A report that Wal-Mart Stores Inc. is hiding billions in international assets to avoid paying U.S. taxes was dismissed by the retailer Wednesday as misleading.
Americans for Tax Fairness compiled the report -- distributed by the United Food and Commercial Workers union and its affiliated group Making Change at Walmart -- which alleges that Wal-Mart is hiding at least $76 billion in 78 subsidiaries established in countries where it has no retail stores. Wal-Mart, according to the report, has an "extensive web of tax-haven subsidiaries" and uses "exotic international tax avoidance strategies."
Since 2009 Wal-Mart has created 20 shell companies in Luxembourg alone, according to the report by Americans for Tax Fairness, a tax watchdog often critical of corporate tax maneuvers.. While Wal-Mart operates no stores there, the report said the company is holding $64.2 billion in assets in Luxembourg.
Wal-Mart spokesman Randy Hargrove said the report contains "incomplete, erroneous information." The company operates according to tax laws established in each of the countries where it operates, Hargrove said.
"Wal-Mart has processes in place to comply with applicable SEC and IRS rules as well as the tax laws of each country where we operate, and we maintain transparency with the IRS via real-time disclosure of our business transactions and corporate structure," Hargrove said.
According to the report, Wal-Mart has not disclosed nearly 80 subsidiaries in countries including Luxembourg, the Cayman Islands and the Indian Ocean island of Mauritius. Companies are required by the Securities and Exchange Commission to disclose only "significant subsidiaries."
Wal-Mart disclosed 14 "significant subsidiaries" from seven different countries, including the U.S., in its annual report. It owns between 52 percent and 100 percent of each of the subsidiaries listed. Those subsidiaries, through interest-free, intercompany loans or transfer of ownership, are then able to divert earnings into what the report refers to as "shell" companies.
Research for the report was conducted by the United Food and Commercial Workers International Union. Both the union and Making Change for Wal-Mart have supported the Organization United for Respect at Walmart, a group that pushes for wage and scheduling improvements for the company's 1.3 million U.S. workers.
Current tax laws in the U.S. allow for companies to hold international earnings outside the U.S. without being taxed. Multinational corporations are taxed in the U.S. at a 35 percent rate on international earnings.
Companies often chose to keep earnings outside the U.S. in order to pay lower tax rates. According to a Bloomberg report, U.S. companies are holding more than $2 trillion in earnings offshore to avoid taxes.
Professor Donald Williamson of American University's Kogod School of Business in Washington, D.C., said multinational corporations looking for ways to lower their taxes are essentially similar to individual taxpayers who itemize deductions in hopes of paying less back to the government.
"There's nothing wrong with one arranging their affairs in a manner to minimize their taxes. That's all that is going on here," Williamson said, paraphrasing rulings from the late federal judge Learned Hand in 1934 and 1947.
"Looking for ways to lower taxes is what all the multinational corporations are doing," added Williamson, executive director of American University's Kogod Tax Center. "One of the big criticism is that companies doing this are unpatriotic. I don't consider it unpatriotic to try to minimize your tax burden -- legally, of course. Legally, that's not treason."
Whatever legal steps Wal-Mart might be taking to minimize the taxes it pays, the company said it paid about $6.2 billion in U.S. federal corporate taxes last year.
Wal-Mart CEO Doug McMillon, appearing earlier this year on an ethics panel at South Carolina military college The Citadel, noted that the company pays about 2 percent of all corporate federal taxes collected in the U.S. That percentage was confirmed by the company on Wednesday, and in addition to such taxes, the company said, it is paying more than $10 billion in payroll taxes and $3.3 billion in property taxes, state income taxes, franchise taxes and other state taxes.
Also, the company collected and remitted more than $14 billion in state and local sales taxes, according to a statement.
International operations account for about 30 percent of Wal-Mart's more than $480 billion in annual revenue. Still, the company said, its effective tax rate the past three years has been around 32 percent in the U.S.
Wal-Mart is investing money earned globally back into the 27 countries in which it operates stores, Hargrove said.
"Regardless of where the foreign earnings are held, under the current law, they are not subject to U.S. tax until they are repatriated," Hargrove said.
Repatriation -- introducing money earned overseas back into the U.S. -- is a current topic of conversation in Washington, D.C. Billions of dollars in taxes could be collected if Congress passed a law changing how the U.S. views international money earned by subsidiaries of domestic companies.
Some companies have lobbied Congress for a temporary reprieve from taxes on money that is repatriated. Even without the proposed break, General Electric recently announced that it is "repatriating" about $36 billion in foreign assets, a move that will reportedly result in a tax bill between $4 billion and $7 billion. GE, according to reports, planned to use the money for stock buybacks.
According to the Americans For Tax Fairness report, Wal-Mart would be among the companies to benefit from changes to the repatriation laws. Wal-Mart, however, disputed that it would stand to gain from a so-called tax holiday or a reduction in taxes levied on international earnings.
"Because much of the company's unremitted earnings overseas have been invested into physical assets like stores, distribution centers and equipment in other markets around the world, the company would be unlikely to benefit from such a proposal," Hargrove said. "More likely, it would represent a tax increase, as the company would have tax due without the benefit of repatriating funds to the U.S. due to our investments in physical assets that are not liquid."
Business on 06/18/2015
Print Headline: Retailer: Foreign assets fit the rules