The current U.S. tax code allows some of the biggest names in companies in the country not to pay federal corporate tax.
In fact, at least 55 of America’s largest corporations have not paid federal corporate taxes on their profits for 2020, according to the Institute for Taxation and Economic Policy. Companies include names such as Whirlpool, FedEx, Nike, HP and Salesforce.
“If a big, very profitable company doesn’t pay federal income tax, then we have a real equity problem,” Matthew Gardner, a senior fellow at the Institute for Taxation and Economic Policy (ITEP), told CNBC.
Moreover, legally and within the parameters of the tax code, corporations may end up not paying federal corporate income tax, which costs the US government billions of dollars in lost revenue.
“[There’s] a bucket of corporate tax breaks that are intentionally in the tax code …. And in total, they cost the federal government approximately $ 180 billion each year. And by comparison, corporate tax brings in about $ 370 billion in revenue annually, “Chye-Ching Huang, executive director of the Center for Tax Law at New York University, told CNBC, citing a study by the Tax Foundation.
CNBC asked FedEx, Nike, Salesforce and HP for comment. They either refused to comment or did not respond before publication.
The 55 corporations quoted by ITEP would pay a total of $ 8.5 billion. Instead, they received $ 3.5 billion in tax breaks, collectively draining $ 12 billion from the U.S. government, according to the institute. The figures do not include corporations that have paid only some, but not all, of these taxes.
“I think the main problem here is that there are two different ways corporations record their profits,” Gareth Watson, a senior political analyst at the tax foundation, told CNBC. “The amount of profits that corporations can report for financial purposes can be very different from the profits that they report [for tax purposes.]”
Some tax costs, which come in many different forms, are used by some companies to take advantage of rules that allow them to reduce their effective tax rates.
For example, Gardner’s study of Amazon’s taxes from 2018 to 2021 shows $ 79 billion in pre-tax revenue in the United States. Amazon has paid a collective $ 4 billion federal corporate tax in those four years, equivalent to an effective annual tax rate of 5.1 percent, according to Gardner’s ITEP report, about a quarter of the federal corporate tax of 21 percent.
Amazon told CNBC in a statement, “In 2021, we reported $ 2.3 billion in federal income tax expenditures, $ 5.2 billion in other federal taxes, and more than $ 4 billion in state and local taxes of all kinds. We also collected an additional $ 22 billion in sales taxes for the United States and the United States.“
One controversial form of federal tax spending is offshore profits. The foreign corporate tax – somewhere between 0% and 10.5% – can stimulate the diversion of profits to tax havens.
For example, Whirlpool, an American company known for manufacturing home appliances in both the United States and Mexico, was cited in a recent case involving taxes in the United States and Mexico.
“[Whirlpool] did so, as the Mexican operation was owned by a Mexican company without employees, and then this Mexican company was owned by a Luxembourg holding company that had one employee, “Huang told CNBC.” And then tried to argue that because of the combination from the tax rules of the United States, Mexico and Luxembourg … he was trying to take advantage of the disconnection between all these tax systems to avoid taxes and all these countries and the court said no, that goes too far. “
Whirlpool defended his actions in a statement to CNBC: “The Sixth Round case was never an attempt to avoid US taxes on profits made in Mexico. This tax dispute has always been about when these profits are taxed in the United States. In fact, years before the Tax Court’s initial ruling in 2020, Whirlpool had already paid tax in the United States on 100% of the profits it earned in Mexico. Simply put, the IRS thought Whirlpool should have paid those U.S. taxes earlier. “
Watch the video above to learn how the most profitable companies in the country maneuver through the complex tax system and what political decisions can close some doors.