Tax Haven Data Demonstrate Need for Global Minimum Tax Despite Opposition from Trump Administration

American corporations use accounting gimmicks to make profits appear to be earned by subsidiaries in countries or jurisdictions known as tax havens, where they will be taxed very little or not at all, instead of in countries that would meaningfully tax them. This widespread problem could be fixed by Congress enacting legislation to implement a minimum tax on corporations that meets (and preferably exceeds) the standards of the global minimum tax that other countries have begun to implement.

The table below presents IRS data on the total 2022 profits that American corporations claimed to generate through their offshore subsidiaries in jurisdictions that are likely tax havens. Some of the implausible claims from corporations include:

• In 11 of these jurisdictions, the total profits that American corporations claimed to earn in 2022 exceeded $600,000 per employee that they claimed to retain there. In seven, the total profits exceeded $1 million per employee.
• In 11 of these jurisdictions, the total profits that American corporations claimed to earn exceeded the total tangible assets they reported to have there.
• In 13 of these jurisdictions, the total profits that American corporations claimed to earn (as a share of the jurisdiction’s GDP) were at least three times that reported in countries like Mexico and Canada that are the closest trading partners of the U.S. (In Canada they equaled 2.1 percent of GDP). In two of these jurisdictions (British Virgin Islands and Barbados) they exceeded the entire gross domestic product of the jurisdiction, which is clearly impossible.

There are several ways to identify a country or jurisdiction as a potential offshore tax haven. This analysis chose the jurisdictions in this table because they met at least two of three criteria: profits exceeding $600,000 per employee, profits exceeding the total tangible assets reported, or profits exceeding three times the profits in Mexico and Canada, the U.S.’s closest trading partners.¹

Most of these jurisdictions and their governments are not at fault in this. They are merely part of a system of tax avoidance that the governments of the U.S. and other powerful countries have decided to tolerate and even subtly encourage to benefit corporations.

In fact, every jurisdiction listed in the table signed onto the global minimum tax agreement that the Biden administration negotiated with most of the world’s governments in 2021.² The U.S. Congress and the current president could enact legislation to implement that agreement, as many governments already have. They could enact legislation like the No Tax Breaks for Outsourcing Act, which would implement part of the agreement and even exceed its standards.

Instead, the Trump administration and the Republican majority in Congress today are making the opposite choice and even threatening other governments around the world with retaliation if they do not exempt U.S. corporations from the global minimum tax. In this way they are demanding that other governments continue to allow American corporations to engage in offshore tax avoidance.

How Corporations Shift Profits to Offshore Tax Havens

Offshore tax avoidance often involves accounting gimmicks used by corporations to make their profits appear (for tax purposes) to be earned some place where they will not be taxed.

For example, an American corporation might transfer ownership of a patent to a subsidiary company that is nothing more than a post office box in a country where it carries out no real business. The subsidiary pays a small one-time fee to the U.S. parent company for the patent. The U.S. parent company then pays hugely inflated royalties to the subsidiary to use that patent and deducts those royalties from its U.S. income, thus lowering its U.S. tax liability. Real life examples are more complicated, but the effect is to shift profits into offshore tax havens.

We know this is happening at a massive scale because the IRS publicizes the total profits that American corporations claim to earn through their subsidiaries in each country as well as the total workforce and tangible investments they have in each country. The total profits that American corporations tell the IRS they earn in certain jurisdictions are disproportionate to their investments or workforce there or to the size of the jurisdictions’ economies. This suggests that these jurisdictions are being used as offshore tax havens.

Consider the countries where American companies do real business, like Germany, India, and the United Kingdom, where the total profits reported by American corporations add up to less than 1 percent of those nations’ total gross domestic product. In a few countries having especially strong economic ties with the U.S. such as Mexico, Israel, and Canada, the profits reported by U.S. corporations add up to 1 or 2 percent of their GDP. In all these countries, the total profits reported by U.S. corporations come to less than $100,000 for each employee they claim to have there and less than 30 percent of the tangible assets (like factories, office buildings, and equipment) that they have there.

Now consider the total profits that American corporations claim to earn in the tax havens listed in the tables presented above and below.

