Meet The U.S. Tax Evaders

Some of the largest companies in the world don’t pay taxes! Not only is the United States incurring record debt exceeding $14 trillion, the government’s ability to collect tax revenue is ineffective.

“Companies are becoming much more sophisticated in the way they arbitrage the U.S. tax system,” says Howard Gleckman, a resident fellow at the Urban Institute, a think tank analyzing economic issues in the United States.

“Companies don’t have to be creative,” according to Robert Willens, a tax professor at Columbia Business School. “All they have to do is attribute or ascribe as much income as possible to foreign subsidiaries.”

Companies register their intangible assets including intellectual property, for example, and income outside America and register their liabilities and expenses in the United States to effectively reduce their taxable domestic income.

Ireland and the Caribbean Islands are common tax havens.

Geography Doesn't Count

“It doesn’t matter where your corporate headquarters is,’’ says Glickman. “If you’re Google, your income is I.P. … the patents aren’t even registered in the U.S.

“For drug companies, the income is earned to their Irish subsidiary. When you say that company is in the U.S., I don’t exactly know what that means.”

Critics say avoidance of corporate income tax damages the economy and diminishes domestic investment and job creation.

Defenders of current practices argue it’s the only way companies can stay competitive on a global scale since the U.S. tax rate of 35 percent is one of the highest in the world. (The average effective corporate tax rate is closer to 25 percent.)

Many believe corporations are just playing by the rules.

Public corporations generally have an obligation to their shareholders and their workers to maximize after-tax profits.

The 10 largest corporate offenders, as reported by The Daily Beast and Newsweek, are:

Exxon Mobil

Exxon Mobil’s profits were over $30 billion in 2010.

In 2009, profits were over $19 billion and yet, according to its Securities and Exchange Commission filing, received a rebate of $156 million from the Internal Revenue Service.

The company did not pay any taxes in 2009.

Google

Google last year reduced its overall tax burden by $3.1 billion with a pretax profit of $10.8 billion. By using transfer pricing, incomes are reported in foreign tax havens and liabilities are reported domestically.

Google’s patents are registered outside America, allowing it to license patents domestically and write off the expense.

General Electric

GE’s 2010 pretax profit was $14.2 billion. GE’s “innovative” accounting methods allowed it to accrue a $3.2 billion tax benefit in 2010, $833 million in 2009 and $651 million in 2008.

The company employs an entire team of former IRS and Treasury officials.

Boeing

Boeing’s 2010 pretax profit was $4.5 billion. Despite a double-digit tax rate, it has managed to escape paying federal taxes for the last three years thanks to foreign subsidiaries.

According to Citizens for Tax Justice, the company paid 0.3% of its pretax income in federal income taxes in 2010.

Pfizer

Pretax 2010 profit was $9.4 billion. Like many pharmaceutical multinationals, the company uses transfer pricing to record sales in one country to profits (on paper) in another country entirely.

Oracle

Oracle’s pretax profit was $8.2 billion and used transfer pricing (but not without implications on the Nikkei).

Phillip Morris

Its pretax profit was $5.7 billion in 2010; between 2001 and 2003 took advantage of $3.3 billion in tax breaks; effectively cutting taxes by a third.

IBM

Had a 2010 pretax profit of $19.7 billion; in 2009, the tech giant shrank its effective tax rates by nearly 10 percent by postponing the taxes it earned abroad.

Goodrich

In 2010, the company posted a profit of $804 million. In the past, the company’s effective tax rate was 11.3 percent, but it is depreciating its assets in an accelerated rate.

Time Warner

Reported a pretax profit of $3.9 billion in 2010; the merger with AOL resulted in lower taxes. Between 2001 and 2003, it cut taxes by 121 percent and paid no taxes for two years.

TechMan

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