Debt and the Profitability of Foreign-Controlled Domestic Corporations in the United States

U.S. corporations controlled by foreigners continue to report lower net income in relation to total receipts than comparable domestically-controlled corporations. But the 2004 tax return data show that, in manufacturing and the entire nonfinancial sector, the discrepancy disappears when using a measure of operating income that focuses on the corporations' activities in the United States. To determine operating income, dividends, interest and royalties are subtracted from net income and interest paid, depreciation, amortization, and depletion are added back to net income. Domestically-controlled corporations receive much greater dividend and royalty income, mainly from their subsidiaries abroad.