Seagate Technology, the world’s largest maker of hard disk drives, is headquartered in Scotts Valley, California. Yet the documents it files with the Securities and Exchange Commission list its address on South Church Street in George Town, the capital of the Cayman Islands.
Seagate is just one of the companies that may be affected by President Barack Obama’s proposal on Monday to raise about $190 billion over the next decade by outlawing techniques used by US companies in offshore locations to avoid paying taxes. While the US corporate tax rate is 35 per cent, Seagate paid an effective tax rate of 5 per cent in the year ended June 2008, according to data compiled by Bloomberg.
The Caymans have no corporate income tax for companies incorporated there. The Caribbean island has helped scores of US companies, including Coca-Cola Co and Oracle Corp, to legally avoid billions in tax payments to the US government, says US Senator Byron Dorgan.
“Our Main Street businesses are working hard during this economic downturn to pay their fair share of taxes,” says Dorgan, 66, a North Dakota Democrat. “Some of the country’s largest corporations are using these loopholes to avoid paying their fair share of taxes. It is my hope that the Congress will quickly take action to pull the plug on tax breaks that subsidize runaway plants that move US jobs overseas.”
One quarter of the 100 largest contractors with the US federal government, including Altria Group Inc and Tyco International Ltd have had subsidiaries in the Caymans, according to a study by the Government Accountability Office. At least 10 of the 30 companies listed in the Dow Jones Industrial Average have had units with addresses in the Caymans.
As of November 2007, 378 US publicly traded companies had at least one significant subsidiary in the Cayman Islands, a GAO study found. Altria, Tyco, Coke and Oracle still have subsidiaries in the Caymans, according to their most recent SEC filings. Seagate lists its headquarters in Grand Cayman.
One of the Dow 30 companies using offshore sites to reduce its US taxes is Santa Clara, California-based Intel Corp, the world’s largest chipmaker.
Intel’s then vice president of tax, licensing and customs, Robert Perlman told the US Senate Finance Committee in March 1999 that Intel would have been better off incorporating in the Cayman Islands when it was founded in 1968.
“Our tax code competitively disadvantages multinationals simply because the parent is a US corporation,” Perlman testified.
Intel spokesman Chuck Mulloy said yesterday his company is rethinking its tax strategy. “We’re studying the Obama proposal,” Mulloy said. “Particularly with taxes, the devil’s in the details.”
Seagate spokesman Brian Ziel said yesterday that his company incorporated in the Caymans to reduce its taxes. “The competitive benefits relate both to taxes saved on certain income earned outside of the United States and the ability to efficiently deploy assets around the globe to remain competitive,” he said.
Eighty-five per cent of Seagate’s employees work outside the US and more than 70 per cent of the company’s revenue comes from sales overseas, Ziel said.
“Officially, our administrative headquarters is in the Caymans,” Ziel said. “That’s how it’s listed in our annual report.”
18,857 Cayman Corporations
Altria spokesman Bill Phelps said his company is in the process of dissolving its Cayman subsidiary. Coke spokeswoman Kerry Kerr said, “We don’t comment on tax strategies, for competitive purposes.”
Tyco’s Paul Fitzhenry and Oracle spokeswoman Karen Tillman didn’t return calls requesting comment.
A five-story office building on South Church Street in the Caymans serves as the official address for 18,857 corporations. That building, called Ugland House, is listed in SEC filings as Seagate’s headquarters. About half those Cayman companies had billing addresses in the US, according to a 2008 GAO study.
President Obama referred to Ugland House yesterday.
“On the campaign, I used to talk about the outrage of a building in the Cayman Islands that had over 12,000 businesses claim this building as their headquarters,” Obama said. “And I’ve said before, either this is the largest building in the world or the largest tax scam. And I think the American people know which it is: The kind of tax scam that we need to end.”
Maples and Calder, the law firm that occupies all of Ugland House in Grand Cayman, said Obama is mistaken.