Wal-Mart’s $76 Billion Tax Shelter Strategy
The multinational retail giant Wal-Mart generates more revenue each year than any other company in the world, as was reported by the Fortune Global 500 list published in 2014. The family owned business employs 2.2 million employees, making it the largest private employer in the world as well. In addition, Wal-Mart Stores, Inc. is also among a list of some of the largest multinational corporations in the world who take advantage of massive tax shelters abroad. In the case of Wal-Mart, a new study conducted on the tax responsibilities of the corporation discovered 78 foreign subsidiaries that are sheltering over $76 billion of the company’s assets.
WHERE THEY ARE HIDING THE MONEY
As was reported by Americans for Tax Fairness on Wednesday, Luxembourg and the Netherlands are home to nearly 90 percent of overseas assets owned by Wal-Mart. Having 22 shell companies in Luxembourg alone, not one store exists in the tiny European country. Labeled a “Magical fairyland” by one tax specialist because taxation of money placed there is easily avoidable by U.S. taxing authorities, Wal-Mart paid less than 1 percent in taxes on $1.3 billion of profits held in Luxembourg between 2010 and 2013. As for the nearly 3,500 stores in Brazil, Central America, Chile, China, Japan, South Africa and the U.K., it seems that ownership of these locations are placed in units of tax shelters situated in Curacao, the British Virgin Islands and Luxembourg.
ANOTHER POPULAR STRATEGY
In addition to hiding large sums of profits and assets in countries with low tax rates, Wal-Mart has been shrewdly coming up with new ideas to adamantly avoid U.S. taxation. It’s called a hybrid loan, where tax deductions on interest paid by offshore subsidiaries to their U.S. parent company are taken and ultimately, the interest is not reported as income to be taxed in the U.S. The Organization for Economic Cooperation and Development (OECD), however, is working to put a stop to these types of loans used for tax benefit purposes.
HOW THEY HID THEIR ASSETS
Setting up subsidiaries in countries that are well known to be corporate tax haves such as Barbados with 1 shelter company, the Cayman Islands with 4 shelter companies, Switzerland with 4 shelter companies and Hong Kong with 13 shelter companies, Wal-Mart is able to avoid U.S. taxes by conducting little if any business in these locations. According to U.S. tax laws, corporations having subsidiaries which generate over 10 percent of income or assets must report the financial information of these divisions to the U.S. Securities and Exchange Commission (SEC). The study discovered that many of these offshore branches were never included in Wal-Mart’s securities filings with the SEC, saving the mammoth company over $3.5 billion in U.S. income taxes.
THE INFORMATION IS FINALLY MADE PUBLIC
Carried out by the United Food and Commercial Workers International Union, the research was conducted using information gained by public information documented by Wal-Mart and its subsidiaries in these corporate tax haven countries. Known to be opposed to unions for its employees, a Wal-Mart spokesman, Randy Hargrove, cited that the report submitted by the union was incomplete and that it was “designed to mislead.” Hargrove also asserted that the corporation has “processes in place to comply with applicable SEC and IRS rules, as well as the tax laws of each country where we operate.” Wal-Mart’s nearly 6,300 foreign retail stores reported only 28 percent of their revenue, equaling to about $137 billion.
WORKING TO STOP THE TAX SHELTERING
The Group of Twenty (G-20) is a collection of 20 countries whose governments promote international financial stability. The G-20 is fighting to stop tax evasion by multinational corporations. Their aim is to require companies to report where they place their profits so the information can be made available for review to locate any discrepancies. The evidence discovered in the research done on Wal-Mart is likely to prompt amendments in international tax reform. The G-20 is calling for the Organization for Economic Cooperation and Development to enact changes to stop corporations from creating subsidiaries in these low tax areas in order to avoid taxation where it is due.
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