Some recent statistics emerging from the President’s Council of Economic Advisers indicate just how serious the issue of corporate tax avoidance has become. According to statistics quoted in the New York Times and elsewhere, American-controlled corporate profits in the British Virgin Islands equal 1009 percent of the islands’ gross domestic product, while in the Cayman Islands, they exceed 1400 percent. The chances that U.S. corporations are generating that level of profitability from these locations is approximately zero, and yet the tax impacts are significant.
Many analysts have indicated that several corporations with overseas headquarters are engaging in creative accounting to shift profits from where they are actually earned – the United States of America. By claiming to generate the bulk of their profitability abroad, many companies are able to defer taxes on profits. This means that businesses operating in the U.S. that can’t or won’t move their profits overseas end up shouldering a disproportionate share of the tax burden.
