Seeking Alpha

Top U.S. firms double amount of profit held abroad to avoid taxes

  • Profits that major U.S. corporations have parked overseas in order to avoid taxes at home jumped 93% to $2.1T in 2008-2013, research firm Audit Analytics has calculated.
  • GE (GE) held the most amount of money abroad with $110B and Microsoft (MSFT) was second with $76.4B, after which comes Pfizer (PFE) with $69B, Merck (MRK) with $57.1B and Apple (AAPL) with $54.4B.
  • The numbers have prompted fresh calls for an overhaul of the tax code, including from Senate Finance Committee Chairman Ron Wyden.
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Comments (34)
  • tripleblack
    , contributor
    Comments (13591) | Send Message
     
    Great idea. Start taxing big American multinational profits earned and invested overseas and watch them quickly move elsewhere.

     

    Brilliant.
    9 Apr 2014, 04:48 AM Reply Like
  • mitrado
    , contributor
    Comments (2021) | Send Message
     
    If they don't pay taxes in America, maybe they shouldn't be in America.
    If they outsource all the work to places like Vietnam and Laos... maybe they aren't that American to start with.
    9 Apr 2014, 05:20 AM Reply Like
  • Elwin1
    , contributor
    Comments (8) | Send Message
     
    Well, where exactly would they go - US provide stable legal system, a certain amount of patent security . . . ??
    9 Apr 2014, 05:41 AM Reply Like
  • nocdavis
    , contributor
    Comments (98) | Send Message
     
    Ireland.
    9 Apr 2014, 12:58 PM Reply Like
  • Ron1787
    , contributor
    Comments (32) | Send Message
     
    Presumably these companies would move elsewhere in the same fashion that wealthy Americans will stop obtaining more wealth if they're "overly" taxed. Unfettered capitalism leads to situations like the one featured in this article. We can either control our economy so that it serves the general welfare or we can continue to allow capitalism to drive America toward failure.
    9 Apr 2014, 10:05 PM Reply Like
  • SWIMMER
    , contributor
    Comments (12) | Send Message
     
    Not that I agree with the US taxing foreign cash, especially if they have been taxed overseas already but that is what is happening with private citizens that have overseas holdings.
    9 Apr 2014, 04:54 AM Reply Like
  • Robert Hairgrove
    , contributor
    Comments (277) | Send Message
     
    Companies like GE and MSFT operate all over the world, so it makes sense for them to have assets including cash in other countries. They already pay taxes in the countries where they operate.

     

    As to private citizens, if you are an expat U.S. citizen living in another country, you are subject to U.S. income tax if you earn more than the foreign-earned income exclusion. Currently, this is about $95,000 per year - which sounds like a lot until you try to actually LIVE on that salary in countries like Germany or Switzerland, the dollar being so low relative to other currencies since the last 15 years or more.

     

    The ONLY two contries in the world which tax their citizens according to passport, and not place of residence, are the USA and Eritrea. Think about it. U.S. citizens with dual citizenship in another country who have lived in Europe and are close to retirement age, are starting to renounce their U.S. citizenship because they have to pay taxes on their pensions AS WELL AS income taxes in the country where they live ON THE SAME PENSION, and they cannot afford to pay double taxation. Once you retire, you cannot take the foreign-earned income deduction anymore, and the IRS doesn't recognize the tax-advantaged status of foreign pension funds (i.e., your monthly pension payment is considered to be interest income).

     

    Read more here: http://tinyurl.com/p5s...
    9 Apr 2014, 05:37 AM Reply Like
  • Robert Hairgrove
    , contributor
    Comments (277) | Send Message
     
    Another reason for the jump between 2008-2013 is the decline in value of the U.S. dollar. Nobody can afford to keep all their money in dollars anymore. In April 2008, the dollar was approx. par with the Swiss franc. Today, it is 0.8874 (i.e. that many Swiss francs will buy $1, or a loss in value of 13.25% since 2008). At its lowest in August 2011, it was 0.7537, or a loss of over 25%. In 2000, the dollar was worth 1.7138 francs. So it has lost almost 50% of its value relative to the Swiss franc since 2000.

     

    I invested 8,000 Swiss francs in IBM shortly after 9/11 when the dollar was still worth around 1.7 francs and IBM was around $100. But even when IBM was over $200, I was (and still am) underwater on that investment.

     

    I really cannot blame these companies for trying to save whatever value they can when the dollar has gone down the drain like this.
    9 Apr 2014, 06:06 AM Reply Like
  • nguyenvanphuoc
    , contributor
    Comments (388) | Send Message
     
    The complexity of both the US tax code and tax systems of other countries allows companies to shift profits to jurisdictions with the lowest taxes.

