« November 2010 | Main | May 2011 »

"Imagination at Work". When Tax Planning Violates No Law?

Many large multinational corporations in the US have found innovative, above-board ways to reduce their tax burden.  The strategies, when implemented in some situations, completely eliminate the companies tax liability.  Reportedly, this is the case for GE in 2010.

Opponents of sophisticated tax planning, used by companies such as GE, worry that these corporations are not paying their fair share to the government, while smaller less strategic individuals and businesses have to carry the full burden.  

According to an article in the New York Times entitled, "G.E.'s Strategies Let It Avoid Taxes Altogether", tax receipts from large corporations have decreased from 30% in the 1950's to 6.6% in 2009.  

What must be factored into this statistic is the fact that there are more corporations, more individuals and more income streams available for the government to raise revenue from than there were in the 50s. This may distort this statistic in such a way that the actual change in the corporate share of tax receipts may not be as glaring.  However, it is undeniable that tax planning has contributed to this decrease because of the growing presence of tax professionals working in-house for many of these companies.  

Supporters of these strategies defend it as necessary to remain competitive.   In addition, many companies cite shareholder obligations as an strong argument for pursuing an aggressive tax planning agenda.  

If there is no violation of provisions within the code, then should companies like GE refrain from taking the maximum benefit of tax strategies that they develop?  Presumably, not trying to maximize shareholder value would expose these companies to other forms of liability (i.e. shareholder lawsuits).  

However, if no large companies are paying taxes to the US Government then these companies may be obtaining an advantage from being present in the US without the communal responsibility that all citizens share when they pay their taxes.  I'm sure these companies would argue that they provide a benefit by employing those in the community and making contributions to local charities and supporting various local causes.  

What is the right answer?  

Marsha Henry