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November 04, 2015

Tax rate report shows how much companies dodge by moving overseas

Rates vary widely for S&P 100 companies

When it comes to tax rates paid by big corporations, there’s only one way to describe the trends: they’re all over the place.

A Wallet Hub report on the tax rates paid by some of America’s largest corporations – those on the S&P 100 list – found that the average overall tax rate these companies paid was 28.4 percent (not counting the top five and bottom five companies). That includes state, federal and international taxes.

However, rates ranged widely. For example, eight of those companies had an overall tax rate of less than 15 percent, while 18 companies paid more than 35 percent. (In addition, the tax rates of Amazon and Allergan weren’t listed because those companies had negative incomes last year.)

Wallet Hub analyst Jill Gonzalez says that these kinds of variations aren’t unusual as taxes change depending on many factors.

"It (depends on) how profitable you were in a certain year, (and) if you have worked out any kind of deal either federally or on the state level,” she explained.

However, Republican presidential candidates have made simplifying the tax code a key campaign issue. Marco Rubio promised in the last debate, for example, that “under my plan, no business, big or small, will pay more than (a) 25 percent flat rate on their business income.”

What Gonzalez really sees as the main takeaway from the study, though, is the huge gap between what some companies pay in the U.S. and what they pay in international taxes. The companies on the list pay roughly a quarter less on their international taxes than their U.S. taxes.

"It's really just becoming uncompetitive ... to base the majority of this work in the U.S.," Gonzalez said.

  • Companies with the lowest overall tax rates:
  • 1. Morgan Stanley (-2.51%)
  • 2. Amgen (7.65%)
  • 3. General Electric (10.28%)
  • 4. General Motors (10.59%)
  • 5. Mondelez International (13.82%)

Differing international and domestic rates encourage inversions, where companies establish overseas subsidiaries in order to keep their cash in countries with more favorable taxes. General Electric, Google, Apple and Microsoft have all done it, the International Business Times reported.

"These are how Apple and Google are so profitable, by looking overseas and seeing these loopholes," Gonzalez said.

"Some people might argue that it's not the most patriotic thing to do,” she said, “but for shareholders and investors, the bottom line is when the company is making more money, so are they.”

  • Companies with the highest overall tax rates:
  • 1. Anadarko Petroleum (2994.44% — no, that is not a typo. The company had to pay up on taxes it had deferred from previous years.)
  • 2. Occidental Petroleum (109.34%)
  • 3. Devon Energy (58.34%)
  • 4. Citigroup (47.79%)
  • 5. Walgreens Boots Alliance (42.9%)

An example of the numbers game: Google had a 30.9 percent federal tax rate in 2014, but it only paid 7.8 percent for its holdings overseas. Its overall tax rate: 19.3 percent.

Apple paid a barely significant international tax rate of 4.4 percent. With much higher federal taxes taken into account, its overall tax rate was 26.1 percent.

Lowering the corporate tax rate might encourage companies to store less overseas. One option for making up that revenue would be to shift the tax burden to the richest individuals.

"We're noticing that the average S&P company pays an 11 percent higher tax rate than the top 3 percent of consumers. Billionaires with so much of the wealth are still paying a lot less than these companies," Gonzalez said.

Of course, those one-percenters are usually the same people running the big corporations. If their company is taxed, they’re indirectly taxed as well. Plus, a billionaire can move to Ireland to take advantage of lower taxes just as easily as his company can.

Republican candidates have promised to take the tax code down to three pages, but as Wallet Hub’s study shows, that would take an awful lot of snipping.

Read the full report here.