"American" auto companies vs. "Foreign" ones

When a foreign company imports products into the US, they are required to set up a US sales and distribution subsidiary to sell them locally. If the company owns both the foreign manufacturing and the US sales subsidiary, it would be easy for the foreign manufacturing plant to charge the US subsidiary an amount of money for the imported car so that no profit is made in the US, and all the profit is made in Japan. Since income tax is paid on net profits (not sales) then all the taxes would be paid in Japan, and zero would be paid in the US.

Knowing this, the US government does not charge income tax on foreign companies, but instead charges a cash flow tax that taxes all net cash flow that leaves the US and is sent back to Japan. This allows the US to tax these foreign companies on net cash flow basis, who would otherwise never pay income taxes in the US because they would always show a loss on a net profit accrual accounting basis.

Other countries have similar arrangements for foreign companies, including US companies abroad.

So the answer is that foreign companies do not pay income taxes (because it is easy to set them up so they never have a positive net income) but instead the pay a tax on net cash flow, which is typically more than income taxes.

GM and Ford do pay more in medical and retirement benefits (estimated to be about $20 per hour just for the benefits) than other automakers (but not sure about new GM and Ford workers). In fact, they pay so much, they have a huge unfunded liability for these things and many knowledgeable financial analysts thing they may both go bankrupt because of it. So the amount of benefits that GM and Ford pay is not sustainable and will eventually result in a loss of US jobs if the companies go under. I didn't mention Chrysler because it is a German company now.

Interesting. You got me wondering if Canada now has this net flow out tax. I once worked for CDN Westinghouse, where it was well known that excess was paid for Westinghouse product from the USA to keep CDN tax very low.

Interesting. And basically what I suspected: When it comes to autos, the phrase "Buy American" is utterly meaningless.

Same is true of US Subsidiares of foreign companies. I worked for Panasonic as a consultant. They would 'buy' parts from the japanese parent companies at highly inflated prices, and virtually make zero profit on the finished product. Great way to avoid paying US income tax.