27 giant profitable companies paid no taxes

March 08 05:22 2016

Death and taxes are supposed to be two certainties of life. But a few companies have at least escaped the taxes part. There are 27 companies in the Standard & Poor’s 500, including telecom firm Level 3 Communications (LVLT), airline United Continental (UAL) and automaker General Motors (GM), that reported paying no income tax expense in 2015 despite reporting pre-tax profits, according to an analysis of data from S&P Global Market Intelligence.

Only profitable firms were included in the analysis since firms that lost money – like many energy companies – wouldn’t be expected to pay taxes. Escaping the taxman, so far, hasn’t been an advantage at least in the eyes of investors. Shares of the companies that paid no taxes are down 11% on average over the past 12 months, which is more than twice the 4.8% decline by the S&P 500 during the same period. The underperformance might come as a bit of a surprise given how much time and effort some companies have put into lowering their tax bills.

“Income tax issues, while important, are not as important as how well as company is doing or how well an industry is performing,” says Bill Selesky, investment analyst at Argus Research. “It gets to be an issue that I would put at the bottom of the list.” Yet, investors have paid closer attention to the tax rates companies pay as profit growth continues to stall along with revenue growth. Companies must find any way possible to boost their bottom line, which for some involves looking for ways to reduce their tax liabilities

Some have taken advantage of lower overseas tax rates, a practice that has drawn criticism. Drugmaker Pfizer (PFE) last year, for instance, drew fire last year for a plan to merge with rival Allergan (AGN) and move its headquarters to Ireland. And on Sunday night, Presidential candidate Hillary Clinton took aim Johnson Controls (JCI), which is planning to merge with Tyco (TYC) and move its headquarters to Ireland. “I am also going to go after companies like Johnson Controls in Wisconsin,” Clinton said.  “They came and got part of the bailout because they were an auto parts supplier. Now they want to move headquarters to Europe. They are going to have to pay an exit fee. We are going to stop this kind of job exporting and we are going to start importing and growing jobs again in our country.”

Three of the 27 companies that paid no income tax in 2015 are based outside the U.S. including healthcare firm Mallinckrodt (MNK), financial firm Willis Towers Watson (WLTW) and insurer XL Group (XL).  Several are real-estate investment trusts (REITs). Their unique “pass-through” accounting, which shifts the tax burden to shareholders rather than the company itself, has become a more popular structure as companies look to convert to REITs.