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Biggest Corporations Pay Only 9% of Income as Federal Tax
While there has been a huge amount of discussion about whether rich individuals should pay more tax or less, there has been surprisingly little discussion about the top corporate rate. Currently it is 35%, but in practice big companies pay only about 9%. Some of the difference is due to credits they get for paying foreign taxes, but much of the reduction is due to clever accounting tricks. For example, a multinational with offices all over the world can sell its patents to its subsidiary in, say, the Cayman Islands. Then when the company needs to use these patents, it pays massive licensing fees to the subsidiary. These fees are a cost of doing business and are deductible for the corporation's U.S. tax, reducing its U.S. profit and thus tax. Of course, the subsidiary in the Cayman Islands will have enormous income and no expenses so it will have a very large taxable income there. But fortunately for the corporation, the Cayman Islands do not levy a corporate income tax. This is perfectly legal and schemes like this are widespread. Clearly one way to reduce the federal deficit is for Congress to change the law so as not to recognize transactions that have no business value, only tax value. But that doesn't seem to be on the agenda.
Full story: http://www.nerdwallet.com/blog/markets/2012/corporate-taxes-only-9-percent/#.UCEmOkSfuL