page_title: Corporate tax in the United States
section_title: Tax deferral
hierarchical_section_title: Corporate tax in the United States / Tax deferral
caption_attribution_description: English: Deferred corporate foreign earnings 2001-2010.
context_page_description: Corporate tax is imposed in the United States at the federal, most state, and some local levels on the income of entities treated for tax purposes as corporations. Since January 1, 2018, the nominal federal corporate tax rate in the United States of America is a flat 21% due to the passage of the Tax Cuts and Jobs Act of 2017. State and local taxes and rules vary by jurisdiction, though many are based on federal concepts and definitions. Taxable income may differ from book income both as to timing of income and tax deductions and as to what is taxable. The corporate Alternative Minimum Tax was also eliminated by the 2017 reform, but some states have alternative taxes. Like individuals, corporations must file tax returns every year. They must make quarterly estimated tax payments. Groups of corporations controlled by the same owners may file a consolidated return.
  Some corporate transactions are not taxable. These include most formations and some types of mergers, acquisitions, and liquidations. Shareholders of a corporation are taxed on dividends distributed by the corporation.
context_section_description: Deferral is one of the main features of the worldwide tax system that allows U.S. multinational companies to delay paying taxes on foreign profits. Under U.S. tax law, companies are not required to pay U.S. tax on their foreign subsidiaries’ profits for many years, even indefinitely until the earnings are returned to U.S. Therefore, it was one of the main reasons that U.S. corporations paid low taxes, even though the corporate tax rate in the U.S. was one of the highest rates (35%) in the world. Although, since January 1, 2018 the corporate tax rate has been changed to a flat 21%.
  Deferral is beneficial for U.S. companies to raise the cost of capital relatively to their foreign-based competitors. Their foreign subsidiaries can reinvest their earnings without incurring additional tax that allows them to grow faster. It is also valuable to U.S. corporations with global operations, especially for corporations with income in low-tax countries. Some of the largest and most profitable U.S. corporations pay exceedingly low tax rates through their use of subsidiaries in so-called tax haven countries.  Eighty-three of the United States's 100 biggest public companies have subsidiaries in countries that are listed as tax havens or financial privacy jurisdictions, according to the Government Accountability Office.
  However, tax deferral encourages U.S. companies to make job-creating investments offshore even if similar investments in the United States can be more profitable, absent tax considerations. Furthermore, companies try to use accounting techniques to record profits offshore by any way, even if they keep actual investment and jobs in the United States. This explains why U.S. corporations report their largest profits in low-tax countries like the Netherlands, Luxembourg, and Bermuda, though clearly that is not where most real economic activity occurs.
caption: Deferred U.S. corporate foreign earnings 2001–2010.
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