US firms paying more in tax abroad than at home

American companies are often paying more in tax for their overseas operations than they do domestically, according to a new report looking at some of the largest Fortune 500 firms. Of the firms in the survey with significant offshore profits, two-thirds paid higher corporate tax rates to foreign governments where they operate than they did on their US earnings.

The Citizens for Tax Justice (CTJ) survey examined effective tax rates for 288 of the Fortune 500 between 2008 and 2012. Overall, these companies paid an effective federal income tax rate of 19.4 per cent over the five-year period. This compares with the 35 per cent statutory amount due.

Twenty-six of the firms, including giants like Boeing, General Electric and Verizon, paid no federal income tax at all over the five-year period. One-third of the firms paid an effective tax rate of less than ten per cent.

As the study’s authors note, this seems to refute suggestions that the current corporate tax regime in the US is uncompetitive. “The figures make clear that most American corporations are paying higher taxes in other countries where they engage in real business activities than they pay in US taxes on their true US profits,” the CTJ said in its report.

The report also highlights a number of methods used by companies to reduce liabilities, including offshore tax sheltering and something known as “accelerated depreciation”, which sees companies write off their capital investments more quickly than the assets actually wear out.

But the extent to which companies are making use of tax breaks and other ways of paring back liabilities differs from one organisation to the next. The report found a wide variation in the tax rates paid by the companies surveyed.

For example, one-quarter of the companies in the study paid effective federal income tax rates on their US profits close to the full 35 per cent rate.

Moreover, the tax breaks claimed were “highly concentrated in the hands of a few very large corporations”, said the study, and by no means extend to smaller businesses with fewer resources. Twenty-five companies claimed $174 billion in tax breaks over the five years between 2008 and 2012 - almost half the $364 billion in tax subsidies claimed by all of the 288 firms in the survey.