U.S. Companies Avoid Over $40 Billion in Taxes After Exit from Global Minimum
Tax Deal
U.S. companies skirted at least $40 billion
in taxes since the beginning of 2025 thanks to schemes in places like Malta, Bermuda
and Cyprus.
1.
The Trump administration withdrew the United States
from the OECD-led global minimum corporate tax initiative (Pillar 2) in 2025, easing
international restrictions on offshore tax avoidance.
2.
A review of nearly 500 corporate filings found that
U.S. multinational companies avoided at least $40 billion in income taxes
since the beginning of 2025 by shifting profits to low-tax jurisdictions.
3.
Common tax havens included Malta, Bermuda, Cyprus,
Switzerland, Singapore, the Cayman Islands, and Jersey, where companies often
reported profits through subsidiaries with little or no real business activity.
4.
New SEC disclosure rules required companies to reveal
the amount of tax benefits obtained from individual foreign jurisdictions, providing
unprecedented visibility into offshore tax strategies.
5.
Major companies reported significant tax savings through
offshore structures:
o
American Express: $423 million
o
PayPal: Nearly halved its tax bill through Singapore
o
Stanley Black & Decker: $27 million
o
Abbott Laboratories: $336 million
6.
Similar tax-saving arrangements were used across multiple
sectors by companies including Walmart, Uber, Mastercard, PepsiCo, Honeywell, Cigna,
Crocs, Merck, and Thermo Fisher Scientific.
7.
Thermo Fisher Scientific
reduced its tax liability by $3.5 billion through Malta, while Honeywell
saved $301 million using Swiss subsidiaries despite receiving substantial
U.S. government contracts.
8.
The offshore tax strategies generally comply with existing
laws, though the IRS has challenged some arrangements as abusive or lacking economic
substance.
9.
The 2017 Trump tax law introduced a tax on offshore
profits but allowed companies to offset profits earned in tax havens with taxes
paid in higher-tax countries, limiting its effectiveness.
10.
The Biden administration attempted to join the OECD’s
global minimum tax framework in 2021, but Congress did not approve the necessary
legislation.
11.
Following the U.S. withdrawal, international negotiations
resulted in U.S. companies receiving broad exemptions from parts of the global minimum
tax regime.
12.
Malta emerged as a particularly attractive tax haven
after receiving permission from the European Union to delay implementation of the
15% minimum corporate tax until 2029.
13.
Profits reported by U.S. companies in Malta increased
from $134 million in 2017 to $5.6 billion in 2022, with experts estimating
substantially higher levels today.
14.
Abbott Laboratories shifted a Bermuda subsidiary to
Malta shortly before Bermuda's new corporate tax took effect in January 2025, enabling
the company to report $17 billion in income with no income taxes paid.
15.
The IRS is contesting more than $1 billion of
Abbott's tax benefits in ongoing litigation.
16.
PepsiCo used a structure involving Ireland and Bermuda
to shift billions of dollars in profits, reducing its tax bill by $691 million
in 2025.
17.
Experts believe the true revenue loss exceeds $40
billion, as disclosure rules capture only large tax-haven benefits and omit
many smaller profit-shifting arrangements.
18.
The trend has reignited debate over corporate tax avoidance,
tax fairness, and the effectiveness of international efforts to curb profit shifting
by multinational corporations.
A
year ago, the Trump administration withdrew from a global effort to curb offshore
tax-dodging by multinational companies. That decision has been a huge gift to corporate
America, enabling companies to avoid at least $40 billion in income taxes since
the beginning of 2025.
A
New York Times review of securities filings from nearly 500 companies showed that
they avoided taxes by attributing hundreds of billions of dollars in earnings to
low- or no-tax foreign locales like Cyprus, Bermuda, Switzerland and the Cayman
Islands. Often, corporations funneled the profits through
subsidiaries in places where they had no employees, offices or customers.
Tax
havens became more appealing after President Trump signed an order on his first
day back in office withdrawing the United States from a 13-year international effort
to end such schemes. The effort led dozens of countries to impose a minimum corporate
tax and rules for pursuing companies using tax havens. After House Republicans passed
legislation last year targeting some of those countries with a new tax, international
officials agreed to exempt U.S. companies from much of the crackdown.
American
Express avoided paying $423 million in taxes last year using the island of Jersey.
PayPal trimmed its taxes by nearly half during 2025 thanks to its units in Singapore.
Stanley Black & Decker cut its bill by $27 million — nearly one-third — using
the island of Cyprus.
A
favorite destination was the tiny Mediterranean island
of Malta, where Abbott Laboratories, the pharmaceutical giant, has claimed all its
global profits were earned by a subsidiary with no employees. Malta helped the company
cut its tax bill by $336 million last year, the filings show.
Companies
making similar moves spanned nearly every sector of the economy: Walmart and Uber;
Mastercard and Pepsi; Crocs and Merck; Honeywell and Cigna. To put the $40 billion
in taxes they avoided in perspective, it would be enough to triple the annual budget
of the Federal Aviation Administration or U.S. Customs and Border Protection.
On
the face of it, the offshore tax strategies don’t necessarily violate any laws.
But the Internal Revenue Service says some of the companies have gone too far, and
tax advisers say the Trump administration’s actions will make it easier to pursue
even more aggressive dodges.
