NEW YORK ( TheStreet) -- General Electric, (GE), Citigroup (C), and other giant U.S. multinational financial companies are breathing a sigh of relief after Congress extended a key tax break though 2013 following the resolution of the Congressional budget battle that was resolved late Tuesday.
Known as the "active financing exception," the provision allows U.S. financial multinationals to avoid paying taxes on interest income earned by foreign subsidiaries unless the income is repatriated into the U.S.
General Electric and Citigroup are among the top beneficiaries of the tax deal, since they are among the more active overseas lenders among U.S. companies. The provision saved GE about $3 billion in taxes in 2011, and it saved Citigroup about $1 billion each in 2010 and 2011.
The provision by itself should allow GE, Citigroup and other companies to keep their tax rate well below the statutory rate of 35 percent, according to corporate tax consultant Robert Willens, head of Robert Willens LLC.A Citigroup spokeswoman declined to comment on the extension of the loophole. A General Electric spokesman declined to comment. "This is a load off the shoulders of multinational financial organizations, particularly GE, since it gives rise to a substantial reduction in these companies effective tax rates," Willens says. Though Congress repealed the active financing loophole in 1986, it was reinstated "temporarily" in 1997, and has been regularly extended since that time, according to Wayne State University Linda Beale writing in her blog, ataxingmatter. It had not been extended for 2012, pending resolution of the budget battle ahead of the impending "fiscal cliff" of automatic wide-ranging spending cuts and tax hikes. The active financing exception was one of several tax breaks that have been regularly extended by Congress in recent years as part of a package known in tax circles "the extenders." Also receiving Congressional approval late Tuesday was the extension of a research tax credit, granted to companies that increase spending on research above a certain base level. The credit allowed Caterpillar Inc. (CAT) , to cut its tax bill by 2.3%, or $152 million in 2011. Other beneficiaries were Pfizer (PFE), which saved $127 million, or one percent of its 2011 pre-tax income, and Amazon.com Inc. (AMZN), which saved 3.2%, or nearly $30 million.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV