Walmart Dodging Taxes On $76 Billion In Profits: ATF

Here’s yet another example of a major U.S. corporation making a huge effort to avoid paying any taxes anywhere (allegedly!). According a stunning June 17th report from Americans for Tax Fairness, Wal-Mart Stores, Inc. (NYSE:WMT) has established a giant network of 78 subsidiaries in 15 overseas tax havens in order to minimize foreign taxes in countries where it has stores and to dodge U.S. taxes on its foreign earnings.

As the introduction to ATF’s report notes: “These secretive subsidiaries have never been subject to public scrutiny before. They have remained largely invisible, in part because Walmart fails to list them in its annual 10-K filings with the U.S. Securities and Exchange Commission (SEC).”

The report highlights that Walmart is using tax havens as a key part of its corporate strategy in its growing International division, which already represents close to one-third of the firm’s total annual profits.

According to ATF’s research, at least 25 out of 27 of Walmart’s non-U.S. operating companies (U.K., Brazil, Japan, China and elsewhere) are owned by subsidiaries located in tax havens. Of note, Walmart owns more than $76 billion in assets in shell companies headquartered in the tax havens of Luxembourg ($64.2 billion) and the Netherlands ($12.4 billion). Keep in mind that this figure represents over 90% of the assets of Walmart’s International division ($85 billion) and close to 37% of the retail giant’s total assets of $205 billion.

The ATF goes on to provide details on how Walmart uses its subsidiaries located tax havens to undertake international tax-avoidance strategies. For example, in 2014, the firm’s tax-haven subsidiaries gave U.S. affiliates access to $2.4 billion in foreign earnings through very low-interest, short-term loans, which according to some legal experts, may violate U.S. tax law.

Walmart also manages to create more than $1.5 billion worth of tax deductions in Luxembourg annually by making “phantom” interest payments to its parent. The loans are structured as “hybrid loans,” which enables the income disappear for tax purposes both in the U.S. and in Luxembourg.

A web of inter-company debt also allows Walmart to avoid foreign taxes. The firm can get earnings out of higher-tax countries by taking out inter-company loans and paying interest to itself in tax havens where there is minimal tax on the interest income.

Luxembourg has been called a “magical fairyland” because of its laws allowing corporations to shelter profits from taxes, and according to the ATF report, it has “…become Walmart’s tax haven of choice.”

Walmart has 22 separate shell companies there, most established in 2009, but five new subsidiaries have also been launched in 2015. Of note, Walmart does not have a single store in the country of Luxembourg. That said, Walmart has transferred ownership of more than $45 billion in assets to Luxembourg shell firms since 2011. The company reported paying less than 1% in tax to Luxembourg on $1.3 billion in profits in the four years from 2010 through 2013.

Walmart skirting tax laws?
The ATF also points out that these tax dodges have remained unknown to analysts or international tax experts largely due to the way Walmart has filed information with the U.S. Securities and Exchange Commission. ATF notes that Walmart may also “…be skirting the law as there is a legal requirement to list subsidiaries that account for greater than 10 percent of assets or income.”

Walmart strongly disputes the report and emailed ValueWalk the following statement:

Statement

This is the same union-supported group that regularly issues similar, flawed reports on Walmart to promote their agenda rather than the facts. This latest report includes incomplete, erroneous information designed to mislead readers.

Walmart paid $6.2 billion in U.S. federal corporate income tax last year, nearly 2% of all corporate income tax collected by the U.S. Treasury. Walmart also pays over $10 billion in payroll taxes for its 1.3 million U.S. associates. In addition, Walmart paid $3.3 billion in property tax, state income tax, franchise tax and other state taxes. Walmart also collected and remitted over $14 billion in state and local sales taxes – helping fund education, public safety, and infrastructure improvements in the communities where we operate. Walmart has processes in place to comply with applicable SEC and IRS rules, as well as the tax laws of each country where we operate and we maintain transparency with the IRS via real-time disclosure of our business transactions and corporate structure.

The report insinuates that the company would benefit from a “deemed repatriation” proposal under consideration by some in Washington. In fact, because much of the company’s unremitted earnings overseas have been invested into physical assets like stores, distribution centers and equipment in other markets around the world, the company would be unlikely to benefit from such a proposal. More likely, it would represent a tax increase as the company would have tax due without the benefit of repatriating funds to the U.S. due to our investments in physical assets that are not liquid.

Just as the company uses funds generated from the U.S. market to continue to invest in stores, wages and growth in the US, we keep a large portion of foreign earnings in international markets where they are reinvested for growth. Regardless of where the foreign earnings are held, under the current law, they are not subject to U.S. tax until they are repatriated. Even so, and even with non-U.S. operations comprising nearly 30 percent of Walmart’s revenue, Walmart had an effective tax rate of approximately 32 percent over the past three years.

One point the report makes is around the listing of our subsidiaries. We disclose the significant subsidiaries of the corporation in the company’s 10K, which is compliant with SEC regulations.