on amounts the company paid in taxes on those profits. While this makes sense on a per-country basis, the 2017 tax law’s use of a blended or “global rate” for the minimum tax on foreign corporate profits provides a perverse incentive for companies to shift jobs and operations overseas in order to avoid the minimum tax on profits booked in tax havens. 

The Disclosure of Tax Havens and Offshoring Act would ensure there is more transparency these tax practices by requiring large corporations to disclose basic information on each of their subsidiaries, and country-by-country financial information that sums together all of their subsidiaries in each country – including profits, taxes, employees, and tangible assets.

All of this information is already reported to the IRS, under an international OECD framework, but this would ensure public disclosure to provide data on how international tax laws are working and where corporations are locating their business activities and taxes. Thus, when a corporation sends jobs overseas, their country-by-country financial report would show the extent to which the U.S. tax system is rewarding their behavior. 

A one-page summary of this bill is here. Text of the legislation is available here.

This legislation is supported by the Financial Accountability & Corporate Transparency (FACT) Coalition, Public Citizen, Institute for Taxation and Economic Policy, and the American Federation of State, County and Municipal Employees (AFSCME).

“Tax avoidance by big multinationals hurts American small businesses, erodes the tax base, and undermines democracy by sowing distrust in our tax system and the rule of law,” said Ian Gary, executive director of the FACT Coalition. “Shining a light on these tax avoidance practices is an essential step towards a fairer, more just tax system both domestically and internationally.”