Tax

To Foreign-owned Firms: An IRS Thank You

U.S. reports sharp rise in profits of companies with foreign control, along with a hefty increase in tax receipts.
Stephen TaubAugust 19, 2008

Foreigners are playing a fast-growing role in the U.S. economy — and paying an increasing share of corporate taxes compared to domestically controlled companies — according to a new Internal Revenue Service study.

IRS data from the 2005 tax year (the most recent available) shows that there were 61,820 foreign-controlled domestic corporations (FCDCs) then, accounting for just 1.1 percent of the total of all U.S. corporations. However, FCDCs generated $3.5 trillion of total receipts with $9.2 trillion of total assets, accounting for 13.7 percent of receipts and 13.9 percent of assets reported on all U.S. corporation income tax returns.

In addition, profits reported by FCDCs for tax purposes were $165.2 billion, an 81.9 percent increase from $90.8 billion reported in the prior year. (The IRS uses net income less deficit to indicate the profit line.)

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The U.S. tax liability for FCDCs (total income tax after credits) was $42.4 billion for 2005, a 41.7 percent increase over 2004.

The study also found that of all FCDCs, 30,870 reported net income for 2005, totaling $201.6 billion. This was 46.1 percent more than the prior-year amount.

Profitable companies for 2005 also reported $153 billion of taxable income, an increase of 46.1 percent over the prior year. U.S. tax liability (total income tax after credits) of FCDCs was $42.4 billion for 2005, a 41.7-percent rise.

Because of the relatively rapid growth rate of FCDCs, their share of the receipts reported on all corporate returns increased from 10.7 percent for 1996 to 13.7 percent for 2005, according to the IRS.

The growth of FCDCs can also be measured from the early 1970s, when a question concerning foreign ownership of corporations was first placed on the income tax return, the IRS noted. Specifically, in 1971 the 5,154 FCDCs reported $36.7 billion of total assets and $39.2 billion of total receipts. At the time, they accounted for just 0.3 percent of the returns, 1.3 percent of the assets, and 2.1 percent of the receipts reported by all corporations for that year.

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