Thursday, October 20, 2011

America is General Electric's Tax Haven (GE)

The writer won the 2001 Pulitzer Prize for his reporting on the U.S. Tax Code.
I'm pretty sure he is the only reporter to have ever done so with that subject matter.
From Reuters:
By David Cay Johnston
The author is a Reuters columnist. The opinions expressed are his own.
Washington politicians say high corporate tax rates are driving U.S. companies to invest offshore where tax rates are lower. But that is not General Electric’s experience.

GE’s disclosures show that over the last decade it paid much lower tax rates in America than offshore, just the opposite of the Washington political mantra. Even more puzzling, the U.S. corporate giant chooses to take more of its profits in other lands despite the higher tax rates there.

Given that GE has a roughly 1,000-person tax department dedicated to paying as little as possible in taxes, what the disclosures show is that something other than tax policy is driving GE’s business decisions.

The law gives companies a great deal of latitude in deciding how to arrange where they report profits from multinational transactions. GE won’t elaborate on why it takes so much of its profit in higher tax jurisdictions offshore.

From 2001 through 2010, GE’s total American corporate tax burden averaged 9.4 percent of its profits in American corporate income taxes compared to its 17.9 percent foreign tax rate.

GE’s accounting for taxes, both current and deferred, shows that its American tax rate is just a bit more than half its foreign rate and only about a quarter of the statutory 35 percent rate set by Congress.
Gary Sheffer, GE’s top spokesman, insists that the average 9.4 percent rate over 10 years is misleading because GE suffered big losses in its finance unit that lowered its 2010 American taxes.

“GE’s tax rate was lower than normal in 2010,” Sheffer advised me, because “we lost billions of dollars in GE Capital, our financial arm, during the global financial crisis. Our tax rate will be higher in 2011 as GE Capital recovers.”

But that anomalous year pales compared to the long-term trends.

Break the first decade of this century in two and you can see the trend clearly.

From 2001 through 2005, GE paid almost identical tax rates on its profits, 19.3 percent in the U.S. and 19.7 percent offshore. During those five years GE reported 56.1 percent of its profits in the United States.
But for 2006 through 2010 a number of significant changes show up in the fine print of GE’s 10-K disclosures....MORE