Legislature leaves Oregon largely defenseless against corporate abuse of tax havens

News Release
June 5, 2018

Oregon is now largely defenseless against the well-worn practice of corporations escaping taxes by artificially shifting profits to foreign tax havens, following the Oregon legislature’s decision earlier this year to scrap a law that protected Oregon against such tax-avoidance strategies. That is the conclusion of a new report by the Center on Budget and Policy Priorities (CBPP), a national think tank.

“Repeal of the tax haven provision was premature at best and will damage Oregon’s ability to protect itself from aggressive international income shifting,” wrote Michael Mazerov, a CBPP Senior Fellow. He urged Oregon lawmakers to reinstate the provision.

Read the report Oregon Should Reinstate Its Tax Haven Law, Center on Budget and Policy Priorities, June 5, 2018.

The repeal of Oregon’s tax haven law flowed from the legislature’s response to the far-reaching tax law passed by Congress at the end of 2017. The federal law required corporations to pay taxes, at a reduced rate, on more than $2 trillion in profits they held abroad. The federal tax law also put in place provisions intended to deter future shifting of corporate profits to avoid taxes.

While the repatriation of profits should have resulted in an increase in corporate tax revenue, a quirk in Oregon’s tax code meant that the state stood to lose about $100 million in revenue. In response, the legislature enacted Senate Bill 1529, which corrected the error and turned the loss of revenue into a $140 million gain — or so the legislature thought.

The CBPP report points to evidence that corporations will fight in court the ability of states like Oregon to tax the repatriated profits. This puts in doubt whether a revenue gain of the magnitude the legislature expected may materialize anytime soon.

The anticipation of a tax “windfall,” though, served to justify the legislature’s decision to get rid of Oregon’s tax haven law, the report argues. That law generated $28.4 million in corporate income tax revenue in 2014, the first year it was in effect, according to the Oregon Legislative Revenue Office.

Corporate representatives have also indicated they will sue to block states from using provisions in the new federal law to protect them against future use of tax havens, the report notes.

“Regrettably, the legislature ditched a law that was protecting Oregon from corporate tax avoidance, with misplaced confidence that the new federal law will deter these tax games,” said Daniel Hauser, policy analyst with the Oregon Center for Public Policy (OCPP).

As the legislature deliberated on SB 1529, OCPP warned the legislature that repealing the state’s tax haven law would be premature.

“Corporate tax avoidance undermines Oregon’s ability to adequately fund schools, affordable housing, and other essential services,” said Hauser. “The legislature should right this wrong and enact strong protections against corporate tax avoidance in 2019.”

The Oregon Center for Public Policy (www.ocpp.org) is a non-partisan, non-profit institute that does in-depth research and analysis on budget, tax, and economic issues. The Center’s goal is to improve decision making and generate more opportunities for all Oregonians.