Hartford’s largest corporations, United Technologies Corp., Hartford Financial Services Group, and Aetna Inc., operate subsidiaries in foreign countries considered to be tax havens or “financial privacy jurisdictions,” according to a recent report by the Government Accountability Office.
The report found that 83 of the nation’s 100 largest publicly traded companies, including several that received billions of dollars from the federal government’s bailout package, have offshore operations that could help them avoid paying taxes.
General Electric and Xerox are the other Connecticut companies listed in the report. American International Group, Bank of America and Citigroup are among the companies receiving federal bailout dollars while operating in tax havens such as the Cayman Islands and Bermuda.
President Barack Obama and several top lawmakers on Capitol Hill recently pledged to adopt tougher laws to fight the use of tax havens, which the U.S. Treasury said costs the United States $100 billion a year in lost revenue.
“This report shows that some of our country’s largest companies … continue to use offshore tax havens to avoid paying their fair share of federal taxes,” Sen. Byron Dorgan, D-N.D., who requested the study, said in a written statement.
The GAO acknowledged that subsidiaries may be established in tax haven jurisdictions for nontax reasons, but the countries highlighted in the report are known for having “no or nominal taxes” and “a lack of transparency in legislative, legal, or administrative provisions.”
According to the report, Aetna has eight foreign subsidiaries in tax havens, including four in Bermuda, two in Hong Kong, one in the Cayman Islands, and one in Ireland. The Travelers Cos. Inc. has six tax haven subsidiaries, four in Bermuda, one in the Cayman Islands, and one in Singapore.
Fred Laberge, a spokesperson for Aetna, said all but one of their foreign subsidiaries listed in the report “conduct operations that provide goods and services.” He said they pay taxes at U.S. rates for all those subsidiaries except the one in Cayman Islands, which is used for global investment purposes.
“It doesn’t mean we aren’t paying taxes,” Laberge said.
Jennifer Wislocki, a spokesperson for Travelers, said the company’s subsidiaries are “established for business reasons unrelated to tax purposes.” She said five of six of the subsidiaries listed in the report are subject to U.S. taxes, while one company is subject to Singapore tax laws.
The Hartford has 10 foreign subsidiaries in tax havens, including seven in Bermuda and three in Ireland.
“The Hartford did not establish any of its subsidiaries for the purpose of reducing its federal tax burden,” said Shannon Lapierre, a spokesperson for the company. “Earnings from Hartford subsidiaries, no matter their location, are picked up as appropriate in U.S. taxable income.”
A spokesman for United Technologies, which has 12 tax haven subsidiaries, declined to comment.
Dorgan and Sen. Carl Levin, D.-Mich., requested the study as they push for legislation against corporations they say are not paying their fair share of taxes.
They raised particular concerns about the 14 companies on the list that have received bailout money, including AIG, Bank of America, Citigroup and Goldman Sachs.
The Hartford has applied for up to $3.4 billion in bailout funds.
“I think we should take action to shut down these tax dodgers and we will be introducing legislation to do just that,” Dorgan said.
But Guy McDonough, an attorney with Pepe & Hazard in Hartford, said he isn’t convinced that companies listed in the report are doing anything inappropriate.
“This report raises an important issue, but most companies doing active business overseas are using U.S. rules exactly as they are written,” he said.
Tax haven abuse isn’t as common with Fortune 500 companies as it is with individuals who don’t report foreign bank accounts or other overseas assets, he added.
While he agreed that international tax laws are very complex and need fixing, he said the federal government needs to be careful in how it changes them, especially if it means adding to the tax burden for U.S. companies.
“We don’t want to make our tax codes so stringent that it pushes companies overseas,” he said.
