Effective Supply Chain Management includes Tax Planning

Study by Americans for Tax Fairness and the Economic Policy Institute show Corporations pay less tax. 


Tax planning is a big part of where profits are booked, where procurement organizations are established, and how supply chain management is done.   Transfer pricing continues to be a significant source of controversy between the world’s tax authorities and multinational corporations (MNCs). And of course the tax inversion deals that have gone on in the USA highlight the issue of how big corporations can transfer profits to lower tax jurisdictions.

Tax policies provide both incentives and disincentives, but one thing is clear, big corporations continue to pay less and less in taxes in the United States on a relative basis. Companies have the resources to structure their supply chain and procurement operations in tax havens and report higher profits as a result. Of course, they are stuck with the repatriation problem, but that is another issue.

From the study :

“While the statutory tax rate on corporate income is 35 percent, estimates of the rate corporations actually pay put the effective rate at about half the statutory rate. Driving this divergence between what corporations are supposed to pay and what they actually pay is a combination of offshore profit shifting and tax avoidance. Multinational corporations pay taxes on between just 3.0 and 6.6 percent of the profits they book in tax havens.”

Key Findings

Corporate profits are way up, and corporate taxes are way down. In 1952, corporate profits were 5.5 percent of the economy, and corporate taxes were 5.9 percent. Today, corporate profits are 8.5 percent of the economy, and corporate taxes are just 1.9 percent of GDP.

  • Corporations used to contribute $1 out of every $3 in federal revenue. Today, despite very high corporate profitability, it is $1 out of every $9.
  • Many corporations pay an effective tax rate that is one-half (or less) of the official 35 percent tax rate.
  • As of 2015, U.S. corporations had $2.4 trillion in untaxed profits offshore. Another study, looking at S&P 500 companies, found they held $2.1 trillion as of 2014. This roughly five-fold increase from $434 billion in 2005 stems largely from anticipation of a tax holiday.
  • Just two industries—high-tech and pharmaceutical/health care—hold half the untaxed offshore profits.
  • Just 50 companies hold over 75 percent of untaxed offshore profits. Ten companies hold 39 percent of these profits. Just four companies—Apple, Pfizer, Microsoft, and General Electric—hold one-quarter of all untaxed offshore profits.
  • About 55 percent of U.S. corporate offshore profits are in tax-haven countries. Corporations pay an average tax rate of between just 3.0 percent and 6.6 percent on profits in tax havens.
  • U.S. corporations pay very low tax rates—6 percent to 10 percent, mainly to foreign governments—on all their offshore profits.

JFK made this quote about corporate taxes over 50 years ago!….   “Recently more and more enterprises organised abroad by American firms have arranged their corporate structures aided by artificial arrangements between parent and subsidiary regarding intercompany pricing, the transfer of patent licensing rights, the shifting of management fees, and similar practices[…] in order to reduce sharply or eliminate completely their tax liabilities both at home and abroad.”3

How times haven’t changed in some ways!

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