Cisco Systems has cut its income taxes by $7 billion since 2005 by booking roughly half its worldwide profits at a subsidiary at the foot of the Swiss Alps that employs about 100 people.
Now Cisco, the largest maker of networking equipment, wants to save even more — by asking Congress to waive most federal taxes due when multinationals bring such offshore earnings home.
Chief executive John Chambers has led the charge for the tax holiday, which would be the second since 2004. He says it would encourage companies to “repatriate” as much as $1 trillion held abroad, spur domestic investment and create jobs.
Cisco’s techniques cut the effective tax rate on its reported international income to about 5 percent since 2008 by moving profits from roughly $20 billion in annual global sales through the Netherlands, Switzerland and Bermuda, according to its records in four countries.
The maneuvers, permitted by tax law, show how companies that use such strategies most aggressively would get the biggest benefit from the holiday, said Edward Kleinbard, a law professor at the University of Southern California in Los Angeles.
“Why should we reward firms for successfully gaming the tax system when we in turn are called on to make up the missing tax revenues?” said Kleinbard, a former corporate tax attorney at Cleary Gott lieb Steen & Hamilton LLP. “Much of these earnings overseas are reaped from an enormous shell game: Firms move their taxable income from the U.S. and other major economies — where their customers and key employees are in reality located — to tax havens.”
“Cisco complies with all global tax laws,” John Earnhardt, a spokesman for the San Jose, Calif.-based company, which makes switches, routers and other products, said in an e-mailed statement. “In the past three years alone, Cisco (which has over 35,000 U.S. employees) has paid approximately $4.4 billion in U.S. federal corporate income taxes.”
The company reported an effective tax rate last year of 17.5 percent, half the U.S. statutory rate.
