Large U.S. tech companies should pay income taxes of about 35 percent on the profits they make (above $18.3 million) from business done in the United States. So says the tax code.
It rarely works out that way. Instead, many U.S. companies routinely park large chunks of their income overseas to avoid paying federal income taxes on it. And the SEC apparently looks the other way when companies obscure the true mix of their domestic-versus-overseas profit in their regulatory filings.
Ultimately, only the IRS knows how much these companies actually pay, and its not sharing the information with people like you and me.
Tech-sector companies have been especially adept at moving cash assets around the globe, and at muddying the waters as to precisely where their profits came from.
Under federal law, U.S. companies may permanently defer paying taxes on income transferred to foreign subsidiaries. Those monies may be subject to taxation by the country where theyve been parked, but tax rates in popular tax haven countries like Bermuda are extremely low or even nonexistent.
Bloomberg reported in December that Google avoided paying $2 billion in global income taxes by moving $10 billion in revenue to Bermuda, which has no corporate income tax.
The fact that the tax rate on tech companies global income is less than the statutory rate of 35 percent in the United States suggests that shifting income overseas can reduce companies overall tax burden considerably, and often dramatically.
How much do they pay?
But it soon became clear from the companies annual reports to the SEC that the portrayal in the companies filings of their mix of domestic-versus-overseas income didnt add up. In many instances, the U.S. tax rates that the filings cited failed to jibe with numbers from other sections of the same annual report.
The SEC filings do seem to report accurately the amount of tax that the companies paid in income taxes worldwide. And in all cases those tax rates are below the 35 percent statutory income tax rate established in the United States.
The Congressional Research Service recently released a report that seems to prove that U.S. companies are fudging the numbers on the geographic origin of their foreign profits. It found that in 2008, American multinational companies reported earning 43 percent of their $940 billion in overseas profits in five very small tax-haven countries (Bermuda, Ireland, Luxembourg, Netherlands, and Switzerland), even though only 4 percent of their foreign workforce and 7 percent of their foreign investments were in these countries.
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