Nike is not only America’s biggest sneaker company — it’s also one of the country’s biggest corporate tax avoiders today.
As of May 31 of this year, Nike’s annual effective tax rate is a paltry 13.22 percent — a rate much lower than what most American households pay. According to its recently released financial disclosure statement showing the company’s income tax payments around the world, the global shoe company now has more than $12.2 billion in cash held in overseas tax havens, compared to just $10.7 billion last year.
One of the ways companies like Nike are allowed to avoid the vast bulk of corporate taxes is through a technique called transfer pricing. Fortune 500 companies typically engage in transfer pricing by transferring intellectual property (patents, trademarks, etc.) to a tax haven, and booking profits made in the United States in those overseas accounts. Even though the company is incorporated in Oregon, it regularly avoids billions in taxes through this obscure loophole.
This way, the money made from those patents and trademarks can be legally booked in an offshore tax haven, allowing the shoemaker to pay zero taxes on more than $12.2 billion, despite the company having essentially no economic activity in Bermuda. The more American money Nike is able to transfer over to its overseas accounts, the less taxes it pays in the United States. That money will remain untaxed until it is repatriated to the U.S.
Another popular offshoring technique is deferral, in which American companies can “defer” payment of U.S. taxes as long as the money stays overseas. When an American company’s overseas money is eventually repatriated, legitimate business done and taxes paid in other countries is deducted from that company’s U.S. tax bill. However, as long as the profits are stashed overseas, the U.S. Treasury won’t see a dime.
If Nike were to bring that money back home, the Institute on Taxation and Economic Policy (ITEP) estimates the company would pay about $4.1 billion in American taxes, at a rate of roughly 34 percent. That $4.1 billion could pay for half of the EPA’s 2016 budget of $8.05 billion all on its own.
As the non-profit Citizens for Tax Justice (CTJ) reported in 2013, the sneaker giant also brazenly names accounts in the tax-free territory of Bermuda after its various shoe brands:
Nike’s long list of offshore subsidiaries includes twelve shell companies in Bermuda alone, ten of which are named after one of Nike’s own shoes! To wit: Air Max Limited, Nike Cortez, Nike Flight, Nike Force, Nike Huarache, Nike Jump Ltd., Nike Lavadome, Nike Pegasus, Nike Tailwind and Nike Waffle!
ITEP also reported that the shoe company’s Bermuda subsidiaries have been slowly disappearing from financial disclosure records, likely due to flimsy regulations governing disclosure of offshore subsidiaries. CTJ estimates that major corporations can utilize the regulations to omit disclosure of as much as 85 percent of their tax haven subsidiaries.
While President Trump is calling for a tax reform proposal to cut the corporate tax rate from 35 percent to 15 percent, that tax rate will remain 0 percent for most major American companies until real action is taken on loopholes like transfer pricing and deferral.
Matthew P. Robbins is an economics reporter for Grit Post covering wages, budgets, and taxes. He lives in Chicago, Illinois with his husband and two cats.