How Big Corporations Dodge Their Tax Compliance With The IRS

How Big Corporations Dodge Their Tax Compliance With The IRS

Walmart is the biggest country in the world. According to a whistleblower, Walmart underpaid on their taxes to the extent of more than $2 billion in 2011, which means that the firm saved about $200 million in the process. This was done by significantly overstating their foreign tax credits in 2009 and 2010. It was that simple: they just rerouted payments from Luxembourg to the US through the UK, hiding the fact that it originated from a tax haven.

According to the whistleblower, Walmart moved the entire amount of almost $2 billion from Luxembourg to the UK in under two days. This type of manipulation is reportedly common among multinationals.

The transactions, however, as described in the documents, are entirely legal. It is just typical global capitalism, offshore tricks used by massive conglomerates to avoid taxes.

If Walmart took advantage of all their tax credits, it could have evaded taxes of almost $600 million using this move. The story of the whistleblower, an ex-employee, was corroborated by another ex-executive at Walmart.

Of course, Walmart denies all the allegations. According to the company, their transactions were appropriately reported to the IRS and subsequently audited. The tax years referenced in the matter were closed more than seven years ago by the IRS. It is unclear whether Walmart told the IRS already that the money originated in Luxembourg and not the UK.

Walmart recently settled a bribery investigation that ran for over seven years at the cost of $282 million. Files obtained indicate that Walmart might have more problems with up to $2.6 billion in outstanding taxes originating from avoidance schemes that were partly based on the creation of a fictitious Chinese entity. In 2015, Americans for Tax Fairness claimed that Walmart hid assets of more than $76 billion in tax havens that had absolutely no retail stores. If this is true, it will amount to just under 40% of Walmart’s assets. Walmart contested both reports.

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Walmart And Corporate Tax Compliance

Walmart is said to have a robust program when it comes to tax compliance. There are internal and external tax experts, as well as an outside law firm that works on compliance. What is more, the IRS has its own full-time site office at Walmart. As part of the IRS Compliance Assurance Process Program, Walmart shares information with the IRS in real-time: as transactions happen, we cut the IRS in on it, according to Walmart. The same goes for these transactions that were brought under Walmart’s attention.

Factoids

  • By the end of 2017, US multinationals held more than $1 trillion offshore.
  • Microsoft and Apple book profits of billions in tax havens like Ireland. Legally.
  • Walmart has annual revenue of $501 billion.
  • The Waltons, the world’s most affluent family, are said to make $100 million PER DAY, which is added to their fortune of almost $200 billion.
  • Despite the whistleblower’s machinations, the IRS refused to take up his 2011 claim against Walmart. The IRS declined to comment, citing federal law that bans it from discussing individual taxpayers.

Commentators can only offer speculation as to what is actually going on behind the scenes in this matter. IRS insiders say that Walmart probably moved the money from the UK to Luxembourg using the so-called double-dipping maneuver – they probably avoided paying taxes in the UK legally. It will also be tough for the IRS to prove that the cash that was sent over a two day period was the money the whistleblower refers to. Walmart might simply argue it was different cash that was sent over.

All About Language

While Walmart referred to the alleged distribution of money as 956-planning, they would call it ‘year-end-cash-management’ when they discuss it with the IRS. They will probably not disclose the fact to the IRS that the money had been in Luxembourg just before it was transferred to the UK. If you do not have to disclose where the money ultimately came from, it becomes very vanilla – according to the whistleblower’s point of view.

By 2011, Walmart changed how its money flows into the US from Europe. They fixed it going forward but did not fix it backward, another former Walmart executive explains. According to the whistleblower, Walmart auditors prefer plausible deniability – they do not want to hear about problems like this. Auditors are not looking for problems, they are looking for opportunities. Walmart can offer them great consulting deals worth millions. The industry is systemically flawed, says the former executive.[1] The auditors would rather sell tax plans, he goes on.

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The Alleged Plan

The Problem

  • Walmart needed to bring a colossal amount of cash from Luxembourg to the US. A straight transfer would gobble up a large portion of the money, paying a huge tax bill.

The Tactic

Using a Luxembourg subsidiary, Broadstreet of Munsbach, the money was sent in two batches to Walmart Stores UK. The next day, Walmart UK transferred the money to another subsidiary, Broadstreet Great Wilson (BGW). In turn, BGW moved the cash to the Walmart HQ in the US.

The Strategy

The money was transferred by Walmart – an amount of just under $ 1 billion – as a loan. The loan was repaid three months later. According to the whistleblower, this meant that 25% of the money was a taxable dividend, making Walmart liable for tax of roughly $87.5 million. Also, the ruse made it possible for Walmart to claim foreign tax credits of about $200 million. The tax credits lifted the company’s earnings, as well as cutting its tax bill.

The Mclagan Maneuver

A similar scheme was used by Walmart before, so claims the whistleblower. Luxembourg loaned $880 million to Walmart UK which loaned the money in turn, to Walmart US. All the loan transactions happened on the same day. At this point in time multinationals were allowed to make tax-free loans to US branches if the money was duly repaid within 60-days. And Walmart indeed paid the money back to the UK and Luxembourg in the allotted time. However, instead of sending the money back to the Luxembourg firm, ASDA, it was passed to another British subsidiary, named McLagan. McLagan again, passed the money on, back to Walmart US. By May 2009, the money finally arrived back in Luxembourg. According to the whistleblower, Walmart would again, as above, need to pay tax on these transfers as a deemed dividend and, any foreign tax credits were claimed inappropriately.

The Game

The IRS probably never took action against Walmart for these transactions. Most likely, whistleblowers like these do not have the whole picture and do not understand the technicalities managed by hundreds of tax specialists. All we know is that the system probably needs to change. The technicalities are too complex for individuals and members of the public to understand, which creates suspicion where it does not necessarily belong.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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