“Accommodating
the U.S.’s refusal to participate in the global reforms opens up the door to abuse,”
said Philip Marcovici, a former chair of the European tax practice at the law firm
Baker McKenzie.
The
Times’s analysis relied on a new disclosure required by federal accounting rules.
For the first time, in annual 10-K reports filed with the Securities and Exchange
Commission, public companies are required to include footnotes reporting the precise
amount of tax avoided through each foreign jurisdiction.
Some
companies using tax havens to avoid U.S. income tax rely on federal funding for
their profits. Thermo Fisher Scientific, the scientific
equipment maker, cut its taxes by $3.5 billion last year via Malta. Honeywell, which
received over $30 billion in Defense Department contracts
over the past decade, used Swiss units to cut its tax rate by more than a quarter
— or $301 million — last year.
The
widespread tax sheltering comes despite a law passed during the first Trump administration
that was billed as a crackdown.
In
2017, Mr. Trump signed a $5.5 trillion package of tax cuts that overwhelmingly benefited
corporations and the wealthiest Americans. To keep down its overall cost, the package
included a few new levies, including one on profits that companies moved into tax
havens.
But
the provision contained an escape hatch: It permitted companies to blend the profits
and taxes reported in places like Germany, France or Japan with earnings reported
in tax havens like Grand Cayman. That, in turn, helps many companies avoid the new
offshore tax.
The
2017 law “doesn’t solve the profit-shifting problem,” said Elizabeth Stevens, a
lawyer at Caplin & Drysdale.
In
2021, the Biden administration said it would join an effort coordinated by the Organization
for Economic Cooperation and Development to impose a minimum corporate income tax
of 15 percent. That levy applies country by country, avoiding the blending loophole
and reducing the incentive to shift income into tax havens.
Dozens
of nations signed on, including most European Union members, Japan, Britain and
Australia. But the Biden administration failed to muster the votes in Congress to
pass the legislation. Mr. Trump’s executive order last year withdrew the United
States from the global effort, known as Pillar 2.
“We
will not get to the golden age of America unless we start removing some of the barriers,”
Rebecca Burch, the Treasury Department’s top international tax official, said a
few months later, and “until we get Pillar 2 off our backs.” Ms. Burch is a former
lobbyist for EY, the accounting and advisory firm better known as Ernst & Young.
The
Trump administration’s agreement with the Organization for Economic Cooperation
and Development this year frees U.S. companies to park profits in favorable locations — often in conflict with I.R.S. enforcement
efforts.
In
2022, the European Union issued a directive permitting a handful of countries, including
Malta, to delay carrying out the 15 percent minimum tax. That tax in Malta will
not kick in until the end of 2029.
Profits
allocated by U.S. companies to Malta soared to $5.6 billion in 2022 from $134 million
in 2017, according to the International Tax Observatory, a research group at the
Paris School of Economics. That figure is most likely far larger today, advisers
say.
Last
year, S&P Global, the ratings company, used subsidiaries in Malta to cut its
bill by $269 million. Yum Brands, the owner of Taco Bell, KFC and Pizza Hut, trimmed
its taxes by $121 million using Maltese units. Crocs, the shoemaker, used Malta
— where it has no offices — to save $47 million.
Abbott
made Malta the final destination of a cat-and-mouse game to stay one step ahead
of tax authorities. In 2023, the drugmaker created a subsidiary in Bermuda, which
had no corporate income tax. But Bermuda enacted one to comply with the O.E.C.D.,
which was scheduled to take effect in January 2025.
On
Dec. 19, 2024, 13 days before the new Bermuda law kicked in, Abbott shifted the
tax residency of the subsidiary to Malta, filings show. In 2024, the Abbott unit
reported $17 billion in net income — more than its total global profit — and no
income taxes anywhere.
Malta
helped Abbott cut its tax bill by nearly 20 percent last year, filings show. The
documents also disclose the number of employees at the Malta entity: zero.
The
I.R.S. is challenging over $1 billion in Abbott’s tax savings, U.S. Tax Court filings
show. As part of that dispute, the agency contends that a transaction generating
$8 billion of deductions to shield profit from the U.S. minimum offshore tax was
abusive and lacked economic substance.
Pepsi
avoided taxes on profit earned in the United States by shifting income from at least
$29 billion of sales of beverage and food concentrate around the world through Ireland
and ultimately into Bermuda, disclosures show. A Pepsi unit in Bermuda funded the
transaction, providing a more than $26 billion loan to finance the purchase of the
rights.
Since
then, Pepsi has shifted at least $7 billion in profit into Bermuda via the interest
payments owed on that intracompany loan.
The
income landed with a Pepsi unit with headquarters at a law firm that services thousands
of similar shell companies, corporate filings show, helping the company save $310
million last year. Pepsi’s units in Bermuda, Switzerland, Ireland and Singapore
cut the company’s bill last year by nearly one-third, or $691 million.
The
true windfall from such maneuvers is likely to be far
greater than the $40 billion indicated by the disclosures, said Anh Persson, a professor
of accounting at the University of Illinois at Urbana-Champaign. The disclosures
reflect the financial benefit companies present to investors rather than the actual
payments they avoided.
And
the new rule requires reporting a tax haven only if the sheltered profits exceed
a threshold of at least 5 percent of the company’s tax bill at the full U.S. statutory
rate, further understating the full cost of such sheltering.