Wal-Mart disputes report saying it use tax havens to avoid paying taxes

Bentonville-based Wal-Mart Stores says a report generated by union groups regarding the retailer’s use of tax havens to shield U.S. taxes is “flawed.”

Wal-Mart spokesman Randy Hargrove called the report incomplete and "designed to mislead" by its union authors. He said the company has "processes in place to comply with applicable SEC and IRS rules, as well as the tax laws of each country where we operate."

The “Walmart Web” report was produced by the United Food & Commercial Workers International Union and recently published by Americans for Tax Fairness. It claims Wal-Mart owns somewhere around $76 billion in assets abroad. Those assets are shielded by tax havens in Luxembourg and the Netherlands, two countries that are often used by U.S. companies seeking to avoid federal income taxes.

Key findings in the report include:
• Wal-Mart Stores has 22 shell companies in Luxembourg – 20 established since 2009 and five in 2015 alone – but does not have one store there;

• Wal-Mart has transferred ownership of more than $45 billion in assets to Luxembourg subsidiaries since 2011, and reported paying less than 1% in tax to Luxembourg on $1.3 billion in profits from 2010 through 2013;

• Walmart’s use of inter-company debt permits it to avoid taxes overseas. It strips earnings out of higher-tax countries by taking out inter-company loans and pays interest to itself in tax havens where the interest income is taxed lightly or not at all; and

• All told it has 78 subsidiaries and branches in 15 offshore tax havens, none of them publicly reported before.

WAL-MART RESPONSE
Wal-Mart spoke up against the claims it says include erroneous data designed to mislead the public. First, the $76 billion of assets noted in the report is wrong, according to Hargrove. He said when calculating that number there were erroneous assumptions made.

“This calculation incorrectly includes inter-company assets, primarily investment in our wholly-owned subsidiaries and inter-company loans which are both eliminated on consolidation,” Hargrove told The City Wire in a phone interview. 

Wal-Mart said it did disclose its total assets within its International segment in the 10K filing with the Securities and Exchange Commission on April 1. The total international assets noted in the SEC report were $80.5 billion which included all of the retail stores sites, fixtures, inventory and the distribution centers serving those stores.

The retailer also said it discloses “significant subsidiaries” as defined by the Securities and Exchange Commission, something the report suggests otherwise.

As for stashing cash abroad Wal-Mart reports total cash of $9 billion, with $6.3 billion held across all retail operations outside the U.S., according to recent financial filings with federal regulators.

U.S. tax law allows companies to legally keep money in other countries, and they don’t have to pay U.S. taxes on that money unless it comes back. Wal-Mart, Apple and Amazon all use the so called “tax havens,” as do Wall Street banks and technology giants Google and Microsoft. In 2013, Citizens for Tax Justice took aim at Nike, Microsoft and Apple for the same issues recently raised against Wal-Mart.

Wal-Mart claims it pays its fair share of income tax annually. The retailer also said it paid $6.2 billion in federal corporate income tax last year, which was nearly 2% of all corporate income tax collected by the U.S. Treasury. As the nation’s largest employer Wal-Mart pays more than $10 billion annually in payroll taxes. Wal-Mart also last year paid $3.3 billion in property tax, state income tax, franchise tax and other state taxes. 

Hargrove also told The City Wire that Wal-Mart maintains “transparency with the IRS via real-time disclosure of our business transactions and corporate structure.”

The retail giant’s corporate tax rate over the past three years is 32.03%, this compares to a three-year average of 24.928% for companies in the Fortune 500.

REPORT FEEDBACK
A primary criticism of Wal-Mart in the Americans for Tax Fairness report is the company's alleged lack of transparency to shareholders because of its consolidated reporting. International tax expert Stephen Shay, who formerly worked for the Obama Treasury Department, told the Washington Post that the report is “continuing evidence” that many companies are “engaging in cross-border tax avoidance.”

The expert retail consensus captured by Retail Wire is that Wal-Mart will not be hurt by the report. Most say it’s a non-issue to customers and until Congress passes legislation changing the tax law, Wal-Mart won’t be the only retailer looking for ways to pay less taxes.

“It seems unlikely that anyone will take the Americans for Tax Fairness very seriously when this report is really just another union supported attack on Walmart,” said Jan Kniffen, CEO of J Rogers Kniffen Worldwide.

He said the bigger question should be “is Walmart doing something wrong regarding taxes.” As a former senior vice president of finance and treasurer of an S&P 500 retailer, Kniffen said he doesn’t believe Wal-Mart is breaking any tax or reporting laws.