The corporate tax rate in the United States peaks out at 35%. Taking this rate at its face value, the rate is among the highest in the world. According to a study put out by the Organization for Economic Cooperation and Development (OECD), only France comes close at 34.4% and Belgium at right around 34%.
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Dig a little deeper though, and many U.S. corporations pay far less than this stated rate. A study released last November detailed that the average corporate tax rate for Fortune 500 companies (the largest in the country) was only around 18.5% between 2008 and 2010. On this list, the study found that only 71 companies paid a rate above 30%, and 30 actually paid negative taxes, meaning they actually received tax refunds. Astoundingly, one company managed a negative tax rate of close to 58%.
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Clearly, corporations have become extremely savvy at finding ways to pay less in taxes. The study mentioned above found that corporation found ways to accelerate depreciation of equipment, which boosts costs to lower taxes paid. Tax deductions are also key and stem from options to overseas operations. Of course, many have found ways to officially incorporate outside of the U.S. and pay lower corporate tax rates in their new home countries, even though a significant portion of their operations may still reside inside the U.S.
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Holding cash earned from international business units is another common strategy. Repatriating it to the U.S. would mean having to pay taxes on it. A study from Greenlining Institute estimated that the leading tech firms held some $430 billion outside of the U.S. At the stated corporate tax rate, this represents around $150 billion in taxes being avoided. It cited overseas subsidiaries as a key way for large tech firms to avoid building up sales and profits, and subsequent domestic tax bills.
Of the largest tech firms, Greenlining estimated that Apple paid a corporate tax rate of less than 10% in 2011. Google wasn't far off at below 12%, as was Yahoo. Xerox paid just over 7% and Amazon paid only 3.5%, according to the study. Overseas revenue plays a big part in lowering the tax rate for many of these firms.
Other corporate tax breaks exist by industry. Certain banking and insurance income is free from taxes if it stems from overseas. Allowable write-offs and depreciation expenses can also loom large. Interest from debt is also deductible. In its basic form, the boosting of expenses to offset revenues will lower the tax rates that corporations pay.
The Bottom Line
The actual tax rates paid by corporations could be slightly higher when figuring in the multitude of rates that these entities must pay on a worldwide basis. In the U.S., the rates come in far below the stated corporate rates, but these companies must still pay taxes to the overseas locations they do business in or have moved their technical headquarters to. But overall, it does call into question the need to reduce the stated corporate tax rate, because it appears that many domestic corporations are paying rates far below the 35% maximum rate.