Update: March 28, 2011: Our story, “More on GE and Taxes,” provides the latest update.
Recently, some news stories have suggested that GE owes no income tax or questioned why GE’s consolidated tax rate in the last few years has been lower than historical levels and lower than the U.S. statutory rate. These stories have grossly simplified the facts concerning GE’s recent tax rates. An article in today’s New York Times (“At GE on Tax Day, Billions of Reasons to Smile”) presents a particularly distorted and misleading account of GE tax payments. A few facts about GE missing from the Times story:
- GE pays what it owes under the law and is scrupulous about its compliance with tax obligations in all jurisdictions. We are committed to acting with integrity in relation to our tax obligations. At the same time, we have a responsibility to our shareholders to reduce our tax costs as the law allows.
- Significant losses at GE Capital during the financial crisis, largely in the United States, reduced GE’s overall tax rate below historic levels the past few years. Those losses and the subsequent reduction in taxes owed is not a “tax avoidance” strategy. Taking out GE Capital makes GE’s effective tax rate 21% over the past several years. GE’s consolidated (or overall) effective tax rate prior to the financial crisis was in the teens to more than 20%.
- GE’s industrial tax rate averages well above 20% historically. In 2010, the tax rate for GE’s Industrial businesses was 17%, lower than historical levels due largely to settlements in routine tax audits that reduced our rate by almost 5 points. Excluding the benefit from audit resolutions for previously booked taxes, and restructuring and environmental charges, GE’s Industrial tax rate would have been about 23% — in line with historical averages
- GE’s tax rate will be higher in 2011. In 2011, we expect a higher tax rate as GE Capital continues to recover, the one-time factors that reduced 2010 are not expected to repeat, and because we expect higher taxes on the sale of NBCU.
- GE paid almost $2.7 billion in cash taxes in 2010 on a consolidated basis (almost 19% of pretax income from continuing operations).
- GE paid significant U.S. income tax in 2010 and in total from 2006-2010. Over the past 10 years, GE has paid almost $23 billion of corporate income taxes to governments around the world, making it one of the highest payers of corporate income taxes. As disclosed in the cash flow statements of the 10-K, we paid over $14 billion of income taxes to governments around the world over the past 5 years.
- A tax “benefit” is not a refund or a rebate. GE did not receive payment back from the government as a result of the tax benefit. The “tax benefit” reported in our financial statements was the “U.S. current tax provision on continuing operations” which is a book accounting concept and is not the same as our cash tax liability or cash tax payments. There was a benefit in our current tax provision because we didn’t end up owing taxes we had accrued in prior years. This tax benefit resulted from reversing the taxes we had accrued in prior years, but much of this benefit was offset by increases in our tax liability for future years.
- The Times erroneously suggests GE makes use of tax “loopholes” or “innovative accounting.” Our accounting and tax positions fully comply with all applicable rules and regulations and are based on sound public policy. Virtually all major industrialized countries tax only domestic, not foreign business income. In the United States, there is a similar concept, called deferral. Deferral for active non-U.S. financial services income has been a long-standing feature of U.S. law, except for a brief period of time. Due to government budget constraints, it is now subject to periodic expiration, but it has been renewed by the Congress and U.S. Presidents with strong bipartisan support six times. GE supports this sound policy, which is aligned with international norms and is vital for U.S. competitiveness.
Here are some other facts about GE’s taxes:
- In addition to corporate income taxes, GE pays many other taxes including payroll taxes on the wages of our employees, property taxes, sales and use and value added taxes. These so-called “indirect” taxes are accounted for as part of GE’s operating expenses but are a significant source of funding for U.S. federal, state and local and foreign governments.
- Over the past decade, GE’s global growth has increased, as reflected in the percentage of our global revenue and income — and this results in lower taxes from operations in countries with lower tax rates than in the U.S. While GE has been, and continues to be, one of America’s leading exporters, competing globally often requires a local presence and, in many cases, local business partners.
- GE competes against strong global companies, many of which are headquartered outside the U.S. It is essential that the U.S. tax system remains competitive, including on financial services. Reducing the rate of income tax on global operations helps GE stay competitive in non U.S. markets and global success, in turn, increases U.S. exports and jobs.
- Since 2009, GE has announced the creation of more than 6,300 new U.S. manufacturing jobs, which will bring to nearly 50,000 the number of GE employees working to produce American-made goods the company sells around the world as part of its $17 billion-per-year in U.S. exports.
* For more on GE’s taxes, please see pp. 31-34 in our 2010 10K filing, available here: http://www.ge.com/investors/financial_reporting/index.html
* Read excerpts from GE’s response to The New York Times’ David Kocieniewski regarding GE Taxes