For example, the total profits that American corporations claimed to earn in Switzerland came to 6.9 percent of that nation’s GDP, and a hard-to-believe 90 percent of the tangible assets that these corporations claimed to have there. Their profits in Switzerland also came to about $632,000 per employee in the country, which seems difficult to believe.

The total profits that U.S. corporations claimed to earn in Bermuda is even more unbelievable because it came to about $1.3 million per employee there. The total profits reported for Ireland came to more than 100 percent of the tangible assets reported there. In Barbados and the British Virgin Islands, the total profits reported by American corporations exceeded the entire GDP (exceeded the entire economic output) of those jurisdictions, which is obviously impossible.

What the Global Minimum Tax Would Accomplish

In 2021, after several years of negotiations among member nations of the Organization for Economic Cooperation and Development (OECD), 137 governments that account for about 95 percent of global economic output agreed to a framework to create a global minimum tax.³ Full implementation of this framework requires an act of Congress and is the best hope for blocking the types of tax avoidance that have weakened corporate income taxes all over the world. Some features of the global minimum tax (GMT) would, once it is firmly established, make it difficult for any single government (even one as powerful as the U.S.) to ignore or weaken it.

Since Trump returned to the White House, the U.S. has pressured the most powerful participants (the G7 countries) to carve out an exception for U.S. corporations that would essentially leave their tax avoidance practices unchallenged.⁴ It remains to be seen whether G7 governments will provide this exception. If the next president and Congress return to the original vision of the global minimum tax and enact legislation to broadly meet its terms, the GMT could meet its potential. Once a fully functioning GMT is operational for a few years, it is far less likely that other governments would ever weaken it again, even if another U.S. president in the future opposes it.

The framework of the global minimum tax requires each participating country to ensure three things:

• Any corporation’s profits generated within its borders (whether profits of a domestic company or foreign company) are taxed at an effective rate of at least 15 percent.
• Its own corporations pay an effective tax rate of at least 15 percent on their offshore profits in each country where they do business. If they do not, the participating country that is home to the corporation in question would impose a tax on top of whatever foreign taxes are paid to ensure this result.
• The profits of foreign multinational corporations earned within their borders will be subject to additional taxes if necessary to address effective tax rates they pay in other countries that are less than 15 percent when those corporations’ own governments are not complying with the GMT to ensure this result.

Below is more detail on each of these components of the GMT.

First, a participating government must ensure that any corporation’s profits generated within its borders (whether profits of a domestic company or foreign company) are taxed at an effective rate of at least 15 percent. If the country’s regular, existing tax rules fail to accomplish this, under the global minimum tax framework it will impose a Qualified Domestic Minimum Top-Up Tax, an additional tax to bring the effective rate to 15 percent. The U.S. has a 15 percent minimum tax (known as the corporate alternative minimum tax, or CAMT) enacted as part of the Inflation Reduction Act in 2022. This minimum tax is helpful but insufficient. Unlike a top-up tax, the CAMT applies to the total worldwide profits of affected corporations. This means that if a company pays effective rates higher than 15 percent in other countries, it could pay less than 15 percent on its U.S. profits. In addition, the CAMT applies to a much more limited group of corporations (about 150 corporations with profits exceeding $1 billion over three years) than does the global minimum tax (some 1,600 corporations with revenues exceeding $860 million a year).⁵

Second, a participating government must ensure that its own corporations pay an effective tax rate of at least 15 percent on offshore profits in each country where they do business and, if necessary, impose a tax on top of whatever foreign taxes are paid to ensure this result. The global minimum tax framework refers to this as the Income Inclusion Rule. The No Tax Breaks for Outsourcing Act, which was recently reintroduced in Congress, would move U.S. tax rules in this direction. The U.S. currently has provisions that somewhat serve as a minimum tax on offshore profits, but they are not nearly effective enough to comply with the global minimum tax framework, as explained in detail further on.

