WASHINGTON: A series of big US companies last year moved to reincorporate abroad in inversion deals, some Republican lawmakers and tax policy critics blamed the high US corporate tax rate. Lowering it, they said, would keep companies from fleeing the country.
The taxes being paid by the six largest companies known to be doing inversions in late 2014 and early 2015 showed that, even before the deals, all were paying below the statutory U.S. federal corporate rate of 35 percent.
Most were well below it. The average effective tax rate for the six companies was 20.3 percent for 2011-2013, Reuters found, using an estimation method reviewed by tax experts that was based on public data for U.S. profits and U.S. taxes.
The Reuters analysis suggests that the surge in inversion transactions may not have had much to do with the statutory corporate income tax. Moreover, it shows Washington’s current debate over business tax reform may be too focused on the statutory rate, neglecting effective rates and the incentives that companies have to shift profits abroad.
The six companies analyzed were Medtronic Inc., Applied Materials Inc., Steris Corp., Mylan Inc., C&J Energy Services Inc. and Burger King, which has been renamed Restaurant Brands International Inc.
All six have recently completed or are in the midst of completing inversion-type deals, despite a Treasury Department crackdown in September that slowed inversion deal-making.
Inversions have been around for three decades, but they became more common in recent years. Guided by tax lawyers and accountants, companies have done more than 50 such deals since the 1980s; about half of them just since 2008.
The deals typically involve a U.S. company buying a smaller foreign rival, then taking on its nationality for tax purposes, while many core operations remain in the United States.
The six companies studied have themselves disclosed 2011-2013 effective tax rates averaging 27.8 percent, or 7.5 percentage points higher than the Reuters calculation.
The discrepancy with the Reuters figure is likely because the companies’ figures include not just U.S. federal taxes, but all taxes, including state, local and foreign.
The Institute on Taxation and Economic Policy (ITEP), a tax policy think tank in Washington, looked at the six companies’ data somewhat differently, stripping out certain accounting adjustments, and found an average effective tax rate of 22.2 percent over the period.
Tax inversion deals are mainly driven by efforts to shift profits out of the U.S. and to access overseas earnings at little or no cost in U.S. tax, tax specialists said.
“The issue is much broader than the U.S. corporate tax rate being high,” said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, a centrist think tank.
“You fix the rates, you fix it all,” said Grover Norquist, a Republican activist and president of Americans for Tax Reform, which advocates for lower taxes and smaller government.
