Page 71 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Indirect Tax Laws

Notes Self Assessment

State whether True or False:
9. Any person who is entitled or required to appear before a Central Excise Officer or the
Appellate Tribunal in connection with any proceedings under this Act.

10. The Central Board of Excise and Customs may, from time to time, issue orders or
instructions or directions fixing such product limits.



Case Study GE’s Taxes: A Case Study

ORTUNE - GE’s tax department is well known for its size, skill and hiring of former
government officials. About 20 years ago, GE’s tax employees totalled a few hundred
Fand were decentralized. Today, there are almost 1,000. The department’s strong
suit? Reducing the taxes GE reports for earnings purposes.

GE, like other publicly traded companies, publicly reports one set of tax numbers to
calculate its earnings but uses a different set, which remain confidential, to calculate what
it owes the tax collector. The lower the taxes GE (GE) reports, the higher its publicly
reported profits. And the higher its profits, presumably, the higher its stock price goes.

That is the holy grail sought by GE and countless other companies. Thus the tax department
can be like a profit center of its own — perfectly legally, we might add.

For example, GE boosted its 2008 and 2009 reported profits by a total of about $1 billion
just by changing its mind about how it treated some of its overseas earnings.

Here’s why — and how — it works.
Many U.S. multinational corporations keep some profits abroad, none more than GE: Its
total was $94 billion at the end of last year. As long as corporations tell their accountants
they intend to indefinitely invest those profits outside the U.S., they don’t have to make a
provision for federal and state taxes on them. If the profits stay abroad, they remain
untaxed.

GE, in 2008 and 2009, told its accountants that about $3 billion of overseas profits were
going to be indefinitely invested abroad. Previously, the company had not made that
investment decision, so it was required to set aside a book keeping provision of about $1
billion for U.S. taxes. That provision impacted publicly reported earnings when it was
taken.
GE never actually paid the $1 billion in taxes. And it doesn’t say when the previous
accounting provision of $1 billion was taken. But, lo and behold, in 2008 and 2009, when
the company sorely needed higher profits, there they were, thanks to a tax benefit! It
didn’t have to sell more jet engines, or turbines, or kitchen appliances.

A leading tax accounting professor uses the GE shift as a case study in the flexibility of the
accounting rules. Ed Outslay, Deloitte/Michael Licata professor of accounting at Michigan
State University’s business school, says GE’s move shows the “discretion” inherent in the
accounting rule.

Contd....

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