Like many other Wisconsinites, I was shocked to learn Johnson Controls—the state’s largest company with $37 billion in annual sales and headquartered in Milwaukee for 130 years—was moving to Ireland.
But not to worry. It turns out everything we’ve heard is an enormous lie. In fact, the best description of what’s really going on is legalized corporate tax fraud.
It’s all made possible by Republicans controlling the U.S. Senate and House of Representatives, who refuse to close a brazen loophole in the U.S. tax code that allows major American corporations such as Johnson Controls simply to lie about where their headquarters are really located.
You see, Johnson Controls really isn’t moving to Ireland. The biggest change is that it’s splitting into two separate companies—Johnson Controls will manufacture heating and cooling building systems and Adient will continue as one of the world’s largest suppliers of car batteries, seat cushions and other automotive parts.
But, get this. The operating headquarters of both major companies will remain in Milwaukee. What will move from Milwaukee to Ireland are “the headquarters for tax purposes” of those two companies.
In other words, both companies will just pretend they’re moving to Ireland without really going anywhere. Because Ireland has a much lower corporate tax rate than the United States—12.5% compared to 35%—this legal fraud will allow Johnson Controls to avoid paying $150 million a year in U.S. taxes.
When multibillion-dollar U.S. corporations pay hundreds of millions of dollars less in taxes, guess who has to pay more. You do.
The beauty of U.S. corporate tax loopholes is all you need to enjoy one is to have a crafty enough lawyer. It works much the same way the last Republican presidential nominee Mitt Romney was able to shelter millions from U.S. taxation in the Cayman Islands by simply renting a P.O. Box there.
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U.S. companies can pay a lower corporate tax rate in some other country instead of paying their fair share of U.S. taxes by acquiring a much smaller company headquartered abroad. Then they pretend the smaller, foreign company is running the larger U.S. company instead of the other way around.
Many taxpayers first became aware of these deceptive corporate tax inversions as they’re called in 2014 when Burger King, the American fast food giant, acquired a Canadian chain of doughnut shops to use the same tax dodge to pretend to be a Canadian corporation so it wouldn’t have to pay U.S. corporate taxes.
Johnson Controls is engaging in similar subterfuge by merging with Tyco International, a company already based in Ireland. Tyco is nowhere near an equal partner. Its projected 2016 revenues are less than a third of those of Johnson Controls.
GOP Is OK with Tax Rip-Offs
The contrasting political reactions of our two major political parties explain why nothing has been done to stop companies from engaging in such legalized fraud.
Responding to public outrage over out-of-control corporate tax inversions, President Obama and Democrats want to outlaw them. Johnson Controls was the 13th such scheme in the last 16 months. A recent study estimated U.S. corporations have shifted $111 billion in profits overseas since 2012 to evade U.S. taxes.
Wisconsin Sen. Tammy Baldwin, Vermont Sen. Bernie Sanders and Massachusetts Sen. Elizabeth Warren are among the cosponsors of the Stop Corporate Inversions Act of 2015. Democratic presidential candidates Sanders and Hillary Clinton have condemned the dishonest practice.
But Republicans who control both houses of Congress have blocked every attempt to close the gaping tax loophole. Wisconsin’s Republican Sen. Ron Johnson describes it as a perfectly legal way for corporations to avoid paying hundreds of millions of dollars in U.S. taxes.
Republicans instead push for a massive reduction in the U.S. corporate tax rate of 35%, arguing it is the highest in the world. What Republicans never mention, however, is that any U.S. corporation with a lawyer pays far less and some pay no taxes at all as a result of all the hidden deductions and loopholes politicians have inserted into the U.S. tax code for their wealthiest campaign contributors.
Even before its fake move to Ireland, Johnson Controls cut its corporate tax rate almost in half last year, paying only 19%.
What makes corporate tax evasion particularly reprehensible is that the same companies that don’t want to pay their U.S. taxes rely on the federal government for financial protection during hard times, multimillion-dollar research grants and lucrative government contracts.
During the Great Recession, struggling taxpayers helped assure the economic survival of Johnson Controls, whose business depended on automobile manufacturing, when President Obama prevented the bankruptcy and total collapse of the U.S. auto industry over the objections of Republicans.
Now Johnson Controls is dressing up all their Milwaukee executives like leprechauns and teaching them to sing “Danny Boy” with an Irish brogue to pretend they’re not a U.S. company anymore in order to weasel out of paying their fair share of U.S. taxes.
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