updated 2:28 PM CEST, May 24, 2023

As expat small-biz owners struggle, new report shows dozens of U.S. multi-nationals paid $0 Fed taxes in 2020

The financial district of lower Manhattan Brandon Jacoby for Unsplash The financial district of lower Manhattan

Days after an American owner of a small business located outside of the U.S. lost his legal bid to fix what he said was the harsh and unfair treatment by President Trump's 2017 tax reform bill of small businesses like his, a new study reveals that at least 55 of America's largest companies paid no taxes last year on billions of dollars in profits – helped in part by the same Trump legislation.

The report was compiled by the Institute on Taxation and Economic Policy, a Washington, D.C.-based research group in Washington, and made public today.

"At least 55 of the largest corporations in America paid no federal corporate income taxes in their most recent fiscal year, despite enjoying substantial pretax profits in the United States," the eight-page report begins by noting. The report is entitled "55 Corporations Paid $0 in Federal Taxes on 2020 Profits." 

"This continues a decades-long trend of corporate tax avoidance by the biggest U.S. corporations, and it appears to be the product of long-standing tax breaks preserved or expanded by the 2017 Tax Cuts and Jobs Act (TCJA) as well as the CARES Act tax breaks enacted in the spring of 2020," it continues.

"The tax-avoiding companies represent various industries and collectively enjoyed almost US$40.5bn  in U.S. pretax income in 2020, according to their annual financial reports. The statutory federal tax rate for corporate profits is 21%.

"The 55 corporations would have paid a collective total of US$8.5 billion for the year had they paid that rate on their 2020 income. Instead, they received US$3.5 billion in tax rebates."

In its story today on the ITEP report, The New York Times noted that the organization, which it called "left leaning",  "has been issuing a form of its report on corporate taxes for decades."

And during the 2020 presidential campaign, the NYT went on, the ITEP's findings "grabbed center stage, with Democratic candidates citing it to argue the tax code was deeply flawed."

The ITEP report is likely to infuriate many American owners of overseas small businesses, who, as a result of the so-called Transition Tax contained in the TCJA – which is what Monte Silver, the American small-business owner who brought the legal action in Washington that was dismissed by a judge in a ruling dated last Sunday, had been challenging, as reported – would have had to pay a one-off tax to the U.S. on previously-untaxed "foreign" earnings dating all the way back to 1986. The irony, for them, will be that they had to do this even as many of the  large U.S. companies that the TCJA was supposed to have been targeting, it now seems, paid even less tax than they would have had to pay, if not for the same legislation. 

In 2019, one such American small business owner told the American Expat Financial News Journal's readers, in a first-person account, how the Trump legislation seemed to leave him no choice but to either "wind down, or sell (to a non-American buyer) the pride and joy that is my business." Jethro, as he called himself in an effort to remain anonymous, had founded his company in 2016, and until that point, he said, it had managed to "thrive...in spite of Europe’s notorious red tape maze, and the EU's particularly high personal and corporate tax rates."

The reason he felt he had no choice but to wind down or to sell, he explained was "because the new, retroactive U.S. tax on the retained earnings of companies owned by Americans has now made it impossible for me – or any American owner of a small business – to compete outside of the U.S." 

To read the story of "Jethro" and his company, click here.

To read and download the ITEP report, click here.

Editor's note: If you're an American owner of a small overseas business who has been affected by the Tax Cuts and Job Act, and its Transition Tax and/or GILTI tax elements in particular, and would like to share your own experiences or comment on the ITEP report's findings, let us know: This email address is being protected from spambots. You need JavaScript enabled to view it..