Almost half of the major US companies that make up the S&P 500 stock index allocated more money to paying foreign taxes than they did to paying the US government in 2020 – much more money.
A total of 241 S&P 500 companies put a combined $ 73 billion in taxes to foreign governments and only $ 6.7 billion in U.S. taxes over the past year. This is based on a CBS MoneyWatch analysis of regulatory documents and data from the financial information company FactSet. That is a ratio of foreign to domestic taxes of more than 10 to 1.
Globalization explains some of this. Coca-Cola and Caterpillar pay more taxes overseas because they now make most of their money outside of the US. Still others on the list like Boeing, Hilton, and Pfizer saw this Coronavirus pandemic Erase your US profits – and most or even all of your domestic tax bills.
But a lot of those 241 companies, like FedEx, General Motors, and Nike, made a lot of money last year, and a lot of it was made in the US. However, the company’s files suggest that they are now paying much of their taxes elsewhere. Indeed, the relationship between where they make their profits and where they pay their taxes can seem particularly crooked these days:
- Disney, the global entertainment giant and theme park operator, got nearly 80% of its sales – and all of its profits – from its US division in the company’s final fiscal year, which ended in early October. Still, 75% of the nearly $ 1 billion Disney spent on taxes was for overseas governments, according to the company.
- Starbucks also makes most of its money in the US. The coffee chain has earmarked three times as much taxes for foreign governments as it did last year for US federal income tax. According to the latest financial record, Starbucks spent $ 181 million on tax payments to foreign governments, but only $ 49 million on U.S. federal income taxes.
- Netflix, a bailout for many people during the pandemic, spent $ 369 million on taxes last year. Only 7% of that was US federal taxes. Three major domestic tax breaks allowed the company to spend just $ 24 million on US federal taxes on its $ 2.8 billion US pre-tax profits, up from an effective income tax rate of just 0.8% last year Year corresponds.
For decades, US companies have shrunk their tax burdens by moving business overseas, sometimes for legitimate business reasons. Increasingly, however, the US portion of a global corporation’s business is treated best for tax purposes.
One of the main reasons for this, experts told CBS MoneyWatch, is Donald Trump’s signing of the Tax Cuts and Jobs Act of 2017, which, among other things, lowered the country’s corporate tax rate from 35% to 21%.
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Proponents of the cuts said the lower tax rates would encourage companies to bring more of their operations back to the US and, as a result, pay more US taxes overall. The opposite appears to have happened, according to the CBS MoneyWatch analysis.
In 2017, there were 150 companies in the S&P 500 that spent more on foreign taxes than in the US. That number has grown steadily since Trump’s tax law came into effect. It rose to 204 in 2018 and then to 220 in 2019. Last year the list included an additional 21 companies, bringing the current balance sheet to 241.
“After the tax cut and employment law went into effect, the US has become a kind of tax haven,” said Gabriel Zucman, an economist at the University of California at Berkeley and one of the world’s foremost experts on corporate tax avoidance. “Many US companies have very little federal taxes to pay.”
The fact that so many US companies appear to be paying so little domestically while paying more to foreign nations could fuel the growing national debate over whether US companies are still paying their fair share of government costs. A recent study found more than two dozen profitable companies I didn’t pay a dollar in federal income tax since the tax cut in 2017.
This week the Biden government unveiled a plan to increase it What companies pay in federal income taxes by more than $ 2 trillion over the next decade. A big part of the plan is to increase the official corporate income tax rate from 21% to 28%. However, President Biden also said he wanted to remove the incentives companies have to move overseas investments and avoid US taxes. And Treasury Secretary Janet Yellen said This week she is working with other nations to try to establish a minimum global corporate income tax.
A corporate tax conundrum
It is impossible to know exactly how much a particular company pays in taxes. This is because businesses, like individuals, are allowed to keep their tax returns and payments private.
However, public corporations that report their profits to investors are also required to include a year-end note on their financial records showing how much they have set aside to pay taxes over the next 12 months. You must also indicate to whom these taxes are expected to be paid, e.g. B. to the federal government, the state or foreign governments.
CBS MoneyWatch examined this number – known as current tax expense – for every company in the S&P 500 over the past five years, comparing what those companies planned for US taxes with what they expected for foreign taxes. For many companies, the latter account was considerably larger.
“This is the best representative we have for finding out what companies pay in taxes each year,” said Robert Willens, one of Wall Street’s foremost tax and accounting experts and associate professor of accounting at Columbia University.
Of course, Willens added, “There could be years when businesses get some sort of settlement or tax refund that includes the current tax expense [noted in the filing] is not what they paid for. ”
A Disney spokesman said the pandemic hurt the company’s business over the past year, resulting in less profits and, as a result, less tax debt. “The amount of federal income taxes we paid [last year] is not like what we would have seen in a more normal year, “the spokesman said in a statement. Disney paid a total of $ 12.4 billion in federal income taxes over the past three years.
A Starbucks spokesman said the company’s financial filing, like those of other publicly traded companies, does not provide a fully accurate representation of what it actually paid in taxes last year. Starbucks paid over $ 1.7 billion in taxes worldwide last fiscal year, “the majority of which was for US federal income taxes,” the spokesman said.
Netflix as a case study: a 0.8% federal tax rate last year
The CBS MoneyWatch review of the S&P 500 filings shows how the corporate tax game is often won at home these days, aided by an accumulation of domestic tax breaks and increasingly generous credit.
Look at Netflix, which refused to comment on this story. The streaming service spent $ 369 million on taxes last year. 75% of that was for taxes outside of the United States. State or local taxes accounted for an additional 18% of Netflix’s tax expense. Only 7% of the total tax bill was reserved for federal income taxes.
Netflix is booming worldwide during the pandemic, but it still generates almost all of its income in the US – $ 2.8 billion, or nearly 88% of its pre-tax profit of $ 3.2 billion last year.
Based on those domestic earnings, Netflix could have owed around $ 590 million in federal income taxes given the current U.S. corporate rate of 21%. Netflix probably didn’t pay anything nearby. Instead, a host of tax breaks and tax credits that Washington passed in recent years or long blessed by US tax law enabled the company to pay far less.
The biggest disruption came from stock options, which receive preferential tax treatment. That saved Netflix nearly $ 340 million last year. Next, Netflix said it had spent $ 1.8 billion on technology and development, which in turn earned $ 110 million in tax credits. Then there was Trump’s corporate tax cut, which allowed Netflix to save an additional $ 90 million on its IRS bill.
Add those three breaks along with a few other little ones, and the result is that Netflix spent just $ 24 million on U.S. federal income taxes last year. This translates into an effective tax rate of only 0.8% on US pre-tax profits of $ 2.8 billion.
On the other side of the map, the tax trail on overseas Netflix profits goes north, not south.
Netflix made $ 400 million in profit on its overseas operations, which if taxed at a US tax rate of 21% would have generated a tax charge of $ 85 million for Netflix. Instead, Netflix said in its filing Overseas income tax rate is higher than the US – an average of 24%, which resulted in a $ 12 million increase in reported tax expense in 2020.
In addition, Netflix said a “global business simplification” last year resulted in a one-time foreign tax charge of $ 135 million.
Add those two tax charges along with a few other smaller ones, and Netflix’s overseas tax expense was $ 277 million last year, which translates to a high effective tax rate of 68% on overseas pre-tax profit of $ 400 million.
“For one thing, the European Union has done a better job regulating businesses and the rate of income tax they pay,” said Dean Baker, co-founder of the left-wing Center for Economic and Political Research. “The IRS, however, mostly looked the other way.”
