GOV'T: CAYMANS 'SHORTCHANGING OUR COUNTRY'
By DAVID EVANS
June 27, 2004 -- Scores of the biggest U.S. companies use havens like the tax-free Cayman Islands, a British crown colony 150 miles southwest of Cuba, to escape billions of dollars in U.S. taxes, reports show.
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, U.S. Senate investigators say.
Twenty-four of the 100 largest contractors with the U.S. federal government — including Altria Group, Oracle and Procter & Gamble — have subsidiaries in the Caymans, according to a March report by the General Accounting Office, Congress's investigative arm.
Those 24 companies received a total of $35 billion from the U.S. 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.
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 U.S. 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 U.S. taxes, said Senator Carl Levin, a Democrat from Michigan.
J.P. Morgan Chase & Co. estimated in a June study that $650 billion of profit earned abroad by U.S. companies over decades had never been taxed by the U.S. That's up from a cumulative total of $500 billion cited by J.P. Morgan in a study a year ago.
In 2001, almost half of the money U.S. companies earned money outside the U.S. — 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 U.S. Treasury Department economist, citing Commerce Department data.
As a result, companies didn't have to pay the 35 percent U.S. corporate income tax.
Sullivan said his research shows the Caymans are being used for U.S. 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 U.S. 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 U.S. taxes from 2001 to 2003, according to SEC filings.
Forty-five percent of U.S. 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.
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