BBRG: Good Beginning for Ending Corporate-Tax Avoidance

Warren Has a Good Beginning for Ending Corporate-Tax Avoidance
Something’s not right when the most profitable companies can avoid paying their share.
Bloomberg, April 15, 2019




Each year, publicly traded corporations prepare two sets of books. The first is a basic quarterly profit and loss statement that is widely disseminated to shareholders, analysts and the media.

The second is the firm’s annual corporate tax filing, submitted to Uncle Sam. It includes a statement of the year’s profits, on which tax obligations are owed to the government — if any.

The differences between these two reports can be very different. For companies such as Apple Inc. and Inc., these two numbers can vary by tens of billions of dollars.

It isn’t that either of these numbers are false; but rather, they are more like opinions prepared using very different standards. Quarterly earnings use generally accepted accounting principles. These accounting rules have been adopted by the Securities and Exchange Commission (SEC) as acceptable legal guidelines for reporting earnings. For corporate taxes, the rulebook is the Internal Revenue Service guidelines, which look nothing like GAAP. For example, depreciation expenses are part of corporate overhead — affecting profits like any other spending would — but its impact can dramatically reduce what is owed in taxes. Similar issues arise with other aspects of corporate profitability, such as stock options, fringe benefits and debt servicing.





I originally published this at Bloomberg, April 15, 2019. All of my Bloomberg columns can be found here and here



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