GE's $14.2 Billion Legal Tax Avoidance Further Sign of US Decay

April 3, 2011 - PRLog -- In 2010, General Electric reported worldwide profits of $14.2 billion,

and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill?

ZERO.

In fact, G.E. claimed a tax benefit of $3.2 billion.

Low taxes are nothing new for G.E.

The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years,

resulting in a far lower rate than even most multinational companies.

Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks

and innovative accounting that enables it to concentrate its profits offshore.

G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels,

is often referred to as the world’s best tax law firm ...

The team includes former officials not just from the Treasury,

but also from the I.R.S. and virtually all the tax-writing committees in Congress.

While General Electric is one of the most skilled at reducing its tax burden,

many other companies have become better at this as well ...

Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals,

have pushed down the corporate share of the nation’s tax receipts —

from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009 ...

A review of company filings and Congressional records shows that

one of the most striking advantages of General Electric is its ability to lobby for, win and take advantage of tax breaks.

Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law,

from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines.

But the most lucrative of these measures allows G.E. to operate a vast leasing and lending business abroad,

with profits that face little foreign taxes and no American taxes as long as the money remains overseas.

The assortment of tax breaks G.E. has won in Washington has provided a significant short-term gain for the company’s executives and shareholders.

While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that

in the last five years, G.E. has accumulated $26 billion in American profits,

and received a net tax benefit from the I.R.S. of $4.1 billion.

But critics say the use of so many shelters amounts to corporate welfare,

allowing G.E. not just to avoid taxes on profitable overseas lending

but also to amass tax credits and write-offs that can be used to reduce taxes on billions of dollars of profit from domestic manufacturing.

They say that the assertive tax avoidance of multinationals like G.E. not only shortchanges the Treasury,

but also harms the economy by discouraging investment and hiring in the United States ...

The shelters are so crucial to G.E.’s bottom line that when Congress threatened to let the most lucrative one expire in 2008, the company came out in full force.

G.E. officials worked with dozens of financial companies to send letters to Congress and hired a bevy of outside lobbyists ...

Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years,

many Wall Street analysts view G.E. not as a manufacturer

but as an unregulated lender that also makes dishwashers and M.R.I. machines ...

In the late 1990s, G.E. and other financial services firms won a change in tax law that would allow multinationals to avoid taxes on some kinds of banking and insurance income.

The change meant that if G.E. financed the sale of a jet engine or generator in Ireland, for example,

the company would no longer have to pay American tax on the interest income as long as the profits remained offshore.

Known as active financing, the tax break proved to be beneficial for

• investment banks,
• brokerage firms,
• auto and farm equipment companies,
• and lenders like GE Capital.

This tax break allowed G.E. to avoid taxes on lending income from abroad,

and permitted the company to amass tax credits, write-offs and depreciation.

Those benefits are then used to offset taxes on its American manufacturing profits.

G.E. subsequently ramped up its lending business.

As the company expanded abroad, the portion of its profits booked in low-tax countries such as Ireland and Singapore grew far faster.

From 1996 through 1998, its profits and revenue in the United States were in sync — 73 percent of the company’s total.

Over the last three years, though, 46 percent of the company’s revenue was in the United States, but just 18 percent of its profits.

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