Companies’ Big Use of ‘Tax Havens’ to Be Hit With New Obstacles

As new details emerge of how major US companies like Merck & Co., AbbVie Inc., and Caterpillar Inc. book profits in offshore “tax havens” to cut their taxes, recent transparency requirements and international tax changes could now make the money-saving strategy less attractive.

New Jersey-based Merck paid Switzerland $2.1 billion in taxes last year, and AbbVie paid Ireland $431 million and Puerto Rico $297 million, according to the companies’ annual reports.

The numbers come from newly required disclosures about the makeup of companies’ tax bills that have been closely held in the past. Advocacy groups and other observers have long suspected that many companies try to avoid taxes by parking profits in jurisdictions offering them lower tax rates or other tax breaks.

The new disclosures, along with related EU and Australian disclosures, will arm investors with more information about companies’ strategies, they say.

“The inevitable cliché is to say that one is shocked, shocked to see that this is going on,” said Daniel Shaviro, a tax professor at New York University’s School of Law.

Investors “will have an exponentially improved view of where these companies are booking income, booking profits and loss, paying tax or not paying taxes,” said Paul Monaghan, chief executive of the Fair Tax Foundation, a UK-based not-for-profit group.

The global minimum tax takes away some of the incentive and opportunity for companies to use tax havens, however. Even in the wake of the recent agreement to exempt US companies from key parts of the minimum tax, they will be less likely than in the past to shift profits for tax reasons, observers said.

The global minimum tax is “really going to curb the worst of the international income shifting that we’ve seen in the past,” said Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy.

The global minimum tax requires multinational companies to pay at least 15% in taxes in every country where they operate.

Drug Companies’ Tactics

Many big offshore tax-haven users are drug companies, which rely heavily on intellectual property like patents. Critics say these companies can move the IP outside the continental US to their advantage, generating royalty payments for use of the patents that can be taxed at lower rates. Ireland, for example, had a 12.5% rate before increasing it to 15% in the wake of the minimum tax agreement.

Illinois-based AbbVie holds the patents for its anti-inflammatory drug Humira, one of its biggest-selling drugs, through a subsidiary in tax-haven Bermuda, according to a 2022 Senate Finance Committee report. The company indicated it had profits in Bermuda, Malta, Ireland, and Puerto Rico in 2025, all of which are included among “foreign tax effects” in its annual-report disclosure showing why its actual tax bill differs from what it would pay under the US’s 21% corporate tax rate.

Companies often don’t do substantial business in such jurisdictions, and “you have to figure that the companies are shifting income there in order to pay less than they would otherwise,” Shaviro said.

An AbbVie spokesperson didn’t respond to a request for comment.

A Merck spokesperson said the majority of its intellectual property for its future drug pipeline, as well as various existing products, is held in the US.

Other companies take advantage of tax havens too. Texas-based Caterpillar paid $500 million to Switzerland in 2025. Abbott Laboratories said in its annual report that “affiliate financing” in Malta reduced its 2025 tax obligation by $159 million.

Spokespeople for Caterpillar and Abbott didn’t respond to requests for comment.

The new disclosures are mandated by Financial Accounting Standards Board rules that took effect last year for public companies.

The new rules “let investors see the risks that are embedded in companies’ tax strategies,” said Alex Cobham, chief executive of Tax Justice Network.

The disclosures complement public country-by-country tax reports that multinationals must file with the EU, and with Australia starting later this year. Each provides somewhat different information—they have different standards on which countries the companies must provide details about, for instance—but they can fit together to show a fuller portrait of a company’s taxes, observers said.

For instance, Caterpillar’s $500 million Switzerland payment isn’t mentioned in its EU filing. But that filing discloses something the US disclosure doesn’t: Caterpillar recorded $272 million in profits in 2024 in the British Virgin Islands, another tax haven, and paid no income tax on them.

“I think this is definitely going to give researchers and tax administrators more tools to triangulate what these companies are doing and where they’re doing it,” Gardner said.

Deterred by Global Minimum Tax

The global minimum tax is deterring companies from moving their profits to offshore tax havens the way they did in the past, observers said. Under that tax, companies must pay at least 15% everywhere, so they have less reason to shift profits in search of a lower tax bill. Some countries that didn’t impose a corporate income tax in the past, like Bermuda, now effectively have one.

“It did change the incentives, and sort of put it out there that you would pay some rate of tax no matter where you shifted your profits to,” said Jason Ward, principal analyst at the Center for International Corporate Tax Accountability and Research.

But the agreement reached in January to exempt US companies from parts of the minimum tax may have restored some of that incentive. Companies are no longer subject to two key provisions under which the 15% minimum is levied, and so some once again may benefit from locating profits in countries that impose lower taxes.

“If you’re exempted, why would you change the behavior that you were planning on before?” Ward said.

Still, even under the exemption agreement, companies still must pay domestic top-up taxes imposed by many countries, levying added amounts on top of what a company is already paying to ensure they pay at least 15% on income booked in that jurisdiction. If a country has such a tax, that can reduce or eliminate any benefit a company may derive from moving profits there.