As you race to complete your taxes this month, here's something to think about. Some of the world's biggest, most profitable corporations enjoy a far lower tax rate than you do--that is, if they pay taxes at all! The example that pissed me off the most is General Electric. Last year the conglomerate generated $10.3 billion in pretax income, but ended up owing nothing to Uncle Sam. In fact, G.E. recorded a tax benefit of $1.1 billion. How is this possible? How was it possible for big banking to receive trillions in TARP funds and STILL give out bonuses with that borrowed money?
Well, it's complicated at best and G.E.'s tax return is the largest the IRS deals with each year--some 24,000 pages if printed out. 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. But it's GE Capital that keeps the overall tax bill so low as over the last two years it has displayed an uncanny ability to lose tons of money in the U.S.-- $6.5 billion last year -- but still make tons of money-- $4.3 billion-- overseas. Amazing doesn't even begin to describe this craziness!
Not only do the U.S. losses balance out the overseas gains, but GE can defer taxes on that overseas income indefinitely. In other words NEVER in laymen terms. And big 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, tax economist Martin Sullivan says big companies are able to keep some $28 billion a year out of hands of the IRS. (Forbes)