Whistleblower Claims Walmart Underpaid Taxes On $2 Billion Offshore Cash

A former executive from Walmart tipped off the Internal Revenue Service (IRS) on how Walmart dodged payment of US tax on $2 billion by routing the money through other countries. 

According to the documents he submitted to IRS in 2011, the company who operate their own money transfer services through the walmart money network inflated its foreign tax credits in 2009 and 2010.

Included in the files submitted where, an eight-page memo detailing the tax evasion scheme, an 18-page document extracted from company servers that describes years of loans made between Walmart’s subsidiaries, and an internal PowerPoint presentation of how the money made its way into the United States.

Walmart allegedly coursed the money to the United States from Luxembourg and via the United Kingdom and purposely did not disclose the tax haven route to IRS. 

The whistleblower also stated that the company was able to avoid paying an estimated $600 million through this scheme. 

The report disclosed that between 2009 and 2010 Walmart’s Luxembourg affiliate lent nearly $2 billion to its US headquarters. 

person filling out tax forms

Rather than sending the loan straight to the United States, Walmart allegedly routed the transfer to ASDA which is the UK’s second-largest supermarket chain, and a current affiliate of Walmart.

The whistleblower stated in the report that Walmart made it appear on the company’s tax return that the money came from Britain instead of Luxembourg so it can be eligible for foreign tax credits.

The former executive wrote, “This was all part of a coordinated plan where fund flows all occurred within two days.”

In an interview, the tipster told IRS agents that Walmart was able to avoid paying British tax legally through the “double-dipping” scheme where the money that came from the United Kingdom was paid to a Luxembourg subsidiary.

The whistleblower explained that with the inclusion of foreign tax credits on its balance sheet, Walmart was able increase its earnings by $200 million.  The company generated income amounting to $13.4 billion in 2009 and $14.3 billion in 2010. The retail giant has consistently topped Fortune Global 500 since 2014. 

The Walton family, owners of Walmart, has been named the richest family in the world.

Walmart has denied the allegations. 

A spokesman from the firm said, “The transactions brought to our attention were appropriately reported to and audited by the IRS. The tax years covering this matter were closed by the IRS more than seven years ago.”

“The IRS also has an on-site office at Walmart full-time, year-round. Through our participation in the IRS Compliance Assurance Process program, we have open and transparent discussions, and proactively share information about significant corporate transactions as they occur, including these transactions brought to our attention,” the company stated.

Walmart assured the public that it has a continuing tax compliance program overseen by in-house and external tax experts.

This is not the first time the retail giant has faced tax evasion allegations.  Last September, Walmart was also accused of creating a fictitious Chinese entity to avoid the payment of $2.6 billion US taxes. 

In 2015, American for Tax Fairness reported that listed $ 76 billion worth of assets in tax havens where there are no existing Walmart branches.

Although the scheme exposed by the whistleblower is not illegal, it made people more aware of the offshore tricks that the global giant players use to evade taxes.

According to the Federal Reserve, at the end of 2017, the US multinationals owned $ 1 trillion offshore.  Top companies such as Apple and Microsoft openly, but legally, book earnings in tax haven countries. 

The IRS pays whistleblowers for information on tax evaders.  The tipster can be awarded 15% – 30% of the revenue collected if the IRS acts on the information given to them.  

In this case, the IRS decided not to act on the claims filed by Walmart’s former executive. 

Why did the IRS not pursue the case? 

According to another Walmart former executive, the IRS could have decided to drop the claims because it is already aware of the machinations which were brought up by previous tipsters. 

Furthermore, it is also possible that the IRS is already working on collecting unpaid taxes.

Omri Marian, who is a tax law professor at the University of California, Irvine considered the explanation reasonable. 

Marian said, “The mechanism is rather aggressive. It’s not something that is a slam-dunk in court for the IRS. If I’m the IRS I would probably try to solve this out of court.”

Covering Tracks

When interviewed by agents from the IRS, the whistleblower said:

“In the conversations with the IRS auditors, we wouldn’t have called it ‘956 planning’ (about a tax code that Walmart was allegedly trying to weave its way out). 

“Inside the company, it was called ‘956 planning,’ but [to the IRS] we would have called it ‘year-end cash management.’”

In 2011, Walmart revised its method of bringing money from Europe to the United States because a newly-appointed senior tax executive found a flaw in the structure. 

“Walmart was not intentionally cheating on its taxes—they had poor resources and poor controls, but they were cavalier about it. They didn’t care,” the second former executive explained.

“They fixed it going forward, but they didn’t fix it going back. They were also happy to keep the couple of hundred million—they didn’t amend their returns.”

The firm was able to avoid oversight by its auditor.

“I definitely know that the auditor, EY, has never looked at the issue,” the whistleblower said during the interview. When an EY tax partner was told about potential problems with previous years’ returns, he said, “You know, I don’t want to hear about it,” according to the whistleblower.

The second former executive told a reporter, “These guys are not looking for problems—they’re looking for opportunities,” and added that EY’s tax partner’s main agenda “is to sell tax plans.”

The tipster wrote in the report that Walmart hatched a plan in January 2010 to avoid getting taxed for sending a huge amount of money from Luxembourg to the United States.

Allegedly, the money was sent in two batches from a Luxembourg affiliate, Broadstreet of Munsbach to Walmart UK Outlets. 

Walmart UK sent the money to a British affiliate, Broadstreet Great Wilson by the following day, which facilitated the transfer to the US headquarters.

The amount of money transferred was £615 million – almost $980 million based on the prevailing exchange rate.  It was under the guise of a loan which was repaid after 3 months. 

Walmart should have been liable to pay the IRS $87.5 million if the plan was not executed.  The whistleblower added that the company earned about $200 million foreign tax credits by not declaring the true origin of the money.

In the report filed with IRS, the former executive disclosed the names of five employees who allegedly hatched and executed the plan. 

“I would expect that the email traffic between… [the five] …would likely make the fact that this was all a unified back-to-back plan even more explicit,” the former executive wrote.

The “McLagan Maneuver”

The whistleblower claimed that Walmart used a similar plan before in 2009. 

Allegedly, the Luxembourg subsidiary lent £600 million (around $880 million at the time) to Walmart’s UK subsidiary, ASDA, which lent the money to the US headquarters.

Back then, multinationals can lend to their US branches tax-free if the loan was fully settled in a time period not exceeding 60 days. 

According to the whistleblower’s files, Walmart transmitted the money back to ASDA at a time that fell inside the grace period.

However, Walmart allegedly did not pay back the Luxembourg subsidiary, but ASDA sent the money to McLagan, another British subsidiary, which sent the money back to Walmart US. 

The chain of transactions allegedly happened all in one day.

In May 2009, the money found its way back to Luxembourg.  According to the report, Walmart borrowed the money for 120 days instead of 60. 

The tipster claims that the retail giant allegedly managed to avoid paying tax and earn foreign tax credits through the McLagan maneuver.

To date, there is no proof of any action taken by the IRS versus Walmart over the allegations filed by the former executive. 

However, the report can be considered a “powerful piece of evidence and that changes are needed to a system that can treat even billion-dollar misrepresentations of this nature as simply part of some avoidance game,” argued Alex Cobham, CEO of the Tax Justice Network, a nonprofit organization.

“People have been imprisoned for the theft of a few dollars’ worth of food from Walmart stores,” stressed Cobham.

“What would be the appropriate penalty for Walmart and its tax professionals seeking to deprive the people of hundreds of millions of dollars?”