Taxes: U.S. Multinationals Paid An Average 27.7% Effective Rate As Compared To 19.5% For Their Foreign Competitors
That's according to a Business Roundtable commissioned study by PricewaterhouseCoopers LLC of 2006 through 2009 financial data from the S&P Global Vantage database for the 2,000 largest world companies listed by Forbes. That's quite a gap for U.S. headquartered firms to make up versus their competitors in 58 countries, but it ranks 6th in effective tax rates behind Japan, Morocco, Italy, Indonesia, and Germany.
There are all sorts of problems in calculating comparable tax rates across countries, but the tax economists at PWC, many of whom I have worked with, are very qualified to do so. They aggregated total income tax provision plus change in deferred taxes at all levels of government divided by worldwide net income before taxes, minority interest, and extraordinary items. Companies reporting zero or negative tax rates in any year were excluded in that year, and companies with substantial oil and gas operations were excluded because those operations are usually subject to higher rates in countries where oil and gas is a large share of GDP.
The U.S. is almost alone in taxing worldwide income of U.S. headquartered firms and in deferring tax on overseas income until it is repatriated, greatly complicating international comparisons. Breaking out domestic effective tax rates from foreign effective tax rates would provide more interesting comparisons. The study also carefully avoided identifying or quantifying how many U.S. firms paid little or no tax in one or more of these years.
Nonetheless, this study will arm firms pushing Congress to lower the 35% corporate income tax rate. Although Congress is holding lots of hearings on tax reform, in my opinion, we're unlikely to see enactment of any major tax reform until after the 2012 election, if then.