Around the world, countries that have multinational corporations completing business transactions within their borders will tax the income that those companies generate. In the U.S. however, U.S. based multinationals are also taxed for income they’ve accumulated outside of the U.S. However, they receive a tax credit for any foreign income taxes they’ve already paid.
American residents with multinational businesses are taxed at the same rate as most domestic corporate income: 35%, the current maximum rate. Because multinational companies receive a tax credit for foreign income taxes they’ve already paid, many are able to use the credits earned from paying taxes in high-tax countries to counteract taxes they would have to pay for earning income in a country with lower taxes.
The statutory corporate tax rate in the U.S. has pretty much remained the same since 1986. Conversely, most other industrial countries have lowered their tax rates which has made the U.S. corporate tax rate higher than the top corporate tax rate of other leading economies.
Despite the high corporate tax rate, in 2014, the U.S. raised less revenue from corporate income taxes as a share of GDP than Japan, Canada, and Italy. Due to economic conditions and the sudden changes in investment incentives, corporate revenue has varied over the years in the U.S. — however, it has remained over 2% since the ‘80s.
The Congressional Budget Office has projected though, that corporate revenue will decline to about 1.5% of the GDP at the end of the next decade due to factors such as the continued shifting of overseas profits. If you have a client who has a multinational business, learn how to make sure they are reporting their earnings correctly by attending MSATP’s International Tax Seminar on Wednesday, October 17. To learn more about what the seminar will entail, watch our Facebook Live from last week with the seminar’s instructor, Eli Noff, of Frost & Associates.