Corporations paid an average aggregate tax rate of 16 percent on that GILTI income, with 5.5 percent paid to the IRS and the remainder paid to foreign governments.
The study also found that business investment in plant and equipment, as well as employment, increased in the US after the law went into effect.
The report comes as Democrats looking for budget savings to fund their spending initiatives with big tickets keep an eye on multinational corporations. Senate Finance Chairman Ron Wyden (D-Ore.) Is preparing to release a new international tax framework that is expected to include stricter regulations such as GILTI. His committee plans to hold a hearing on international tax rules on Thursday.
Democrats, who have long argued that companies don’t pay nearly enough, are likely to see reported tax rates as far too low. Republicans are likely to be delighted with the JCT gains in US investment and employment.
The report is a rare glimpse into the tax life of multinational corporations under the 2017 Tax Act. Unlike outside researchers, JCT has access to private tax returns from corporations, which give them an unusually clear view of what they are doing.
However, the agency could only look to the 2018 tax year as the payments reported by the companies have been delayed for years. With the Tax Cut and Employment Act incorporated into the act in December 2017, it is unlikely that many companies would have been able to take significant steps in response to the act by 2018.
However, the analysis offers some insight into the early impact of the legislation that lowered the corporate rate, allowed companies to take large investment withdrawals, and rewrote much of the US tax system for cross-border companies.
The average tax rate actually paid by companies fell 51 percent to 7.8 percent from 16 percent in the previous year, the report said.
The tax rate was higher when considering deferred taxes that will be paid in the future. This is an estimate of how companies will estimate their long-term tax rate. The average rate thus fell from 19.7 percent in 2017 to 13.1 percent.
The interest rates were higher for transactions with major trading partners. Companies paid an average rate of 8.7 percent for profits in Europe and 18.1 percent for the revenues of the ten largest trading partners in the United States.
The report shows that companies are making extensive use of offshore tax havens. About 10 percent of their overseas profits were posted in Bermuda, where they paid the local government a 0.4 percent tax rate. Another 9 percent was parked in the Netherlands, where they paid 3.9 percent; and 8.3 percent in the UK (with a tax rate of 10.6 percent paid there).
It did so when companies in major markets like China, Canada, Germany, and Mexico with much higher tax rates reported far more investments in property, plant and equipment and many more employees – albeit fewer profits.
For example, 10 percent of foreign workers were in India, where Indian government companies paid an average tax rate of 40 percent, the report said.
The report shows that GILTI successfully taxed money that was thrown away in other low-tax countries. Before the TCJA, companies could indefinitely avoid taxes on this money as long as they didn’t bring it back to the US
However, Democrats are likely to complain that the GILTI rate of 5.5 percent is too big a discount to the domestic tax rate of 21 percent, even when taxes paid to foreign governments are factored in.
The report also shows that corporate investment in property, plant and equipment in the US rose 6.4 percent in 2018. Here, too, the number of employees rose by 3 percent and at US companies operating in other countries by almost 14 percent.