First Faculty Advisor
Corporate Tax Avoidance; Tax Havens; Profit Shifting
All rights retained by Katlyn Twomey and Bryant University
In 2016, the United States had the highest corporate tax rate in the world. Perhaps, the high tax rate could be why American corporations are holding an estimated $2.5 trillion abroad (Cox 2016). According to a study by the Bureau of Economic Analysis, U.S. firms pay a measly 3% in tax to foreign governments on those profits, rather than the 35% U.S. corporate tax rate. How are these corporations able to legally avoid paying taxes on a large percentage of their profits? Many use various loopholes in the laws to shift profits into other countries or U.S. states referred to as “tax havens.” These tax havens promote low tax rates and favorable economic conditions to increase business activity. Lately, the phenomena of shifting profits to tax havens has been of topic of public interest with the release of the notorious Panama papers, the Luxi Leaks, the European Union suing Apple for supposedly unpaid taxes, and the Pfizer Ireland scandal. What the public does not realize is that the struggle against tax havens has been going on since the 1960s. Despite countless attempts at controlling or reducing the number of tax havens, U.S. corporations continue to successfully shift billions of dollars in tax revenue overseas each year. But, how? This study will address the following question, how successful have states’ actions been at combatting tax havens? This research question will be answered by analyzing three case studies: the United States (U.S.), the European Union (EU), and the Organization for Economic Co-operation and Development (OCED). The research shows that the U.S. methods have been unsuccessful. Conversely, The EU and the OECD have made significant progress in the last few years with their action.