General Electric's Aggressive Tax Strategy

Check out The Onion's hilarious take on GE's tax strategy.

Americans were outraged when it came to light recently that multinational corporation General Electric paid no taxes for 2010. Here are some of the ways GE avoided the tax man:

• Saved all receipts from aggressive lobbying efforts
• Purchased TurboTax Corporate Max Edition
• Wrote off bankruptcy of sister company Abstract Electric
• Brought a few hundred million good things to life; claimed them as dependents
• Somehow managed to locate a loophole in the transparent, ironclad U.S. tax code
• Claimed entire NBC prime-time lineup as a loss
• Claimed cash as a spouse, earned marriage tax credit
• God hates us

Hat Tip: TaxProf Blog

New York Times Gives False Information on General Electric's Zero Income Tax Bill

Check out this opinion piece defending GE's corporate tax strategy.

From Yahoo News:

It is hard to imagine that General Electric (GE), whose nuclear plants have been in the spotlight since the recent Japanese earthquake and subsequent tsunami, would have anything positive to say about that natural disaster, but the media uproar that followed it meant that the world's newspapers were distracted from the multinational corporation's recent SEC filing. That filing, Form 10-K, revealed that in 2010, for the second year in a row, General Electric paid zero federal income taxes.

The 258 page long PDF document was finally analyzed this week by reporters who latched onto phrases like "GE's effective tax rate is reduced because active business income earned and indefinitely reinvested outside the United States is taxed at less than the U.S. rate." The New York Times in particular took pleasure in writing a long-winded four-page diatribe that all but accused GE's tax department, led by John Samuels, a former Treasury official, of committing tax evasion in an effort to avoid paying the 35% federal income tax rate on tax profits.

What most readers of the New York Times, and anyone else not well versed in accounting rules and tax regulations, is likely unaware of, is that tax profits are different than book profits. There are expenses that can be deducted for accounting records but not for tax liabilities and vice versa. Major corporations like GE do complicated calculations each quarter to find out exactly what those differences are so that there are no ugly surprises when they report information to both their shareholders and the taxing authorities.

One of the New York Times' accusations is that GE pays no taxes in the United States. Logic tells us, though, that this simply is not true. With nearly 150,000 employees in the United States, GE pays millions in payroll taxes like employers of all sizes. GE also may pay income taxes to those states that it has a significant presence. While each state defines nexus, which triggers income tax return filing requirements, differently, considering GE's size, it is likely that they file and pay taxes in many states in this country. They also likely pay franchise tax fees as well as sales tax to various states and cities.

More here

GE Explains Their Tax Rate

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.

Read more here

GE Paid No Taxes in 2010

Although the corporation made over $14 billion in profits, $5 billion of which was made in the US, GE paid no taxes last year. Check out what White House correspondent Jake Tapper had to say when ABC News asked him about GE's tax rate.

ABC reports:

CARNEY: I hope so. But the -- look, I -- Jake, I'll just tell you, I don't know about this specific company's balance sheet or its tax returns.

TAPPER: Front page of The New York Times.

CARNEY: But I -- but I can -- I've read the story. I'm saying I don't have my own assessment to make of it.

But what I will tell you is that the president has said that he is committed to corporate tax reform, and he wants to do that because it will improve our competitiveness. And he believes that one of the ways to do that -- the way to do it is to -- you can lower the rate if you and still bring in the necessary revenue if you remove a lot of the loopholes and other aspects of it that make it complicated, that give companies fits and also make us less competitive in the process. So he's committed to corporate tax reform because it's right for growth, it's right for job creation. And, you know, he will have that conversation going forward.

TAPPER: Does it bother him?

CARNEY: I haven't spoken to the president about this, but he is bothered by what I think you're getting at, which is that Americans, I'm sure, who read that story or heard about it are wondering, you know -- you know, how this could be.

And one of the reasons why it could be -- again, not addressing a specific company, because I don't know independently about that, but it is part of the problem of the corporate tax structure that companies hire, you know, armies of tax lawyers to understand how it works and to take advantage of the various loopholes that exist, that are legal, in order to reduce their tax burden. And he thinks that in the name -- for the purpose of greater competitiveness and job creation, we have to address our corporate tax structure.

Continue reading at ABC News.com…

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