Multinationals reported paying more than $128 billion in foreign income taxes in 2010, prior to paying taxes in the U.S.
Washington, DC —The question of how much multinational corporations pay in taxes has been a popular topic in the news for several years. Many of the more sensational stories lead people to believe that U.S. companies pay little or nothing in taxes on their foreign earnings. However, according to a new study from the nonpartisan Tax Foundation, IRS data shows that U.S. multinational corporations reported paying more than $128 billion in corporate taxes to foreign countries on $470 billion of taxable income in 2010—an effective rate of 27.2 percent before also paying U.S. taxes.
The report’s key findings include:
- The United States’ worldwide system of corporate taxation requires multinational corporations to pay taxes twice, first to the foreign country in which they do business and then to the IRS after they repatriate their profits.
- Multinational corporations reported paying $128 billion in corporate taxes to foreign countries on $470 billion of taxable income in 2010, according to most recent IRS data.
- Over the past eighteen years, foreign corporate taxable income has grown by about 250 percent and foreign corporate taxes paid by 265 percent, while the effective tax rate has remained around 26 percent.
- The effective tax rate on foreign income was 27.2 percent in 2010, prior to paying additional taxes to the United States.
- More than 60 percent of all reported foreign taxable income was earned in Europe and Asia in 2010.
- The effective tax rate faced by U.S. multinationals abroad varies substantially by region and country and is higher than 60 percent in some nations.
- While some corporations pay low effective rates in some countries on foreign income, U.S. multinationals faced effective rates over 20 percent on most income earned overseas, prior to paying taxes to the United States.
- 60 percent of income earned abroad was by manufacturers. Most was income from petroleum and coal manufacturers, who paid an average effective tax rate of 36 percent.
“While it is undoubtedly true that U.S. multinational firms use numerous tax planning techniques to minimize the taxes they pay on their foreign earnings, IRS data dispels the narrative that they pay little to no taxes on foreign income,” said Tax Foundation Economist Kyle Pomerleau.
Many of the claims about corporate tax avoidance stem from a misunderstanding of how U.S. international tax rules work. Those who criticize U.S. companies for “avoiding” taxes on their foreign earnings need to be more careful with their language and acknowledge that our worldwide tax system requires U.S. firms to pay taxes twice on their foreign profits, once to the host country and a second time to the IRS. Any discussion about reforming the corporate tax code must keep these facts in mind.
Full Report: How Much Do U.S. Multinational Corps. Pay in Foreign Income Taxes?