Corporate Tax Avoidance

Not to pick on just Microsoft, but they typify the method that large US multinational use to lower taxes, and thus "beat on earnings". This is rarely if ever discussed. Here is MSFT's income tax discussion.  They lower their effective tax rate a full 7% by  taking foreign income to $19.2 billion from $15.4 billion, and lowering US income (and expenses) from $9,6 billion to $8.9 billion. Today MSFT is effectively a 68% foreign operation.  In return they get all the benefits of stimulus and minimizing the costs of supporting the US system.





Twelve months ended June 30, 2011 compared with twelve months ended June 30, 2010

Our effective tax rates for fiscal years 2011 and 2010 were approximately 18% and 25%, respectively. Our effective tax rate was lower than the U.S. federal statutory rate and our prior year effective rate primarily due to a higher mix of earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland, Singapore, and Puerto Rico, which are subject to lower income tax rates. In fiscal years 2011 and 2010, our U.S. income before income taxes was $8.9 billion and $9.6 billion, respectively, and comprised 32% and 38%, respectively, of our income before income taxes. In fiscal years 2011 and 2010, the foreign income before income taxes was $19.2 billion and $15.4 billion, respectively, and comprised 68% and 62%, respectively, of our income before income taxes. In fiscal years 2011 and 2010, the reduction of the U.S. federal statutory rate as a result of foreign earnings taxed at lower rates was 16% and 12%, respectively.

One of the big economic winners, Apple Computer is even worse, hardly paying a thin dime to a US Gumnut tottering towards insolvency. Here is a big picture of this foreign company getting US benefits going back a few years.  Little wonder some much largesse flows into the hands of so few. Matt Taibii gets into some of the particulars.    Bloomberg’s Jesse Drucker estimated that Google all by itself has saved $3.1 billion in taxes in the past three years by shifting its profits overseas.  If the US is looking for a source to close it's out of control deficits I have some suggestions.

source: Capital IQ

Looking at the Daily Treasury Statement for the calender year through July 20, one can easily view the impact of these loopholes and deals that have been cut with the corporation sector at large.  When one hears talk of tax reform, and closing tax loopholes, prepare to duck and cover if you are an ordinary American.  Taxes collected for CY 2011 for the corporation year to date were $131.5 billion, versus $167.2 billion for the same period in CY 2010, down nearly 17% YoY. Little wonder there are so many earnings beats from the corporate sector.  Often taxes paid is a good measure of the reason. Works great as long as you ignore the fiscal blowback.

Mark Kreiger writes a spot on piece on the high end luxury bubble.  All I can say on this one is "that great minds think a like". These are basically my quotes and key points. Here is one classic and to readers familiar sounding  gem,  "The social crisis facing the country as a result of the most egregious plundering in modern American history will spell the end of the “high end” theme.  Buying into this trend now is like getting long Marie Antoinette’s unsevered head in 1792."     In addition he references the Bloomberg article about cash strapped consumers going to credit cards to support fuel and food consumption.

 “The swings in purchases of fuel and food have been “dramatic,” Tavares said. The volume of gasoline purchases placed on credit cards jumped 39 percent last month from a year earlier, compared with a 21 percent increase in June 2010, he said. Food shopping increased 5 percent.