US firms leave cash abroad to avoid tax

Published Mar 13, 2014

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Washington - The largest US-based companies added $206 billion (R2.2 trillion) to their stockpiles of offshore profits last year, parking earnings in low-tax countries until Congress gives them a reason not to.

The multinational companies have accumulated $1.95 trillion outside the US, up 11.8 percent from a year earlier, according to securities filings from 307 corporations reviewed by Bloomberg News. Three technology companies – Microsoft, Apple and IBM – added $37.5bn, or 18.2 percent of the total increase.

“The loopholes in our tax code… give such a big reward to companies that use gimmicks to make it look like they earn their profits offshore,” said Dan Smith, a tax and budget advocate at the US Public Interest Research Group.

Even as governments around the world cut tax rates and try to keep corporations from shifting profits to tax havens, the US Congress remains paralysed in its efforts. The response of US-based companies over the past few years has been consistent: book profits offshore and leave them there.

Congress has not acted because of disagreements over whether to be tougher on US companies operating abroad amid broader disputes over government spending and taxation. The stalemate has prevented the US from tapping a pot of money that President Barack Obama and the top Republican tax writer in Congress have eyed for such projects as rebuilding highways.

Meanwhile, the companies are deferring hundreds of billions of dollars in US taxes as they lobby to end a system they describe as a competitive disadvantage in world markets.

The top 15 companies hold $795.2bn outside the US, up 10.6 percent. That increase was slower than the 15.9 percent rise in stockpiled profits those same companies had the previous year. Pfizer reported a decrease in offshore profits this year, and General Electric and Citigroup each reported growth of less than 3 percent.

The analysis covers the two most recent annual filings from 307 companies in the Standard & Poor’s 500 index. It excludes domestic corporations, those that don’t disclose offshore holdings, companies with headquarters outside the US and real estate investment trusts that are not subject to corporate taxes.

The increase in profits held outside the US has been particularly large and steady at technology companies, many of which have moved patents and other intellectual property to low-tax locales.

US multinational companies reported earning 43 percent of their 2008 overseas profits in Bermuda, Ireland, Luxembourg, the Netherlands and Switzerland, more than five times the share of workers and investment they have in those jurisdictions, according to a Congressional Research Service report last year.

The report cites academic estimates of the annual revenue loss to the US that ranges from $30bn to $90bn.

The Group of 20 nations are trying to negotiate a common set of rules to prevent such profit shifting. – Bloomberg

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