U.S. companies face the sixth-highest effective tax rate in the world, according to a study by PricewaterhouseCoopers LLP.
The tax rate faced by the largest U.S. companies between 2006 and 2009 was 27.7 percent, compared with a non-U.S. average of 19.5 percent, according to the study released today. Companies based in Japan, Morocco, Italy, Indonesia and Germany faced higher tax rates. Excluding the U.S., companies based in industrialized countries had an average rate of 22.6 percent.
“Our tax system has not kept pace with the rest of the world and is hurting the ability of American businesses to create jobs at home,” said John Engler, president of Business Roundtable, an association of chief executives based in Washington, which commissioned the study.
The study may help shape the debate over rewriting the U.S. tax code. President Barack Obama has asked Congress to lower the 35 percent corporate tax rate and remove tax credits and deductions to make up for the forgone revenue.
Business groups also want the U.S. to switch to a territorial tax system, which would not tax U.S. companies on profits they earn in other countries. The U.S. requires companies to pay the top corporate rate of 35 percent on profits earned outside the country, though it allows companies to defer taxation until they bring the profits home. Other countries, including Japan and the U.K., have recently switched to a territorial system.
Effective Tax Rates
The report excluded oil and gas companies, which often face higher taxes when they extract natural resources. It also excluded companies for years in which they had negative pretax income. The study included at least one year of data for 484 U.S. companies and 1,336 non-U.S. companies.
The study examined taxes as reported for book accounting purposes. That means it typically reflects tax obligations and benefits as companies accrue them, not as they are paid. It also does not differentiate between taxes paid to governments in companies’ home countries and taxes paid to other governments.
Many of the countries with the lowest effective tax rates, including Hungary, Oman, Panama and Qatar, have much smaller economies and far fewer large companies than the U.S.
© Copyright 2017 Bloomberg News. All rights reserved.