Companies’ future tax rates may hinge on election results

By Hilary Russ

NEW YORK (Reuters) – Democratic presidential candidate Joe Biden has promised to push his own tax proposals on “day one” if he wins the election on Tuesday – including raising the corporate tax rate to 28% and doubling the rate to 21% on overseas profits from patents, copyrights and trademarks.

The higher rate on intellectual property would “be a significant change for a lot of companies” at a time when economic recovery from the coronavirus pandemic for employers is uncertain, said Daniel Bunn, vice president of global projects at the conservative Tax Foundation.

“It’s really important to recognize how serious of a tax hike this will be for companies and how out of line it will put our tax system relative to other countries,” Bunn said.

What Biden could actually accomplish may depend on whether Democrats take control of the Senate. Even then, many details could change during debate in Congress.

At the end of U.S. President Donald Trump’s first year in office, the government cut the corporate federal income tax rate to 21% from 35%, requiring some companies to pay less to federal coffers.

Even before that, giant tech firms including Amazon.com Inc and Apple Inc had been maligned for lowering taxes by parking profits offshore. Consumer companies including retailers also used offshore havens.

A snapshot of consumer companies over the last two decades shows a steady decline in tax rates that left several at or near their lowest in 2019 and 2020.

Nike Inc paid its lowest effective tax rate in at least two decades in fiscal 2020 of 12.1%.

On Thursday, Starbucks Corp reported a 20.1% effective tax rate for its fiscal 2020. That is only slightly higher than its 2019 rate of 19.5%, which was its lowest in 20 years.

Reuters reviewed annual reports going back to 1999 for seven U.S. multinational consumer companies in the S&P 100 that an October report from WalletHub said had the lowest 2019 overall tax rates.

Taco Bell parent Yum Brands Inc also reported its lowest rate in 2019 of 5.7%. The Coca-Cola Co’s effective tax rate was 16.7% last year, its lowest rate in two decades except for 2010, when it posted the same rate.

Nike and Yum did not respond to requests for comment.

Starbucks and Coca-Cola declined to comment on their low tax rates or Biden’s proposals.

Taxes for some companies have not fallen as steeply. McDonald’s effective tax rate for 2019 was 24.9%, lower than its average 31.67% rate over 20 years but not as dramatically.

Graphic: Select corporate effective tax rates 2019 – https://graphics.reuters.com/USA-ELECTION/CORPORATETAX/yzdvxawkbpx/chart.png

“If anything resembling Joe Biden’s tax plan gets enacted, companies like Nike will be less able to shift intangible profits into tax havens,” said Matthew Gardner, a senior fellow at the liberal Institute on Taxation and Economic Policy.

“That’s going to help bring an end to the offshore gamesmanship,” Gardner said.

According to media reports stemming from the “Paradise Papers” – documents from the law firm Appleby leaked to German reporters and made public in 2017 – officials in the Netherlands allegedly allowed Nike to shift profits from intellectual property rights from high-tax Europe to subsidiaries in low-tax Bermuda. The scheme is now under investigation by the European Commission.

(Reporting by Hilary Russ in New York; Additional reporting by Richa Naidu in Chicago and Siddharth Cavale in Bengaluru; Editing by David Gregorio)