INSIGHT-U.S. companies may not be fleeing due to high tax rate, Reuters analysis shows

Mon Feb 9, 2015 1:00am EST
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* Wave of inversion deals had many causes, experts say

* Earnings stripping, foreign profits seen as key

* Motivation for deals not clearly linked to tax rate

* Obama's budget last week proposed anti-inversion steps

By Kevin Drawbaugh

WASHINGTON, Feb 9 (Reuters) - When a series of big U.S. companies last year moved to reincorporate abroad in inversion deals, some Republican lawmakers and tax policy critics blamed the high U.S. corporate tax rate. Lowering it, they said, would keep companies from fleeing the country.

But a Reuters analysis of the taxes being paid by the six largest companies known to be doing inversions in late 2014 and early 2015 showed that, even before the deals, all were paying below the statutory U.S. federal corporate rate of 35 percent.

Most were well below it. The average effective tax rate for the six companies was 20.3 percent for 2011-2013, Reuters found, using an estimation method reviewed by tax experts that was based on public data for U.S. profits and U.S. taxes.

The Reuters analysis suggests that the surge in inversion transactions may not have had much to do with the statutory corporate income tax. Moreover, it shows Washington's current debate over business tax reform may be too focused on the statutory rate, neglecting effective rates and the incentives that companies have to shift profits abroad.   Continued...