Walmart Has Billions In Overseas Tax Havens. Time For International Tax Reform?

According to a Forbes report last week, Walmart has $76 billion in foreign tax havens.

The report claimed that the world’s largest retail chain has 78 subsidiaries in 15 overseas tax havens where the company has no store locations.

Walmart’s hidden assets

The report claimed that Walmart is effectively avoiding U.S. corporate taxes on overseas operations for 3,500 stores in China, Japan, South Africa, Central America, South America and the U.K. As the study noted, Walmart placed 90 percent of its foreign assets in Luxembourg, the British Virgin Islands, Curacao, and the Netherlands, the most corporate tax-friendly countries in the world. These countries are considered as excellent locations to establish headquarters or holding companies because they do not tax profits generated outside of their borders and have favorable dividend and remittance. Furthermore, the retail giant reportedly paid less than one percent in taxes on $45 billion in Luxembourg, where the company does not have a store location. It is not clear how much tax was paid in the operating countries.

Since 2009, Walmart has created 30 foreign subsidiaries that were not reported to the U.S. Treasury Department. With this increase in overseas subsidiaries, the company has cut over $3.5 billion in corporate income taxes from 2008 to 2015. During that period, Walmart’s overseas revenues increased from $10.7 billion in 2008 to more than $23.3 billion in 2015.

The implications

The study reported that none of the foreign entities were disclosed in regulatory filings, although the study did not address the use of disregarded entities as a possible explanation. The report contends that Walmart may have been skirting U.S. tax inversion and public disclosure laws because all domestic entities are required to disclose subsidiaries accounting for more than 10 percent of all assets.

After the report, The United Food & Commercial Workers International Union is now calling for government response to the issue. According to the report, “sweetheart” tax incentive deals from overseas tax havens may be in direct violation of new laws regulating offshore disclosure. The report, however, does not reconcile the differences between worldwide and territorial systems of taxation.

Ultimately, the investigation in Walmart’s foreign tax disclosures could restructure the international income tax system. Critics point out that it is impossible to determine exact calculations on earnings in foreign tax havens without proper disclosure.

Walmart responds

Spokesperson Randy Hargrove stated that Walmart placed assets in these foreign subsidiaries to be reinvested for future growth opportunities overseas. In his claim, Walmart holds approximately 30 percent of its operations in foreign retail locations, resulting in 32 percent corporate income tax on all revenues from 2011 to 2014.

Hargrove also correctly pointed out that unless these assets are repatriated, the retail giant is not subject to current taxation and public disclosure laws. In response, the company also released its annual report showing that Walmart paid $6.2 billion in federal corporate income taxes for 2014, accounting for two percent of corporate income taxes collected that year.