A new report by Citizens for Tax Justice, the Institute on Taxation and Economic Policy and the U.S. Public Interest Research Group (PIRG) finds that Fortune 500 companies are now holding $2.5 trillion in earnings offshore. The report, "Offshore Shell Games," finds that holding these earnings offshore allows companies to avoid an estimated $718 billion in taxes. Given the huge amount of revenue at stake, it is no wonder that congressional leaders and even the presidential candidates have begun looking at these earnings as a potential source of government revenue.

The key driver of offshore tax avoidance by U.S. companies is the tax loophole that allows companies to defer paying taxes on their foreign profits until they are repatriated to the United States. This provision creates a huge incentive for companies to shift and hold their income in low- or no-tax jurisdictions (aka tax havens) because it allows them to avoid paying U.S. taxes.

The most prominent example of a company engaging in extensive offshore tax avoidance is Apple. According to the report, Apple is holding as much as $215 billion offshore on which it owes an estimate $65.4 billion in taxes, meaning that it has managed to pay a tax rate of only 4.6 percent on its offshore earnings. A report from the European Commission found that the company accomplished this in large part by holding about $115 billion in Ireland virtually tax-free.

As the report finds, Apple is not alone in its tax avoidance. Financial service company Citigroup is avoiding $12.7 billion in taxes on the $45.2 billion in earnings they have offshore. The sneaker and clothing giant Nike is avoiding $3.6 billion in taxes on their $10.7 in profit offshore. In fact, a total of 298 of the Fortune 500 companies declare holding some amount of earnings offshore for tax purposes.

The issue of what to do about these offshore funds has become so important that it was discussed during the recent presidential candidate debate between Hillary Clinton and Donald Trump. For his part, Trump has proposed requiring companies to immediately pay a 10 percent tax rate on their offshore earnings. Unlike Trump, Clinton has been less clear about her plan for the offshore earnings, but she has proposed previously to raise $275 billion in revenue from “business tax reform,” which mirrors the amount of revenue that would be raised by President Barack Obama’s proposal to allow companies to pay a rate of just 14 percent on their offshore earnings.

While both approaches may generate some money in the short term, they would end up giving companies a huge tax break on their offshore earnings. Rather than paying a discounted rate, the best option would be to require companies to immediately pay the full amount, $718 billion by our estimate, they owe on their accumulated offshore earnings. Going forward, companies should be required to pay U.S. taxes immediately on their offshore earnings (subtracting taxes already paid to foreign governments), which would put an end to any tax advantage companies receive by shifting their profits into tax havens.

Unfortunately, Congress appears to be headed on a path toward allowing companies to pay a discounted tax rate on their offshore earnings. In a recent series of interviews, Republican House Speaker Paul Ryan and Democratic Minority Leader Nancy Pelosi both noted that a corporate tax reform legislation with some form of repatriation was a possible area of compromise in 2017. Hopefully, lawmakers will resist the relentless lobbying of corporations to give them a tax break and instead put an end to offshore tax avoidance once and for all.

Key Findings of the Report:

• 367 Fortune 500 companies collectively maintain 10,366 tax haven subsidiaries. The 30 companies with the most money booked offshore for tax purposes collectively operate 2,509 tax haven subsidiaries.

• 58 percent of companies with any tax haven subsidiaries registered at least one in Bermuda or the Cayman Islands, countries with no corporate tax. The profits that American multinationals collectively claim to earn in these island nations totals 1,884 percent and 1,313 percent, respectively of each country’s entire yearly economic output, an impossible feat.

• The 30 companies with the most money booked offshore for tax purposes collectively hold nearly $1.65 trillion overseas.

• That is 66 percent of the nearly $2.5 trillion that Fortune 500 companies together report holding offshore.

*Only 58 Fortune 500 companies disclose what they would expect to pay in U.S. taxes if these profits were not officially booked offshore.In total, these 58 companies would owe $212 billion in additional federal taxes, equal to the entire state budgets of California, Virginia, and Indiana combined. The average tax rate the 58 companies currently pay to other countries on this income is a mere 6.2 percent, implying that most of it is booked to tax havens.

The Study Highlights the Following Companies:

Apple:

Apple has booked $214.9 billion offshore — more than any other company. It would owe $65.4 billion in U.S. taxes if these profits were not officially held offshore for tax purposes. A recent ruling by the European Commission found that Apple used a tax haven structure in Ireland to pay a rate of just 0.005 percent on its European profits in 2014, and has required that the company pay $14.5 billion in back taxes to Ireland, where the company was paying significantly less than even the tax haven’s standard low tax rate. A U.S. Senate investigation in 2013 uncovered Apple’s two Irish subsidiaries that were tax residents of neither the United States, where they are managed and controlled, nor Ireland, where they are incorporated.

Nike:

The sneaker giant officially holds $10.7 billion offshore for tax purposes on which it would owe $3.6 billion in U.S. taxes. This implies Nike pays a mere 1.4 percent tax rate to foreign governments on those offshore profits, indicating that nearly all of the money is officially held by subsidiaries in tax havens. The shoe company, which operates 931 retail stores throughout the world, does not operate one in Bermuda.

Goldman Sachs

reports having 987 subsidiaries in offshore tax havens, 537 of which are in Bermuda despite not operating a single legitimate office in that country, according to its own website. The bank officially holds $28.6 billion offshore.

The report concludes that to end tax haven abuse, Congress should end incentives for companies to shift profits offshore, close the most egregious offshore loopholes, strengthen tax enforcement, and increase transparency.

Originally published by Tax Justice Blog