Follow along with the video below to see how to install our site as a web app on your home screen.
Note: This feature currently requires accessing the site using the built-in Safari browser.
Earlier this month, Microsoft borrowed $2.25 billion in unsecured debt. What in the world possesses a company with $40 billion in cash and short-term securities to go out and borrow money?
Rock-bottom interest rates are one reason. But the bizarre, byzantine U.S. tax code seems to be another.
The U.S. is the only major country that taxes foreign earnings of its own companies this way. American investors may not come out ahead either.
Microsoft declined to comment on whether its recent borrowing was partly driven by tax considerations. But, like many purportedly cash-rich companies, Microsoft can't bring home much of its cash without writing a fat check to the Internal Revenue Service.
Politicians have been carping about the more than $2 trillion in cash sitting idle in corporate coffers even as unemployment remains high. But much of that cash isn't in the U.S.; it is abroad. And it isn't likely to come back home unless U.S. tax laws change. ...
U.S. companies are taxed at up to 35% when they bring home the earnings generated through the operations of their overseas subsidiaries. They get a credit for any taxes paid to foreign governmentsbut, since the corporate-tax rate in the U.S. is one of the world's highest, most companies are in no rush to bring the money back onshore. By keeping those earnings abroad, U.S. companies can indefinitely defer their day of reckoning with the IRS.
That can put firms in the peculiar position of having tons of cash offshore that they might need but can't use at home without taking a tax hit.
The U.S. is the only major country that taxes foreign earnings of its own companies this way. American investors may not come out ahead either. In a 2007 survey of executives at more than 400 companies, Massachusetts Institute of Technology economist Michelle Hanlon found that the desire to avoid the repatriation tax led to a variety of distortions, most of which end up making companies less efficient.
For example, among the companies that had brought some profits home to the U.S., 30% had invested in lower-returning foreign assets rather than pay additional taxes to bring overseas profits back onshore. Another 56% had borrowed money in the U.S. rather than bring cash home. And 6% said they had declined to invest in a profitable project in the U.S. when funding it with foreign earnings would have triggered a tax hit.
Corporate Taxes Distorting Capital Allocation
U.S. companies are taxed at up to 35% when they bring home the earnings generated through the operations of their overseas subsidiaries.
Corporate Taxes Distorting Capital Allocation
So we need to further cut effective corporate tax rates to end their tax evasion?
I recall a few years ago when one of our largest banks has a multi billion dollar profit year but had a net tax credit. How the heck does that happen?
Perhaps Microsoft borrowed that money becuase they needed their overseas funds right where they were for other business reasons.
Avoiding taxes is nothing new for General Electric. In 2008 its effective tax rate was 5.3%; in 2007 it was 15%. The marginal U.S. corporate rate is 35%.
In Pictures: What The 25 Top U.S. Companies Pay In Taxes
How did this happen? It's complicated. GE's tax return is the largest the IRS deals with each year--some 24,000 pages if printed out. Its annual report filed with the Securities and Exchange Commission weighs in at more than 700 pages. Inside you'll find that GE in effect consists of two divisions: General Electric Capital and everything else. The everything else--maker of engines, power plants, TV shows and the like--would have paid a 22% tax rate if it was a standalone company.
It's GE Capital that keeps the overall tax bill so low. Over the last two years, GE Capital has displayed an uncanny ability to lose lots of money in the U.S. (posting a $6.5 billion loss in 2009), and make lots of money overseas (a $4.3 billion gain). Not only do the U.S. losses balance out the overseas gains, but GE can defer taxes on that overseas income indefinitely. The timing of big deductions for depreciation in GE Capital's equipment leasing business also provides a tax benefit, as will loan losses left over from the credit crunch.
But it's the tax benefit of overseas operations that is the biggest reason why multinationals end up with lower tax rates than the rest of us. It only makes sense that multinationals "put costs in high-tax countries and profits in low-tax countries," says Scott Hodge, president of the Tax Foundation. Those low-tax countries are almost anywhere but the U.S. "When you add in state taxes, the U.S. has the highest tax burden among industrialized countries," says Hodge. In contrast, China's rate is just 25%; Ireland's is 12.5%.
Corporations are getting smarter, not just about doing more business in low-tax countries, but in moving their more valuable assets there as well. That means setting up overseas subsidiaries, then transferring to them ownership of long-lived, often intangible but highly profitable assets, like patents and software. As a result, figures tax economist Martin Sullivan, companies are keeping some $28 billion a year out of the clutches of the U.S. Treasury by engaging in so-called transfer pricing arrangements, where, say, Microsoft's overseas subsidiaries license software to its U.S. parent company in return for handsome royalties (that get taxed at those lower overseas rates).
see the rest of this very long article : Forbes.com - Magazine Article
So we need to further cut effective corporate tax rates to end their tax evasion?
I recall a few years ago when one of our largest banks has a multi billion dollar profit year but had a net tax credit. How the heck does that happen?
