This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

General Electric, Citigroup Tax Break Intact After Fiscal Cliff Deal

NEW YORK ( TheStreet) -- General Electric, (GE - Get Report), Citigroup (C - Get Report), 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Though Congress repealed the active financing loophole in 1986, it was reinstated "temporarily" in 1997, and has been regularly extended since that time, according  to Wayne State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 - Get Report) , to cut its tax bill by 2.3%, or $152 million in 2011. Other beneficiaries were Pfizer (PFE - Get Report), which saved $127 million, or one percent of its 2011 pre-tax income, and Amazon.com Inc. (AMZN - Get Report), which saved 3.2%, or nearly $30 million.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AMZN $498.06 -1.30%
C $50.55 -2.40%
CAT $73.07 -1.90%
GE $23.95 -2.30%
PFE $31.32 -1.80%

Markets

Chart of I:DJI
DOW 16,077.89 -296.87 -1.81%
S&P 500 1,916.16 -34.97 -1.79%
NASDAQ 4,672.0680 -61.4290 -1.30%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs