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General Electric: 2010 profit=$10 billion Taxes=$0!

You’ve probably heard this by now. General Electric (GE) is paying no taxes in the US despite more than $10 billion in profits for the accounting year 2010! How can this be!? I’s earning a fraction (a tiny, little, minute fraction of the $10 billion to be clear) and I’m paying taxes!!

US corporations are usually taxed around 35% of the income! US GAAP indicates a 40% tax rate. Whats going here? The GE chief Immelt spoke recently and defended the position. He said

“At GE, we do like to keep our tax rate low, but we do it in a compliant way, and there are no exceptions,”

How could a company be a 100% compliant, have income and still pay no taxes! Well there could be many reasons for a situation like this to occur. In the case of GE, a company that has operations in 100s of countries with various operating entities, it reports profits for each country and entity separately. It so happens that it made no profits in the US while its international business was  profitable. And since it was not repatriating its profits back to the US this year (parking profits overseas) it did not have to pay taxes in the US!

There could be other reasons too for this situation arise. Lets look at one more situation as an example. A company may have profits and taxes due in a year but because prior year’s tax assets offset the taxes due, it could end up not paying any taxes.

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