A recent report by Americans For Tax Fairness looks at how Walmart, the world's largest corporation, uses a vast network of subsidiaries and branches in overseas tax havens with two purposes:
1.) to minimize taxes owed on its foreign operations.
2.) most importantly, to avoid United States taxes on those foreign earnings.
In most cases, American corporations set up subsidiaries in tax havens where they have little or no business operations and very few employees (if any at all). These subsidiaries allow corporations to maintain financial secrecy and are typically used by both technology and pharmaceutical companies.
According to the report, Walmart has a vast and very complex network of 78 subsidiaries in 15 overseas tax havens as shown on this graphic:
Walmart has been able to keep the existence of these offshore tax havens relatively unknown to the general public; none of the 78 subsidiaries that go by such creative names as Azure Holdings, Bounteous Company Limited, Main Street 824 (Proprietary) Limited Sarl and MCLM III are disclosed in Walmart's annual 10-K filings with the United States Securities and Exchange Commission. This means that these entities remain invisible to anyone seeking information on corporate tax avoidance. It is interesting to see how large some of these subsidiaries are; MCLM III holds $31.6 billion in assets, 15 percent of Walmart's total assets. The exact content of these assets is currently unknown but the company paid $1.8 billion in dividends to the parent company in fiscal year 2013 and 2014.
Here is a listing of the foreign tax havens used by Walmart, the number of Walmart subsidiaries in each, Walmart's total assets held in each jurisdiction (where available) and the number of Walmart stores in each:
You will notice that there is not a single Walmart store located in any of the nations on this list and that Walmart has $64.2 billion in assets held in Luxembourg where it has zero stores. While Spain is not generally considered to be a tax haven, it appears that it was used by Walmart to avoid taxes on its operations in Argentina.
Here is a listing of some of the countries in which Walmart owns stores (outside of the United States) and the location of the tax haven parent company for each of the operating company location along with the name of the tax haven parent company:
What this is telling us is that Walmart has transferred ownership of these foreign operating companies to its subsidiaries located in tax havens. It is important to note that publicly available information does not allow the authors of this report to determine whether or not Walmart's Canadian and Mexican operations are owned through subsidiaries located in tax havens.
As you can well imagine, Walmart's web of subsidiaries is very complex because the subsidiaries located in tax havens are integrated into the company through entities that are organized as limited liability companies (LLCs) or limited partnerships (LPs). Both LLCs and LPs which can be either corporations or individuals located anywhere in the world are used as conduits for moving earnings from one country to another. For example, an LLC that is located in the United States can receive dividend income from a foreign subsidiary and distribute those dividends to a foreign owner without incurring tax in the United States as long as the LLC's income is not gleaned from business activity that occurs in the U.S.
Here is an example of how Walmart uses LLCs located in the United States, Canada and the United Kingdom and how they are integrated into the aforementioned tax havens:
As you may have noted, low-tax Luxembourg seems to be preferred tax haven for Walmart. According to Deloitte, the headline corporate tax rates in Luxembourg range from 20 percent if taxable income is less than 15 million euros and rises to 21 percent if taxable income exceeds 15 million euros (plus an Employment Fund surcharge of 7 percent). This is significantly lower than the American headline corporate tax rate of 35 percent that Corporate America likes to complain about endlessly. Since 2009, Walmart has formed 20 new subsidiaries in Luxembourg including five in 2015 alone. This has allowed Walmart to move in excess of $45 billion in assets into its Luxembourg subsidiaries since 2011.
How does Walmart extract these funds from Luxembourg? Documents suggest that Walmart is using short-term, low-interest loans from Luxembourg. This is a similar tactic that was used by Hewlett-Packard. The current Internal Revenue code allows these loans to take place as long as they are repaid within 30 days, otherwise they are deemed dividends that are subject to U.S. taxes. During the first six months of 2014, Walmart took $2.4 billion in loans from its Luxembourg subsidiaries at interest rates of between 0.25 and 0.28 percent. This allowed Walmart to borrow money (from itself) at ultra-low rates at the same time as it avoids paying U.S. taxes on the funds.
Walmart is far from the only big American corporation availing themselves of this tax loophole. The offshore profits of Corporate America has grown from $562 billion in 2004 to $2.1 trillion in 2015. This offshore hoarding began in 2004 when Congress approved a tax break for repatriated earnings that allowed U.S. companies to bring home their accumulated earnings at a 5.6 percent tax rate. The recent proposals from the Obama Administration that would see a one-time 14 percent tax on the trillions of dollars of unrepatriated foreign earnings of American multinationals suggest that Corporate America has been busy lobbying for changes that would allow them to bring their earnings back to the U.S. without significant penalty. Just in case you wondered, here is how much Walmart has spent on lobbying in Washington since 1998:
Most of us have spent at least some of our hard-earned money at Walmart at one time or another whether we liked it or not. Walmart's relatively slim profits of $16.18 billion on $485.7 billion in sales for the 2015 tax year show us that reducing its tax burden is an important part of its ongoing strategy. Through the use of tax havens, the massive corporate behemoth take can advantage of options that are not available to its smaller, locally owned and operated competitors to improve its bottom line and further enrich its key shareholders who are already among America's wealthiest.