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
TheStreet Open House

General Electric, Citigroup Tax Break Intact After Fiscal Cliff Deal

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Though Congress repealed the active financing loophole in 1986, it was reinstated "temporarily" in 1997, and has been regularly extended since that time, according  to Wayne State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.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

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.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,265.99 +109.14 0.64%
S&P 500 2,011.40 +9.83 0.49%
NASDAQ 4,591.0970 +28.9080 0.63%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs