Publication: USA Today
By Matt Krantz August 26, 2014 8:00 am
Nobody likes to pay taxes. But some companies are taking cutting their tax bills to an art form that might be impossible to maintain long term, according to a report by Gradient Analytics.
Gradient Analytics’ analyst Nicholas Yee found six companies, including Celgene (CELG), Altera (ALTR), VMware (VMW), Nvidia (NVDA), Lam Research (LRCX) and Synopsys (SNPS) are using a variety of techniques to shift pretax profits to lower-tax areas, which are aggressive enough that they could attract attention from tax rule makers. Others have gotten tax benefits that are ending or already face Internal Revenue Service reviews.
There’s nothing necessarily nefarious about companies looking for ways to cut their taxes. But investors are growing increasingly interested in whether U.S. tax authorities will look to curb some of the techniques that are being used by companies. The fear is that some companies’ earnings could be at risk if tax policy makers invalidate tax-reduction techniques used, Yee says.
Analysts often assume that tax-lowering strategies can be relied up and base their estimates on that assumption. But if a company is forced to change its tax policy, that can result in earnings not meeting investors expectations, Yee says.