Key facts
- Crocs claims its global profits were generated through a small office in Malta.
- This strategy reduced Crocs' 2023 tax bill by $218.6 million.
- The Big Four accounting firms are actively designing and marketing these tax avoidance schemes.
- These arrangements exploit differences between U.S. and Maltese tax rules.
- The IRS may challenge these strategies if they lack economic substance beyond tax avoidance.
Crocs has implemented a tax strategy that claims its global profits were generated through a small, two-person office in Malta, a Mediterranean archipelago known as a corporate tax haven. This arrangement reportedly reduced the shoemaker's 2023 tax bill by $218.6 million.
The 'Big Four' accounting firms—KPMG, PwC, Deloitte, and EY—are actively designing and marketing these complex schemes, which leverage arbitrage between U.S. and Maltese tax rules. These strategies involve creating Maltese units with minimal physical presence and no employees to shift profits from higher-tax jurisdictions.
Michael Hamersley, a former tax lawyer at KPMG and EY, described these firms as 'choreographers' exploiting the tax system. While presented as legal business transactions, the IRS is increasingly scrutinizing such strategies for lacking economic substance beyond tax avoidance.
Malta has cultivated its role as a tax haven over decades, with historical efforts including legislation drafted with KPMG's assistance to compete with offshore hubs. PwC was promoting a 'double Malta' structure as early as 2006, offering single-digit tax rates. Following Malta's decision to postpone the implementation of the international minimum-tax regime, numerous U.S. corporations have established Maltese subsidiaries.
The European Union has previously taken legal action against Malta's 'golden passport' scheme, which sold E.U. citizenship, deeming it unlawful.