Although it is said that taxes are too high in USA, but still multinationals are paying less than they should actually pay. Multinational have a huge setup and they are enjoying greater sales and high profit but they manage to dodge the taxes. According to the study reported in Forbes magazine General Electric won’t owe any U.S. taxes for 2009, but will instead receive more than $1 billion dollars of tax benefits. That’s in spite of the fact that GE generated more than $10 billion in income last year.
Multinationals have subsidiaries and branches in many other countries. They do not base their setup in one country. Their manufacturing setup is in a country which has low-cost labor and utility. Similarly, their distribution setup is in the country from where supply is easy. The most common way through which the companies dodge taxes is that they show a loss in the setup which is situated in the USA and they show profits in other countries. They also dodge taxes by moving ownership of profitable assets to overseas subsidiaries while incurring expenses in the U.S. companies can avoid being taxed here where tax rates are relatively high.
US administration is trying to find a way through which tax dodging can be stopped. One of the proposition is to get rid of tax deferrals on income earned overseas, so that if companies pay lower tax rates in other countries we could require them to pay the difference.
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