The US tax haul has lowered the rates for many companies, and many others who were already at the bottom of the scale have been able to stay there so far, a Wall Street Journal analysis shows.
Lower prices follow tax rules changes Congress adopted at the end of 2017. Since then, the journal analysis, the median-effective global tax rate for the S&P 500 companies, declined to 19.8% in the first quarter of 2019 from 25.5% to two years previously.
It marked the third straight quarter below 20% and is in line with the targets and structure of tax havens, which lowered the federal corporate rate to 21% from 35%. Law writers wanted to help US multinational companies compete in foreign markets and assist domestic corporations with high tax burdens, while reducing the value of tax breaks and making single tax rates more difficult.
Much of the decline comes because fewer companies pay the highest end prices, according to the journal analysis. Only 28 companies, including mining
, reported a global tax rate of over 32% in the first quarter, down from 1
Tax relief and labor law in 2017 limited deductions and introduced new minimum taxes on foreign income, although some of them contributed The changes were delayed until 2020. Thus, 119 S&P companies included
paid global tax rates below 12% in the first quarter. It is up from 93 companies before overhaul.
Companies usually do not show what they pay the Internal Revenue Service each tax year. However, public companies disclose their effective tax rates: measurement of taxes imposed under accepted accounting policies as a share of premium income.
These prices reflect global performance and include foreign and state taxes, not just what the companies owe to the US Treasury. Quarterly results can bounce around, hovered by one-off events. For many large companies, however, US federal taxes are the most important component.
A quarter of the S & P 500 companies reported effective global tax rates below 21% in each of the last four quarters, the journal analysis found. Businesses may end up paying less than the statutory price, even on US income, thanks to several breaks that reduce the tax bill, including export deductions and credits for business research.
Journal's analysis, using figures from CFO Calcbench Inc., omits tax rates reported for the last three months of 2017 and the first three months of 2018 quarters where many companies booked large, one-off changes changed according to the Tax Code. The results were similar when real estate companies, which tend to report very low tax rates, were left out. (See methodology note for more details.)
A separate analysis from the S&P Dow Jones Indices, found similar shifts in tax rates for S & P 500 companies since tax law decisions.
Outside the United States, companies pay local tax rates that may be much lower than what the IRS requires. In some cases, these low foreign rates will trigger a new remaining US tax. The global intangible low-tax income, or GILTI, will ensure that the companies pay at least 10.5% on most foreign income. These factors create variation among companies, such as regular settlements with the tax authorities, the mix of countries where profits are booked and other anomalies.
The decline in the median effective tax rate points to what could be an even more important shift: The range of tax rates reported by most major corporations has contracted under the new law.
In a broad sense, compression of corporate tax rates was one of the goals of overhaul. Those who pay the most, including large domestic companies such as dealers and utilities, can expect to pay less, while those with the lowest prices, often technical and pharmaceutical companies, as some say engaged in tax protection maneuvers, can expect to pay more because GILTI.
Retrieving the rates
Allocation of tax rates for S & P 500 companies before and after the decision of the 2017 tax refund.
Take for example
a manufacturer of veterinary medicines. Its tax rate fell to 18% in the first quarter from 28% two years earlier. While much of the decline stems from the reduction in the corporate tax rate, changes outside the US and one-time accounting adjustments have also had an effect.
Zoetis said that worldwide tax rates have fallen by 7 to 8 percentage points as a result of tax hacking. The company said that the global minimum GILTI tax is expected to increase its interest rate in 2019 by about 1 percentage point. That tax begins to affect the company in 2019 due to when foreign subsidiaries begin their fiscal year.
Lower prices mean less tax revenue for the government. So far this fiscal year, the federal government has raised $ 164 billion in corporate tax, an increase of 2% from the year before as the economy continues to grow, but 26% below where it was in the comparable period before tax legislation came into force.
Not all companies have lowered tax rates. About a quarter of the S & P 500 reported rates similar to those revealed before the audit, and around 17% said prices rose by 5 percentage points or more in recent quarters.
One company with consistent increases was
The company reported a tax rate of 14% over the four quarters of the Journal analysis following the tax law decision, up from an average of just under 6% before the tax change.
The new global minimum tax, together with another provision, increased by 2.3 percentage points to Hanesbrand's tax rate in 2018. Other violations and adjustments mostly offset each other for the year.
The company confirmed that the global tax rate increased with tax law. About 60,000 of their 68,000 employees work in facilities outside the United States. "As a result of owning and running our own global supply chain, the tax rate is lower than the US statutory rate," said a Hanesbrands spokesman. "It is one of the benefits of our business model to own and run the majority of our global supply chain."
Policy makers added more tax code provisions, including GILTI's global minimum tax, which would make it harder for companies to book ultra-low tax profits in foreign jurisdictions without paying US taxes on top of that.
Some companies with very low rates have managed to maintain them for now. Adobe said the fiscal year ended in November, so that the GILTI tax and other provisions of the new law did not come into force before that fiscal year.
reported quarterly tax rates of about 6% to 13% before the new law, compared to 6% to 11% after the audit.
In both periods, the chip designer products used in 5G network equipment are distributed on the bulk of their pretax revenue, which is attributed to foreign markets: 82% in the past year.
Xilinx, which has a regional headquarters and manufacturing facility in Singapore, has received "Pioneer Status" from the government there, and benefits from a preferential zero tax rate throughout the 2021 financial year.
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The company said that its obligations under the GILTI tax on foreign income offset some of the benefit of the low foreign interest rates. Nevertheless, the company's global tax rate was below 11% in each of the last four quarters and below 7% in two of them.
A spokesman for Xilinx refused to comment beyond information in their securities.
WSJ Methodology  The magazine analyzed quarterly information for companies in the S&P 500 index. It calculated tax rates by dividing the provision for income tax by maturity income, as given by CFO Calcbench.
Quarterly periods were adjusted so that the quarter including the date of the tax law's decision of 22 December 2017 was treated as the fourth quarter of 2018 for all companies, with other quarters renamed accordingly. The results for the fourth quarter of 2017 and the first quarter of 2018 were generally omitted from the analysis because the tax rates for many companies were dramatically offset by one-off accounting effects by adopting legal provisions.
The tax rates of individual companies can fluctuate dramatically from quarter to quarter for a variety of reasons, including settlements with the tax authorities and the effects of mergers and acquisitions. The analysis used median tax rates to minimize distortion caused by exclusion. In addition, due to the volatility, the analysis of tax convergence excluded the 10% of the companies with the highest tax rate and 10% with the lowest prices in each period.
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