Washington– Business Roundtable, an association of CEOs of leading U.S. companies, today released the findings of a study it commissioned of PwC (PricewaterhouseCoopers LLP) which examined the global effective corporate tax rates reported by U.S. and foreign-headquartered companies on their financial statements. The study found that, among the companies on the Forbes Global 2000 list for 2010, U.S.-headquartered companies had an average financial statement effective tax rate of 27.7 percent over the 2006-2009 period, compared to an average rate of 19.5 percent for their foreign-headquartered counterparts.

In addition to the U.S. company financial statement effective tax rate being significantly above that of their foreign counterparts, the statutory corporate tax rate – the rate on which business investment decisions are generally premised – is currently the second highest in the OECD, and is more than 14 percentage points higher than the average for the rest of the OECD.

“American businesses and workers are at a severe competitive disadvantage because U.S. companies are burdened with both statutory and effective rates that are higher than those faced by most foreign-headquartered competitors,” said Gov. John Engler, President of Business Roundtable. “Our tax system has not kept pace with the rest of the world and is hurting the ability of American businesses to create jobs at home.” 

“The international trend overwhelmingly is for lower tax rates on corporations. Globally, countries have enacted – and continue to enact – significant corporate rate reductions while the U.S. has stood still since 1986. Although it is well known that the U.S. has a higher statutory corporate tax rate than its foreign competitors, the findings of this study illustrate that the effective tax rate of American companies is also generally higher,” said Dr. Andrew Lyon, Principal, National Economics and Statistics practice at PwC. “The financial statement effective tax rate used in this study is the commonly reported total effective tax rate – representing income taxes due to all levels of government in the U.S. and abroad as a percent of global pretax income.”   

The study found that American companies faced a higher financial statement effective rate than all countries that are home to companies on the Forbes Global 2000 list except for Japan (38.8 percent), Morocco (33.9 percent), Italy (29.1 percent), Indonesia (28.1 percent) and Germany (27.9 percent).

“American corporations today face a tax burden far higher than corporations headquartered in what are traditionally viewed as high-tax countries. Our companies also struggle under an outdated ‘worldwide’ tax system that taxes companies twice and further erodes U.S. competitiveness,” continued Engler.

The U.S. is the only G-7 country that taxes overseas earnings when they are brought back home. Nearly all other developed countries have adopted “territorial” tax systems that largely exempt active foreign earnings from additional home country taxation.

“American job creation depends on the ability of U.S. companies to compete and succeed here and abroad. The time to reform our tax system is now,” said Engler. “We will continue working with the Administration and Congress to enact effective tax reform that significantly lowers the corporate rate and moves to a territorial system like the rest of the world.”

For more information, please click here to view the full study.