     

    It makes me laugh when lawmakers complain about this. They made the laws, and only they can change them. Sadly, lobbyists will continue to basically buy preferential treatment and loopholes for their Special Interest Groups, and things will carry on much as they are now.
    9 Apr 2014, 07:00 AM Reply Like
  • bsorge
    , contributor
    Comments (799) | Send Message
     
    This is an old ploy. You first sell to a subsidiary overseas at break even or slight profit. That subsidiary then sells to the intended purchaser booking the real profit. Only way out if this us to have universal taxation on overseas sales. This has been going on forever and very hard to stop with large multi international firms with lots if offices worldwide.
    9 Apr 2014, 07:40 AM Reply Like
  • Robert Hairgrove
    , contributor
    Comments (277) | Send Message
     
    The question is, why should it stop if it helps the companies' bottom lines and helps them to create more jobs back home?
    9 Apr 2014, 08:29 AM Reply Like
  • DrP79
    , contributor
    Comments (2192) | Send Message
     
    The ONLY way out is more taxes?

     

    Sounds like we have another example of a Laffer curve effect. Reduce the tax on keeping the money overseas, and you will have more money being repatriated.

     

    Further, as it would be the firm's own money, there would be a true stimulus effect. This would not be the crony capitalism that wasted so much of OTHER PEOPLE'S money and actually reduced the future standards of living.
    9 Apr 2014, 08:56 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (9766) | Send Message
     
    Time for a tax holiday.

     

    We could use that cash right here in America.
    9 Apr 2014, 08:04 AM Reply Like
  • wigit5
    , contributor
    Comments (4222) | Send Message
     
    I don't understand it the effective tax rate that companies pay is less than 15% on average according to my professor which is on par or less than most other countries...
    9 Apr 2014, 08:44 AM Reply Like
  • idkmybffjill
    , contributor
    Comments (1728) | Send Message
     
    DVL, do you recall what happened last time they did a tax holiday? Many promises about using it for job creation and R&D. Instead, corporations basically spent it all on dividends, buybacks, and executive bonuses. I studied about this in a tax class once.
    9 Apr 2014, 09:17 AM Reply Like
  • DrP79
    , contributor
    Comments (2192) | Send Message
     
    How terrible - returning money to the owners in dividends and buybacks. I suppose it should be be tagged to go to OTHER PEOPLE just like the socialists do with the tax money in the first place.

     

    Then that money must then vanish from the economy as owners are misers and put in it underground caves and there cannot be any multiplier effects.

     

    Needless to say a tax holiday, by definition, is short term at best and will not have the same effect as a permanent solution.
    9 Apr 2014, 10:07 AM Reply Like
  • idkmybffjill
    , contributor
    Comments (1728) | Send Message
     
    DrP79, while I never stated that returning money to the owners via dividends/buybacks is bad, my point is that the majority of the people in this country do not hold any major equity assets and therefore, will not benefit from increased "dividends and buybacks."

     

    Therefore, the age-old corporate propaganda saying that a tax holiday will help improve the lives of most people and "create jobs" is a complete farce.

     

    Get over that myth. A very small %age of the nation's population owns the majority of financial assets like stocks, bonds, etc and only they will benefit from this. And unlike many confused posters on this site falsely believe, the majority of those wealthy citizens who hold all the stock aren't going to turn around and invest that money they got from the dividends into hiring more people. Instead, they'll buy another stock, and the cycle repeats.

     

    Sure, dividends and buy backs are great, but let's not act like they actually generate any decent job growth or positive economic changes for the lives of the majority of the American people.
    9 Apr 2014, 11:11 AM Reply Like
  • DrP79
    , contributor
    Comments (2192) | Send Message
     
    and you missed the point of the MULTIPLIER EFFECT on true stimulus on the economy.

     

    If all the evil rich folks do is put their OWN MONEY in the bank, the banks will lend it out to others for further investment. Or those evil rich folks could actually spend money and that will increase sales to others.

     

    Not to mention the largest ownership of stocks, bonds, etc are institutional firms, mutual firms, and retirement funds who act on behalf of lots of little people.

     

    Further, please read the point about the SHORT TERM nature of tax holidays, instead of permanent tax changes.
    9 Apr 2014, 11:17 AM Reply Like
  • idkmybffjill
    , contributor
    Comments (1728) | Send Message
     
    Why hasn't the multiplier effect been working for the past 10+ years as tax rates on the ultra wealthy have been the lowest ever in history? (combined with the cheapest money/interest rates in the history of our country) With all this, our economy should be roaring rather than barely limping along like it is right now.

     

    You think the banks are actually lending a lot of money right now? You do realize the Fed's whole point of providing the banks with cheap money failed right? Even the Fed admitted it - banks held onto it or are investing it in Treasuries and profiting from the spread instead of loaning it out to small businesses, etc.

     

    As for the rich evil people - I have close family that fit in that category of people we are referring to, so don't treat me like I'm not aware of how they act. You need to learn a little more about these evil rich people - most of them don't leave their money in the bank.

     

    Wealthy people buying stock in P&G isn't going to make P&G invest in more factories and hire more people - you know what does that? Increased demand for their products.
    9 Apr 2014, 11:42 AM Reply Like
  • Robert Hairgrove
    , contributor
    Comments (277) | Send Message
     
    DrP79 is so right!

