Wednesday, March 30, 2011
As GE continues to draw criticism for avoiding U.S. taxes, The Daily Beast looks at other corporations, from Google to News Corp., that have creatively kept billions from Uncle Sam.
- Altria (Philip Morris): "Taxation strategy: Between 2001 and 2003, the cigarette maker took advantage of $3.3 billion in tax breaks, which effectively cut its taxes by one-third. One cause for the tax-cost cutting: accelerated depreciation, which estimates an asset’s declining value faster in earlier years of ownership as a way of deferring income taxes."
- Boeing: "Taxation strategy: Despite a double-digit tax rate, Boeing has managed to escape paying federal taxes for the last three years thanks to a plethora of foreign subsidiaries, which act as a tax haven. According to Citizens for Tax Justice, the airplane maker paid 0.3% of its pre-tax income in federal income taxes in 2010."
- Devon Energy: "Taxation strategy: Using accelerated depreciation, tax breaks, and benefits from stock options allowed the oil-and-gas company to sneak by with an average tax rate of just 3% from 2001 through 2003. In 2009, the company’s total tax benefit was $1.7 billion."
- General Electric: "Taxation strategy: GE's "innovative" accounting methods—which allowed it to accrue a $3.2 billion tax benefit in 2010, $833 million in 2009 and $651 million in 2008—are legendary. The company employs an entire team of former IRS and Treasury officials, dubbed the "world's best tax law firm," to make sure that profits are recorded in tax havens, tax breaks are maximized and laws passed on Capitol Hill are favorable to its interests. In the last five years, its fillings show $26 billion in domestic profits, padded with a net tax benefit of $4.1 billion."
- Goodrich: "Taxation strategy: In the past, Goodrich’s effective tax rate was as low as 11.3%. Since Goodrich is an aerospace company, one straightforward reason is the tax breaks it can claim are related to the depreciation of assets."
- Google: "Taxation strategy: Transfer pricing. Incomes are reported in foreign tax havens while liabilities are reported domestically. Google’s patents are also licensed outside of the U.S., allowing it to license its patents domestically and write off the expense."
- Hartford: "Taxation strategy: Hartford is just one of many insurers that have been “benefiting from a variety of provisions in the tax code intended to favor the industry.” According to The Wall Street Journal, the life-insurance company, which claimed it was eligible for between $1.1 billion and $3.4 billion in TARP funds in 2008, had paid just $1.4 billion in taxes in the preceding decade (or an effective rate of 7.7%)."
- Hewlett-Packard: "Taxation strategy: As a tech company, H-P does what most do. It keeps its IP and incomes registered in other countries. In 2004, when companies were temporarily allowed to repatriate earnings abroad, H-P claimed $14.5 billion of the $15 billion it had earned abroad as domestic earnings."
- IBM: "Taxation strategy: In 2009, the tech giant shrank its effective tax rates by nearly 10% by postponing the taxes it earned abroad. Between 2001-2003, the company’s tax liabilities were slashed by 95% thanks to a litany of breaks it was able to claim."
- Microsoft: "Taxation strategy: Microsoft has a history of shifting its reported income through various foreign locales—to Bermuda via The Netherlands via Ireland—to limit domestic income. The tactic isn’t just for the long-established techies, it has also been adopted by Facebook."
- Morgan Stanley: "Taxation strategy: Stock options tax savings have provided Morgan Stanley with hundreds of millions of dollars over the years, as has its low-tax finagling abroad. When the American Jobs Creation Act was passed (with help from extensive corporate lobbying) and companies were allowed to repatriate earnings for an income tax rate of 5.25% (much lower than the standard 35%), Morgan Stanley was among the major corporations to take advantage."
- New Corp: "Taxation strategy: In December 2008, the Government Accountability Office reported that 83 of the 100 largest companies in the U.S. had subsidiaries in foreign tax havens. One of the companies with the highest number was News Corp., which then had more than 150 subsidiaries in tax-haven locales."
- Oracle: "Taxation strategy: Transfer pricing—though not without implications. Oracle suffered a bit last fall when its Japanese subsidiary had to negotiate an advance agreement with tax authorities in the U.S. and Japan so that it wouldn’t get hit with transfer price taxes in Japan. But the agreement forced the subsidiary to agree to pay higher royalty fees and had to lower its earnings projections. Its stock closed 9% below the previous day’s close on the Nikkei, the Japanese stock market."
- Pfizer: "Taxation strategy: Like many pharmaceutical and technology multinationals, Pfizer has used transfer pricing to record sales in one country to profits (on paper) in another country entirely."
- Time Warner: "Taxation strategy: The entertainment conglomerate managed some swift accounting to use its merger with AOL in 2000 to leave it with little tax to pay. Between 2001 and 2003, Time Warner claimed tax breaks that cut its taxes by 121 percent—and allowed the company to pay nothing at all in taxes for two years."
(Hat Tip: Francine Lipman.)