Massive corporations like Google, Apple, and Exxon Mobil are avoiding their fair share of taxes by using shell companies in offshore tax havens, costing Maine $52 million in lost revenue every year, according to a report.
Although these corporations do business nationally, under current laws they are supposed to "pay income taxes in Maine based on the percentage of US sales generated within the state’s boundaries," Sarah Austin, lead policy analyst for Maine Center for Economic Policy (MCEP), said in a recent report. "For example, if 3 percent of a corporation’s nationwide sales took place in Maine, that corporation would owe Maine income taxes on 3 percent of its total nationwide profits."
Using an army of lawyers and accountants, according to the MCEP, large corporations are able to eliminate or substantially reduce what they owe to Maine by using shell companies – which exist only on paper – in offshore tax havens. Offshore tax havens are exploited because they have low or no tax on corporate profit, high financial secrecy and lack of transparency, and minimal ability to confirm the legitimacy of shell companies.
“This is a $100 billion dollar problem at the federal level, but Maine pays a price too: Offshore tax haven abuse costs Maine up to $52 million annually,” Austin said.
Austin said there are two common methods companies use to avoid taxes. A corporation can register a shell company in Bermuda and then "sell" its own products to the shell company for free or at a low cost. Then, when the products – which never leave U.S. warehouses – are sold to customers, the shell company makes a "profit" while the U.S. based company escapes tax liability because it technically made little to no profit.
A second method corporations use to shift most of their profits is by letting their shell company charge them high licensing fees whenever a product is sold.
"Imagine 'American Shoe' is a corporation in the United States, but registers its brand trademark with 'Shoes International,' a shell corporation it established in the Cayman Islands, an offshore tax haven," Austin said in her report. "When American Shoe sells a pair of shoes for $100 to a customer in Maine, it 'pays' Shoes International a $90 licensing fee for the right to use the American Shoe logo and trademark."
Maine doesn't need to wait for the federal government to step in to stop companies from exploiting the citizens it's profiting off, Austin said.
"Rather than determining a business’s taxes based on the percentage of US-based sales generated in the state, policymakers could require businesses to pay taxes based on the share of global sales that took place in Maine," Austin said.