Following the NY Times article questioning General Electric’s lack of taxes paid in 2010, the company has released a report explaining their tax rate. Check out an excerpt from the Q&A regarding taxes below, or download the full PDF here.
Q: How GE has reduced its effective U.S. tax rate in recent years?
A: GE’s consolidated tax rate was lower than usual in 2008-2010 due to the impact of the global financial crisis on GE Capital. Sizable Capital losses during the downturn reduced overall GE income in the U.S. and other high-tax countries. (If you exclude GE Capital, GE’s tax rate has been about 21% from 2006-2010.)
Additionally, since tax on domestic U.S. earnings is generally higher than that on our foreign income, the rate in a given year is affected by our global earnings mix; the extent to which global earnings are indefinitely reinvested outside the United States; and the impact of legislation, acquisitions and dispositions, among other things.
Finally, settlements of issues raised in routine tax audits can affect our tax provision. For example, in 2010 our consolidated income tax rate was reduced almost 6 points due to global audit settlements.
Q: How and why is there an apparent disparity between GE's overseas revenues and profits that has grown over the past two decades? A: As previously noted, GE Capital suffered sizable losses in the United States during the financial crisis that reduced our income in the U.S. in 2008-2010. This had the effect of increasing the percentage of income outside the U.S. relative to revenues outside the U.S.
GE has become a much more global company over the past 20 years, as reflected in the percentage of our global revenue and income. While GE has been and continues to be one of America’s leading exporters, competing globally often requires a local presence and, in many cases, local business partners. As this non-U.S. activity increases, overseas profits increase. The need for a local presence is particularly true in financial services businesses as the provision of financial services is inherently a local business (to make loans, sell insurance, provide credit, or lease machinery, a financial services business has to be where its customers are). Financial services represent a large part of the change in GE’s global operations over the past 20 years.