U.S. companies avoiding taxes on $2.1 trillion in overseas profits

The group’s report is based on its analysis of the public filings of companies, including the tax rates for a small subset of the countries that have profits overseas. Based on the rates paid by those corporations and the amount of money held outside the U.S. by firms like General Electric and Pfizer, they estimate that altogether U.S. companies would owe up to $600 billion if they repatriated the profits.

The report comes as Congress and the White House say they are engaged in negotiations over reforming the tax code for businesses.

The U.S. tax code encourages multinationals to keep profits overseas through an unusual system for international taxation.

Unlike most other advanced economies, the U.S. taxes companies on all income earned worldwide at the 35 percent statutory corporate rate, after granting a credit for taxes paid in foreign countries. But that tax is only collected when firms repatriate their earnings into the U.S., giving them an incentive to seek out low-tax countries and hold their international earnings there.

President Obama has proposed taxing the roughly $2.1 trillion in unrepatriated earnings at 14 percent, and using the proceeds to finance infrastructure spending projects. He would then tax worldwide earnings at 19 percent going forward.

Congressional Republicans have signaled openness to using tax revenues from comprehensive tax reform for infrastructure projects. But for the most part they favor moving to a system in which firms are taxed only on what they earn in the U.S., not what they make in other countries.

The Citizens for Tax Justice report calls for an end to the rule that allows companies to defer taxation on overseas earnings, claiming that “corporations are brazenly using tax havens to avoid taxes on significant profits.”