Forex

Google Ad

American companies parking income offshore to avoid tax will be taxed at a rate of 15.5% for cash and cash equivalents in the new GOP tax plan posted Friday. This is up from President Trump's initial 10%. After cutting taxes lawmakers had to source revenue elesewhere. It is esimated that at least $3.1 trillion is parked offshore.

Apple CEO COOKApple CEO Cook, what will have him bring some of that cash home?

The move appears logical and should be a popoular one for the people. Companies like Apple $AAPL and Alphabet have avoided billions while being feted by US politicians and stock market investors. That is the blindlness that comes from partisan politics and worshipping the stockmarket. 

The GOP tax plan is due to be voted on n the House and Senate on Tuesday. Earnings that companies hold offshore as cash and cash equivalents would be taxed at 15.5 percent. Income invested in less-liquid assets such as plants and equipment would be taxed at 8 percent. Both taxes would be mandatory, not optional.

No doubt lobbiests will scream and cry over the 'unfairness'. At what point do American taxpayers say enough is enough? Pay your fair share.  Bloomberg estimates that the new tax rates levels would generate about $40 billion more than if the rates were 14.5 percent and 7.5 percent, as proposed in the Senate bill that was approved Dec. 2. The instiute of Taxation and Economic Policy (ITEP) estimates 'Fortune 500 companies are holding more than $2.6 trillion in accumulated profits offshore for tax purposes. Just four of these companies, Apple, Pfizer, Microsoft and General Electric, account for a quarter of the total. Just 30 Fortune 500 companies account for 68 percent or $1.76 trillion of these offshore profits.' 

From The ITEP paper; 'offshore shellgame 2017'

Only 58 Fortune 500 companies disclose what they would expect to pay in U.S. taxes if these profits were not officially booked offshore. In total, these 58 companies owe $240 billion in additional federal taxes. Based on these 58 corporations’ public disclosures, the average tax rate that they have collectively paid to foreign countries on these profits is a mere 6.1 percent, indicating that a large portion of this offshore money has been booked in tax havens.

If we assume that the average tax rate of 6.1 percent applies to all 293 Fortune 500 companies with offshore earnings, they would owe a 28.9 percent rate upon repatriation of these earnings, meaning they would collectively owe $752 billion in additional federal taxes if the money were repatriated at once.

US Money Held OffShore

Some of the most notable cases include:

Apple: Apple has booked $246 billion offshore, a sum greater than any other company’s offshore cash pile. It is currently avoiding $76.7 billion in U.S. taxes on these earnings. A 2013 Senate investigation found that Apple has structured two Irish subsidiaries to be tax residents of neither the United States, where they are managed and controlled, nor Ireland, where they are incorporated. A recent ruling by the European Commission, which is under appeal, found that Apple used this tax haven structure in Ireland to pay a rate of just 0.005 percent on its European profits in 2014, and has required that the company pay $14.5 billion in back taxes to Ireland.

Citigroup: The financial services company officially reports $47 billion offshore for tax purposes on which it owes $13.1 billion in U.S. taxes. That implies that Citigroup currently has paid only a 7 percent tax rate on its offshore profits to foreign governments, indicating that most of the money is booked in tax havens levying little to no tax. Citigroup maintains 137 subsidiaries in offshore tax havens.

Nike: The sneaker giant officially holds $12.2 billion offshore for tax purposes on which it owes $4.1 billion in U.S. taxes. This implies Nike has paid a mere 1.4 percent tax rate to foreign governments on those offshore profits, indicating that nearly all of the money is officially held by subsidiaries in tax havens. Nike likely does this by licensing trademarks for its products to subsidiaries in Bermuda and then essentially charging itself royalties to use those trademarks. The shoe company, which operates 1,142 retail stores throughout the world, does not operate one in Bermuda.

Read the complete report: Offshore Shell Games 2017

Speculators in the foreign exchange markets have been betting on large U.S. repatriation boosting the greenback. Under current law companies simply defer paying U.S. income taxes on their foreign earnings at the corporate rate of 35 percent until they repatriate them to the U.S. This has led to the parking of such massive funds legally.

The intent of the Republicans is to incentivise these companies to repatriate dollars with the “deemed repatriation” tax imposed by the GOP bill. Whether comapnies do or not is open to conjecture, the U.S. was marginally lower since the higher rate was announced.  The next step would be taxing the tax avoiders regardless of whether the money comes home, as private U.S. citizens are. That in our partisan run world would need a lot to change and lobbiests to be put to pasture. 

Sources: ITEP, Bloomberg

Log in to comment
Discuss this article in the forums (2 replies).