“Major corporations doing business in Maine enjoy the use of Maine’s roads and bridges, public safety, and educated workforce, while at the same time paying far less than their fair share of the cost of these public goods and structures. When corporations hide their profits, the tax base shrinks and homegrown businesses and Maine residents have to pay higher rates to support the services that help our communities and businesses thrive.”
Good afternoon Senator Dow, Representative Tipping, and distinguished members of the Joint Standing Committee on Taxation. My name’s Sarah Austin, a policy analyst at the Maine Center for Economic Policy. I’m here to speak in favor of L.D. 784, An Act to Prevent Tax Haven Abuse.
The Organization for Economic Co-operation and Development (OECD) identify offshore tax havens as jurisdictions that have little to no tax on certain types of income, lack effective information exchange and transparency, and do not require operating businesses to prove they are engaged in substantial activities.[i]
Offshore tax avoidance takes many forms- debt shifting, transfer pricing, contract manufacturing, and more. [ii] These schemes work within corporate webs of parent companies, subsidiaries, and third parties that transfer debt and payments to artificially lower the profits claimed in counties with higher tax rates and increase the profits claimed in countries with lower tax rates. A 2016 report shows these tax dodging strategies are common practice for Fortune 500 corporations. The same report estimates U.S. multinational companies held $2.49 trillion offshore in 2015, double the offshore income reported by these companies in 2009.[iii]
Major corporations doing business in Maine enjoy the use of Maine’s roads and bridges, public safety, and educated workforce, while at the same time paying far less than their fair share of the cost of these public goods and structures. When corporations hide their profits, the tax base shrinks and homegrown businesses and Maine residents have to pay higher rates to support the services that help our communities and businesses thrive.
Maine already requires combined reporting to stop multistate corporations and their subsidiaries from transferring Maine made profits into on shore tax havens like Delaware and Nevada. It only makes sense for Maine to close the loophole that lets multinational corporations engage in the same tax dodging practices on the international stage.
Maine Revenue Services estimated that a similar bill presented to the legislature last year would have increased revenues by more than $5 million annually for fiscal years 2018-2019.[iv] That’s $5 million we could use to strengthen our economy by funding pre-k, improving our community colleges and apprentice programs, or ramping up treatment for opioid addiction.
I urge the committee to support LD 784 to return fairness to Maine’s tax code and strengthen the pillars of our economy.
[i] “In 1998 the OECD set out a number of factors for identifying tax havens. The four key factors were: 1) No or nominal tax on the relevant income; 2) Lack of effective exchange of information; 3) Lack of transparency; 4) No substantial activities.” For more information about the OECD tax haven definitions and guidance see Countering Offshore Tax Evasion: Some questions and answers on the project. Available at: https://www.oecd.org/ctp/harmful/42469606.pdf
[ii] See 2015 Congressional Research Service report Tax Havens: International Tax Avoidance and Evasion for more information about the methods of corporate tax avoidance most used by U.S. companies. Available at: https://fas.org/sgp/crs/misc/R40623.pdf
[iv] See Fiscal Note for 127th Maine Legislature’s L.D. 2656, An Act to Provide Tax Revenue to Offset Transfers to the Maine Clean Election Fund Available at: http://legislature.maine.gov/legis/bills/bills_127th/fiscalpdfs/FN163401.pdf
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