Perhaps Microsoft borrowed that money becuase they needed their overseas funds right where they were for other business reasons.
the whole thing needs some sort of reform....a flat tax, imho, would be best....no loop holes, no favoritism towards one industry vs another...
GE as an example, using the present tax code:
Avoiding taxes is nothing new for General Electric. In 2008 its effective tax rate was 5.3%; in 2007 it was 15%. The marginal U.S. corporate rate is 35%.
In Pictures: What The 25 Top U.S. Companies Pay In Taxes
How did this happen? It's complicated. GE's tax return is the largest the IRS deals with each year--some 24,000 pages if printed out. Its annual report filed with the Securities and Exchange Commission weighs in at more than 700 pages. Inside you'll find that GE in effect consists of two divisions: General Electric Capital and everything else. The everything else--maker of engines, power plants, TV shows and the like--would have paid a 22% tax rate if it was a standalone company.
It's GE Capital that keeps the overall tax bill so low. Over the last two years, GE Capital has displayed an uncanny ability to lose lots of money in the U.S. (posting a $6.5 billion loss in 2009), and make lots of money overseas (a $4.3 billion gain). Not only do the U.S. losses balance out the overseas gains, but GE can defer taxes on that overseas income indefinitely. The timing of big deductions for depreciation in GE Capital's equipment leasing business also provides a tax benefit, as will loan losses left over from the credit crunch.
But it's the tax benefit of overseas operations that is the biggest reason why multinationals end up with lower tax rates than the rest of us. It only makes sense that multinationals "put costs in high-tax countries and profits in low-tax countries," says Scott Hodge, president of the Tax Foundation. Those low-tax countries are almost anywhere but the U.S. "When you add in state taxes, the U.S. has the highest tax burden among industrialized countries," says Hodge. In contrast, China's rate is just 25%; Ireland's is 12.5%.
Corporations are getting smarter, not just about doing more business in low-tax countries, but in moving their more valuable assets there as well. That means setting up overseas subsidiaries, then transferring to them ownership of long-lived, often intangible but highly profitable assets, like patents and software. As a result, figures tax economist Martin Sullivan, companies are keeping some $28 billion a year out of the clutches of the U.S. Treasury by engaging in so-called transfer pricing arrangements, where, say, Microsoft's overseas subsidiaries license software to its U.S. parent company in return for handsome royalties (that get taxed at those lower overseas rates).
see the rest of this very long article : Forbes.com - Magazine Article
what a mess!
we really need all corporations on a level playing field!
So we need to further cut effective corporate tax rates to end their tax evasion?
I recall a few years ago when one of our largest banks has a multi billion dollar profit year but had a net tax credit. How the heck does that happen?
Perhaps Microsoft borrowed that money becuase they needed their overseas funds right where they were for other business reasons.
the whole thing needs some sort of reform....a flat tax, imho, would be best....no loop holes, no favoritism towards one industry vs another...
GE as an example, using the present tax code:
Avoiding taxes is nothing new for General Electric. In 2008 its effective tax rate was 5.3%; in 2007 it was 15%. The marginal U.S. corporate rate is 35%.
In Pictures: What The 25 Top U.S. Companies Pay In Taxes
How did this happen? It's complicated. GE's tax return is the largest the IRS deals with each year--some 24,000 pages if printed out. Its annual report filed with the Securities and Exchange Commission weighs in at more than 700 pages. Inside you'll find that GE in effect consists of two divisions: General Electric Capital and everything else. The everything else--maker of engines, power plants, TV shows and the like--would have paid a 22% tax rate if it was a standalone company.
It's GE Capital that keeps the overall tax bill so low. Over the last two years, GE Capital has displayed an uncanny ability to lose lots of money in the U.S. (posting a $6.5 billion loss in 2009), and make lots of money overseas (a $4.3 billion gain). Not only do the U.S. losses balance out the overseas gains, but GE can defer taxes on that overseas income indefinitely. The timing of big deductions for depreciation in GE Capital's equipment leasing business also provides a tax benefit, as will loan losses left over from the credit crunch.
But it's the tax benefit of overseas operations that is the biggest reason why multinationals end up with lower tax rates than the rest of us. It only makes sense that multinationals "put costs in high-tax countries and profits in low-tax countries," says Scott Hodge, president of the Tax Foundation. Those low-tax countries are almost anywhere but the U.S. "When you add in state taxes, the U.S. has the highest tax burden among industrialized countries," says Hodge. In contrast, China's rate is just 25%; Ireland's is 12.5%.
Corporations are getting smarter, not just about doing more business in low-tax countries, but in moving their more valuable assets there as well. That means setting up overseas subsidiaries, then transferring to them ownership of long-lived, often intangible but highly profitable assets, like patents and software. As a result, figures tax economist Martin Sullivan, companies are keeping some $28 billion a year out of the clutches of the U.S. Treasury by engaging in so-called transfer pricing arrangements, where, say, Microsoft's overseas subsidiaries license software to its U.S. parent company in return for handsome royalties (that get taxed at those lower overseas rates).
see the rest of this very long article : Forbes.com - Magazine Article
what a mess!
we really need all corporations on a level playing field!
