The Tax Cuts and Jobs Act (TCJA) has provided major changes to the federal taxation landscape of US corporations nation-wide. The most notable change, the corporate statutory tax rate decrease from 35% to 21%, could potentially have a dramatic effect on the many tax characteristics of a company. This report will analyze the tax and accounting for income tax attributes for Goodyear Tire and its competitor Cooper Tire. The tax attributes examined include cash effective tax rate, operating countries, and net operating loss carryforwards. The accounting for income tax attributes evaluated include GAAP effective tax rate, unrecognized tax benefits, and deferred taxes. The tax and accounting for income tax attributes will be analyzed for historical …show more content…
Since 2013, Goodyear has paid taxes on 17.81 percent of pre-tax income, while Cooper Tire paid taxes amounting to 20.97 percent of pre-tax earnings. While paying less taxes on earnings over the past year, Goodyear has also experienced greater predictability regarding their cash effective tax rate compared to the competitor. Goodyear's cash effective tax rate ranges from 22.88 percent in 2013 to 12.68 percent in 2016. On the other hand, Cooper Tire experiences more volatility, ranging from 36.05 percent in 2013 to 0 percent in 2016. At the end of 2017, Goodyear has a cash effective tax rate of 16.40 percent, while Cooper Tire experiences a cash effective tax rate of 27.79 percent. TCJA does not have a direct effect on the cash effective tax rate for either company at the end of 2017, but it will have implications in future years. Both Goodyear and Cooper Tire can expect to have lower cash ETR's in future years because of the decrease in corporate statutory tax rate made effective by the TCJA. Historically, Goodyear has paid less taxes than the statutory rate of 35 percent. The expectation of paying less taxes than the statutory rate can be relied upon in the future, implying Goodyear will pay less than the new 21 percent statutory rate. By having a more consistent cash effective tax rate, it will be easier for …show more content…
Both Goodyear and Cooper Tire are headquartered in the United States and have manufacturing facilities and offices throughout the world. Cooper Tire has a European headquarters in the United Kingdom along with 7 distribution centers and 4 sales offices throughout Europe. Cooper Tire also has manufacturing facilities and offices in Serbia, Latin America, and China, as well as other offices and distribution centers spread around the world. According to Cooper Tire's most recent 10-k, China is the only foreign country that significantly contributes to their overall net sales. China has a corporate tax rate of 25 percent. Goodyear has operations throughout North America, Europe, the Middle East, Africa, China, and Germany. According to Goodyear's 10-k for year ended 2017 fiscal year, Germany is the only country outside the United States that is significant to net sales for the consolidated financial statements. Germany has a corporate tax rate of 15 percent. Germany provides Goodyear a more favorable foreign tax treatment than Cooper Tire since their corporate tax rate is less than China. The TCJA enacted a territorial taxation system, only taxing income earned inside the United States with certain exceptions. The territorial taxation system will be beneficial to Goodyear, since prior to TCJA foreign earnings were subject to taxation unless permanently reinvested. Implications regarding