Third, participating governments must ensure that even multinational corporations based in countries that are not participating in the global minimum tax will ultimately pay an effective rate of at least 15 percent on their profits in each country where they do business. The global minimum tax framework accomplishes this with an Undertaxed Profits Rule calling on participating governments to respond by imposing additional taxes on the profits these companies generate in their borders to offset their ability to pay effective rates of less than 15 percent in other jurisdictions. The Biden administration offered proposals to accomplish this.⁶

Congressional Republicans and the Trump Administration Are Trying to Sabotage the Global Minimum Tax

Upon Trump’s return to the White House, the U.S. government announced that it would not participate in the global minimum tax and Congressional Republicans threatened to impose a “revenge tax” on companies based in countries that impose the global minimum tax on American corporations. The revenge tax was initially included in the so-called “One Big Beautiful Bill Act” (OBBBA) that Congress eventually passed this past summer.

The Trump administration asked Congressional Republicans to drop the revenge tax from the legislation after the G7 issued a shared “understanding” to allow a “side-by-side” system in which the existing U.S. minimum tax rules (which were created by the 2017 tax law and amended by the OBBBA) are deemed to satisfy the global minimum tax rules, despite widespread recognition that they do not.

The revenge tax would have imposed an additional tax of up to 20 percent on companies headquartered in countries that subject American corporations to their global minimum tax rules. The threat  by Congressional Republicans to enact this tax was likely an idle one because the corporate lobby very vocally opposed it, fearing it would repel foreign investment and hurt employment in the U.S.⁷

However, while the OBBBA was being debated this summer, the G7 governments agreed in principle to basically exempt American companies from their minimum tax rules. President Trump and Republicans in Congress are now demanding that governments implementing the minimum tax follow through and enact provisions exempting U.S. companies by the end of this year.⁸ It is unclear why governments would feel compelled to meet these demands given how unlikely it is that Republicans will enact a revenge tax.

Existing U.S. Tax Rules to Prevent Offshore Tax Avoidance Are Not Nearly Enough

The federal corporate tax does include provisions that act to some degree as minimum taxes to address offshore tax avoidance, but they are not nearly as effective as the global minimum tax.

For example, international corporate provisions enacted as part of the 2017 Trump tax law and then modified by the 2025 Trump law, in theory, impose some restrictions on the worst abuses, but these provisions are convoluted and weak.

Under these rules, the U.S. taxes offshore profits of American corporations at an effective rate of just 12.6 percent, considerably less than the 21 percent that applies to domestic profits. (The 12.6 percent imposed by the U.S. is reduced by 90 percent of whatever was paid in foreign taxes on the offshore profits, which means no U.S. tax is owed if foreign taxes were paid at a rate of at least 14 percent.)⁹ While this, in theory, operates as a minimum tax, American companies can still achieve substantial tax reductions by characterizing domestic profits as offshore income and benefiting from the lower effective rate.

An even more important problem is that this minimum tax is applied to the foreign profits of a given corporation as a whole, rather than applied separately to the profits reported in each country. Effectively, that means higher taxes that a corporation pays in one jurisdiction could offset very low taxes it pays in a tax haven.

For example, an American corporation might claim that a portion of its profits are earned in Foreign Country A where it pays an effective tax rate of just 5 percent. This is likely the result of transactions designed to avoid taxes rather than real investments, but the company would not necessarily be affected by the existing minimum tax. The corporation might pay an effective rate of 20 percent in Foreign Country B. Its overall effective tax rate calculated on its total foreign profits could be more than 14 percent, so the existing minimum tax might not affect it.

These problems would be resolved if Congress enacted the No Tax Breaks for Outsourcing Act, recently reintroduced by Sen. Whitehouse and Rep. Doggett, which would ensure that offshore profits of U.S. corporations are not taxed less than their domestic profits.¹⁰ This would bring U.S. tax law closer to the global minimum tax’s income inclusion rule. In some ways it would exceed that standard because it would subject the offshore profits of American corporations to a rate of 21 percent (the same rate that applies to domestic profits) rather than the 15 percent rate required by the GMT rules. If this were in effect, the type of accounting scheme described above would provide no benefit because the corporation attempting it would end up paying U.S. corporate tax on offshore income that is not taxed by the country where it supposedly is earned.