Here is a very interesting report by the Institute on Taxation and Economic Policy that is an eye opener on the ways Fortune 500 companies in the U.S. are routinely taking advantage of the U.S. tax code to boost their U.S. tax profile. The new U.S. tax code now enables, U.S. companies to reduce their tax profile even further.
A report by the Institute on Taxation and Economic Policy (ITEP) states, 15 U.S. companies, including Prudential Financial Inc, Amazon.com Inc Duke Energy Corp and others have managed to avoid paying taxes to the tune of $25 billion, in combined profits for 2016-2017.
Data from profitable Fortune 500 companies show that they have routinely managed to lower their tax liability long before U.S. President Donald Trump signed the tax overhaul bill into law.
In 2017, although the total profit of these 15 companies amounted to $24.5 billion, they managed to obtain rebates of nearly $1.4 billion from the U.S. Treasury for a combined tax rate of minus 5.6% reads the ITEP report, which examined corporate income tax disclosures.
As per the nonpartisan group, the new U.S. tax regime, wherein the income tax rate for companies have been slashed from 35% to 21%, since January, will enable these companies to avoid paying even more tax to the U.S. government.
According to the ITEP, “disclosures made by these companies are too vague to allow a complete diagnosis of how they are avoiding income taxes”.
Case in point, by smart tax management, Amazon received a $137 million in federal rebate on its U.S. profit of $5.4 billion, which effectively makes its tax rate a negative 2.5%; as per the ITEP, companies use a tax break to write off the value of executive stock options and thus hammer down their tax profile.
Duke Energy received $247 million in rebate on its U.S. profits of $4.2 billion by using accelerated depreciation on capital investments and renewable energy production tax credits; as a result, its effective tax rate was a minus 5.9% , said the ITEP report.
Amazon.com did not immediately respond to requests for comment.
Duke Energy’s spokesman, Neil Nissan, called the report “deeply flawed and misleading.” The depreciation tax strategy was introduced during the recession “to encourage companies to invest and create jobs to spur economic growth”.
Prudential Financial reduced its effective tax rate to a negative 1.9% on its U.S. profits of $2.5 billion, partly through low-income housing credits, states the ITEP report.
Prudential Financial did not immediately respond to requests for comment.