From Google to FedEx: The Incredible Vanishing Offshore Subsidiary from publicly disclosed financial filings

Updated May 22, 2013, 7:38 p.m. ET

From Google to FedEx: The Incredible Vanishing Subsidiary


WASHINGTON—Some of the biggest U.S. companies, including Google Inc.GOOG -1.94% and FedEx Corp., FDX -2.47% have quietly removed hundreds of offshore subsidiaries from their publicly disclosed financial filings over the past several years. Software maker Oracle Corp., ORCL -2.79% for instance, disclosed more than 400 subsidiaries in its 2010 annual report. By 2012 the list had been whittled to eight—five of which were located in Ireland. Oracle declined to comment. The vanishing subsidiaries don’t stem from asset sales or corporate restructuring. Companies across industries say they are taking advantage of Securities and Exchange Commission rules that demand disclosure only when subsidiary operations are “significant.”

MK-CD451_OFFSHO_G_20130522170008One result of the change is that the companies limit information about offshore operations, in particular units operating in countries regarded as tax havens.

Corporations set up overseas subsidiaries for many reasons, including operational and tax purposes. U.S. law generally allows companies to not record or pay taxes on profits earned by overseas units if the money isn’t brought back onshore.

Apple Inc. AAPL +0.39% took heat in Congress Tuesday for its corporate structures in Cork, Ireland, which allowed the company to pay little or no corporate tax—in any country—on much of its overseas income.

For many investors, even small disclosures matter. Information about a company’s subsidiaries provides a gauge of whether its operations have grown or shrunk, how complex the company may be and how it may be generating or shifting income around the globe. The lists of subsidiaries are the most easily accessible and reliable source for such information and are often used as a starting point for researchers studying how a company has structured itself to minimize its tax burden.

“Companies are required to identify their subsidiaries so investors can make informed judgments about a company’s operations and financial condition,” said SEC spokesman John Nester, adding that companies may omit certain subsidiaries based on their lack of significance.

Some U.S. companies that once deemed the existence of certain subsidiaries important enough to disclose to investors and securities officials have since removed the information from annual reports and other filings.

The timing of the trend is “curious,” said Edmund Outslay, an accounting professor at Michigan State University who studies the tax practices of large corporations. “It seems too coincidental that the political scrutiny and the significant decrease in disclosures are happening at the same time,” he said.

In its 2009 annual report, Google reported more than 100 subsidiaries, including 81 overseas in places like Bermuda, Hong Kong and the Netherlands Antilles. Over the past three years, the number dropped to two units—both based in Ireland. A Google spokesperson said the company is in compliance with SEC rules regarding the disclosure of subsidiaries.

FedEx’s disclosed subsidiaries dropped to 23 in its 2009 annual report from more than 150 disclosed a year earlier, and the company, which used to list subsidiaries in the Cayman Islands and Bermuda, no longer discloses any offshore subsidiaries. The Cayman Islands and Bermuda were cited as tax havens by the Government Accountability Office in a 2008 report.

A FedEx spokeswoman, in an email, said: “Given the global (and growing) scope of our operations, we determined that annually updating a list of immaterial subsidiaries would not be meaningful to investors.”

Raytheon Co., RTN -0.78% the U.S. defense contractor, hasn’t disclosed any subsidiaries for the past six years but listed more than 250 subsidiaries in its 2003 annual report. A Raytheon spokesman said the information about the omitted subsidiaries is “neither material to investors nor necessary for understanding our business operations or financial reporting.”

Microsoft Corp., MSFT -0.69% which once disclosed more than 100 subsidiaries, reported just 13 in its 2003 annual report and 11 in its 2012 report. A 2012 Senate committee report said the technology giant had shifted intellectual property to subsidiaries in Singapore, Ireland and Puerto Rico to avoid roughly $4 billion in U.S. taxes in 2011. A Microsoft spokesman said the company began to apply the SEC criteria around the size of subsidiaries in order “to simplify disclosures.”

The shrinking subsidiary lists come as lawmakers, government officials and academics have stepped up scrutiny of the use of offshore havens to shield corporate profits from higher taxes. The Government Accountability Office’s 2008 report found that 83 of the largest 100 U.S. companies had subsidiaries in known offshore tax havens.

Google “wants to know everything about you and what you’re doing, but doesn’t want you to know anything about them,” said Chris Taggart, the CEO of, a private company that operates a public database of more than 50 million companies and is using SEC filings to investigate the structures of major corporations.

For decades, SEC rules have allowed companies to omit subsidiaries that, when viewed as a single subsidiary, wouldn’t meet the definition of “significant.” A subsidiary isn’t considered “significant” unless it exceeds a 10% threshold under any one of three tests based on assets, investment or income.

“We’re working with less and less data and they’re just taking it away,” said Jeffrey D. Gramlich, an accounting professor at the University of Southern Maine’s business school who co-wrote a recent paper about moves by Google and Oracle to cut subsidiary disclosures.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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