Please tell Obama about this. One of his biggest supporters is GE. (That also explains why MSNBC is 'in the tank' with Obama.)
the whole thing needs some sort of reform....a flat tax, imho, would be best....no loop holes, no favoritism towards one industry vs another...
GE as an example, using the present tax code:
what a mess!
we really need all corporations on a level playing field!
Please tell Obama about this. One of his biggest supporters is GE. (That also explains why MSNBC is 'in the tank' with Obama.)
Getting a bit silly, with the blaming Obama with every exhale breath xsited? You suffering from Dos? (Deranged Obama Syndrome?) Or can you not debate and discuss anything anymore without the blame game?
To me, as said....it's just juvenile, a bit silly....and out of touch...and truly....below your intelligence....though i'm certain it's fun....i don't find it useful, during these very trying times....i'm tired of the arm chair 'obama to blame for your hemorrhoid's' whining....as i am CERTAIN many on the right were tired of all the Deranged Bush Syndrome posters a few years back!!!
Now, tell me what you would like to see happen, that would reform and improve the present corporate tax code?
care
Corporate taxes are too high, and the tax structure of the United States is having a perverse effect on capital allocation, which is bad for the economy.
So we need to further cut effective corporate tax rates to end their tax evasion?
Perhaps Microsoft borrowed that money becuase they needed their overseas funds right where they were for other business reasons.
Haven't you ever been forced to squirrel money around like that to keep from paying taxes; even to lay your hands on money for that very purpose: to pay taxes?Perhaps Microsoft borrowed that money becuase they needed their overseas funds right where they were for other business reasons.
So we need to further cut effective corporate tax rates to end their tax evasion?
Perhaps Microsoft borrowed that money becuase they needed their overseas funds right where they were for other business reasons.
No, we need a common sense tax regime for corporations that takes into account the fact that what we have presently motivates US corporations to move their operations and eventually their headquarters overseas; all that notwithstanding the fact that taxes collected from corporations are paid by those who purchase their products, and is the equivalent of a repressive tax on the lowest US earners.
Haven't you ever been forced to squirrel money around like that to keep from paying taxes; even to lay your hands on money for that very purpose: to pay taxes?Perhaps Microsoft borrowed that money becuase they needed their overseas funds right where they were for other business reasons.
So we need to further cut effective corporate tax rates to end their tax evasion?
Perhaps Microsoft borrowed that money becuase they needed their overseas funds right where they were for other business reasons.
No, we need a common sense tax regime for corporations that takes into account the fact that what we have presently motivates US corporations to move their operations and eventually their headquarters overseas; all that notwithstanding the fact that taxes collected from corporations are paid by those who purchase their products, and is the equivalent of a repressive tax on the lowest US earners.
Haven't you ever been forced to squirrel money around like that to keep from paying taxes; even to lay your hands on money for that very purpose: to pay taxes?Perhaps Microsoft borrowed that money becuase they needed their overseas funds right where they were for other business reasons.
i think it is more equal to a sales tax Mustang, or use tax.... only those who use or buy the corporation's product, pay the corporate tax on it....due to it being incorporated in to the retail price...
I'm ok with that...it is better imo, that those that use the corp's products pay the corp taxes than those who do not, ya know?
Good post Madeline; I made my own views on your last statement, clear in posts above.Nothing is more complex in the US tax code that taxation of foreign income of businesses. I think the WSJ has oversimplified the matter -- I'd be surprised if any less than 90% of all such income is not contemplated by a tax treaty that sets out separate rules for the tax treatment of, e.g., French-US business income.
A US corporation almost certainly has no foreign income. Such income arises when a foreign corporation belongs to a US-headquartered conglomerate of corporations, some US sited and others foreign. The decisions to structure businesses in this manner are complex almost beyond imagining.
The WSJ seems to be crabbing that a US conglomerate cannot bring the income of its subsidiary into the US without a taxable event. I doubt that this is true -- surely there are ways around it. But bear in mind, a transfer of cash from a subsidiary sited in the US to its parent company is also a taxable event. That US parent company pays tax on all income, including dividend income from wholly-owned subsidiaries.
In general, I support the greatest possible degree of neutrality in the tax code, and would support a change in this rate to encourage cash infusions into the US. But I also think it is wrong to characterize this as an anti-business tax, unless you simply do not believe businesses should pay tax, period.
I guess it all depends, American Horse. Is the money a corporation earned in a foreign nation truely "repatriated" when it is sent in the form of dividends to its US parent? What claim do we have on that capital?
By "tax neutrality" I mean that a rational person makes choices without regard to the tax code. If a profit opportunity exists in the US and that opportunity is foregone because our tax code imposes a barrier, it is not as neutral as I would like -- and in this regard, it should be reduced, IMO.
On the other hand, if we lower our tax rate on foreign business income, what would prevent US businesses from seeking profits off-shore so as to earn more than they could here? So to remain neutral, wouldn't we also have to reduce the tax on business income earned in the US?
Have you been persauded of this reality all along Toro, or have come to it just recently?
