Tax System Gone Crazy
US companies now have at least $1.46 trillion in foreign accounts that they can’t return to the US for the fear of tax. $1.46 trillion is just for the 83 companies examined — the figures are increasing all the time because of incentives in the U.S. tax code for booking profits offshore and leaving them there. The stockpiles complicate attempts to overhaul the tax system as lawmakers look for ways to bring the money home to the US and discourage profit shifting.
Microsoft , Apple and Google each added to their non-U.S. holdings by more than 34 percent as they reaped the benefits of past maneuvers to earn and park profits in low- tax countries. Combined, those three companies alone plan to keep $134.5 billion outside the U.S. government’s reach, more than double the $59.3 billion they held two years earlier.
General Electric again leads all U.S. companies with $108 billion held offshore, up from $102 billion a year earlier. Pfizer Inc. is second with $73 billion, followed by Microsoft, Merck & Co., Johnson and Johnson and International Business Machines Corp. The data comes from companies’ annual regulatory filings.
Eleven companies, including Apple, Cisco and Citigroup Inc., have at least $40 billion in profits reinvested overseas, up from six companies that had crossed that mark last year and three the year before that.
The incentive to accumulate overseas profits in cash is acute for technology and pharmaceutical companies that generate income from intangible assets such as patents. They can sell the patents to their foreign subsidiaries and then shift them to low-tax jurisdictions and book the profits there.
I believe that most US firms would like to bring their money ‘home’, but punitive corporation tax, makes it prohibitive to do so.
The government continues to complain about a lack of revenue, but if it reformed taxation in order to re-engage with US enterprise, it would find its coffers in a far healthier state.
Indeed, perhaps now more than ever, in these precarious economic times, and as the world becomes increasingly globalized, the government needs to be aware that they must be perceived as the friend and ally of business.
Nigel Green deVere group
Blog written 8th March