Corporations avoid taxes – How they do it?

By: ratetake

Most U.S. and foreign corporations avoid paying income taxes despite sales they are making. The Government Accountability Office said 72 percent of all foreign corporations and about 57 percent of U.S. companies doing business in the United States paid no federal income taxes for at least one year between 1998 and 2005.

Report further states that more than half of foreign companies and about 42 percent of U.S. companies paid no U.S. income taxes for two or more years. More than 38,000 foreign corporations had no tax liability in 2005 and 1.2 million U.S. companies, or 66.7 percent of them, paid no income tax, the GAO said. Combined, the companies had $2.5 trillion in sales. About 25 percent of large U.S. corporations, those with at least $250 million in assets or $50 million in receipts did not pay corporate taxes.

The report said corporations escaped paying federal income taxes for a variety of reasons including operating losses, tax credits and an ability to use transactions within the company to shift income to low tax countries.

With U.S budget deficit which will be close to $486 billion by next year lawmakers are looking into holes in U.S tax code so U.S can generate more revenue.

Today too many corporations are using trickery tactics to send their profits overseas and avoid paying taxes in U.S. The study was requested by Sens. Byron Dorgan, D-N.D, and Carl Levin, D-Mich., in an attempt to determine if corporations are abusing so-called transfer prices. That factor, known as transfer pricing, involves corporations' charging their overseas subsidiaries lower prices for goods and services, a common move that lowers a corporation's tax bill.

U.S. politicians disagree about how much income tax the government should levy on corporations. Currently the rate is 35%, but most foreign governments have set their rates below the U.S. level.

The report also showed that about 28 percent of foreign corporations, those with $250 million in assets, doing business in the United States paid no federal income taxes in 2005. About 25 percent of the largest U.S. companies paid no federal income taxes in 2005.

Sen. Byron Dorgan, D-N.D., who asked for the GAO study with Sen. Carl Levin, D-Mich. said that it is shameful that so many corporations make big profits and pay nothing to support our country.

This has been a wide issue in U.S tax code and with additional billion dollar budget deficit coming next year due to $700 billion mortgage bailout, U.S needs to assess U.S tax code for foreign companies.

While the purpose of the report was to compare foreign-controlled domestic corporations (FCDC's) to U.S. controlled corporations (USCC's), the report also showed that most of both do not have a tax liability in the United States.

We need to make sure that neither the good American citizens nor the legitimate and hard working businesses are not compromised by the nefarious dealings of a minority of unethical businesses and elites. Our tax and monetary policies should reflect honesty, integrity and reward work and talent, not corruption and cronyism and entitlement.

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Susan Duey represents RateTake Mortgage Loan marketplace. RateTake matches consumers with multiple lenders offering low mortgage rate quotes. RateTake also operates #1 American Mortgage

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