     

    Most, if not all, small to medium-size business owners will own stocks and bonds, at the very least in some kind of retirement fund. Those are the people who create jobs. They also have to grow their businesses.

     

    The "majority of people" may not own securities directly, but if they have a 401k or an IRA with their employer, they do own them indirectly. And if their employer's company gets a break, they are also more likely to get a raise ... or maybe avoid being put out of a job entirely.
    9 Apr 2014, 11:43 AM Reply Like
  • idkmybffjill
    , contributor
    Comments (1728) | Send Message
     
    bob, you are missing the point.

     

    Let's say Apple gets its overseas cash back to the US for free or at a very low rate and buys back stock. Let's say small business owner's Apple stock in his IRA goes up by 25%.

     

    So, he's going to immediately turn around and hire more workers and invest more in his workers? You can keep believing that dream if you want.
    9 Apr 2014, 11:46 AM Reply Like
  • DrP79
    , contributor
    Comments (2192) | Send Message
     
    One might want to take a look at the increase in regulatory burden as well as the tax complexity. It is not surprising that we have had the slowest recovery in the post war era.

     

    And the level of government spending is at record highs crowding out investment. Policies that depend on spending other peoples money should note the effect on those whose money is being spent. Socialism eventually runs out of other peoples money.

     

    Yet this article is about a true stimulus effect of what people might do with their OWN money instead.

     

    BTW on a site that is devoted to stocks, one might look how anyone buying stocks affects the stock prices for EVERYONE.
    9 Apr 2014, 11:50 AM Reply Like
  • idkmybffjill
    , contributor
    Comments (1728) | Send Message
     
    I will agree that there are multiple other factors that are affecting the current recovery, although I'm not sure regulatory burden is playing as much of a role as people think.

     

    I also hope you realize that without the current government deficit spending, our economy would go into contraction, correct? I saw an interesting study a while ago that showed that most of the current deficit government spending + Fed money injections basically indirectly flowed directly onto corporate profits. I want to try and find that link again.
    9 Apr 2014, 11:55 AM Reply Like
  • DrP79
    , contributor
    Comments (2192) | Send Message
     
    try just two policies

     

    Obamacare has a huge additional regulatory and cost burden on firms employing 50 or more people. Couple that with the immense about of UNCERTAINTY of exactly what is required, keeps many firms from expand. Indeed is a major cause to reduce full time employment as we have seen in changing people to part time work.

     

    The EPA alone is causing huge additional costs to finding and using new energy sources.

     

    I am sure that you can find studies that show how the recent "stimulus" effects of recent years have gone into favored accounts. The unions benefitted from the auto bailouts while the government lost $50 billion dollars in the process. We have not yet seen the full effects of GM recall after bankruptcy will play out.

     

    Yet crony capitalism is hardly to be desired.
    9 Apr 2014, 12:08 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1728) | Send Message
     
    Valid points, I won't argue on Obamacare.

     

    As for the EPA, it's a necessary evil in my view. Unless you'd prefer to live like people in Beijing do lol.
    9 Apr 2014, 12:12 PM Reply Like
  • unilifebeliever
    , contributor
    Comments (55) | Send Message
     
    Do you realise what apple does in australia? They send all their profits to Ireland to avoid Australia's goods and services tax and to avoid the company tax (30% of profits), apple have had $27 billion in revenues over 10 years yet they have only paid $193 million in taxes in Australia and I'm guessing it would be the same in other countries, yet it is perfectly legal.
    9 Apr 2014, 09:32 AM Reply Like
  • Robert Hairgrove
    , contributor
    Comments (277) | Send Message
     
    How many Apple products were sold in Australia alone over the last 10 years?

     

    And how much did they contribute to the revenues you quoted?

     

    And how many of those products were actually developed and/or manufactured in Australia?
    9 Apr 2014, 11:52 AM Reply Like
  • unilifebeliever
    , contributor
    Comments (55) | Send Message
     
    I don't know about products sold but, all apple products are developed in California and manufactured in Asia
    9 Apr 2014, 08:59 PM Reply Like
  • rubel
    , contributor
    Comments (581) | Send Message
     
    we where at one time the economic powerhouse of the world, but since we have to pay for 49% ofthe population that are takers not contributing and not making anything of themselves this is what you end up with. we have the highest corporate taxes in the world, the former communist countries has some of the least....they have learned that socialism does not work! the russian stock exchange over the last five years did better then our own markets!

     

    we still have 3 years left with a marxist-leninist, weak, give everyone something president who would rather take from those who honestly are successful and give it to a group of over weight, under educated wal-mart population, who would rather sit on their increasingly large bottoms and watch jerry springer then go out and get a job!

     

    go vlad putin! you are a real man, strong, with a will to govern!
    9 Apr 2014, 01:42 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (9766) | Send Message
     
    Next up to bat....Hillary Clinton.

     

    The media will guarantee it.
    9 Apr 2014, 03:14 PM Reply Like
  • martys2001
    , contributor
    Comment (1) | Send Message
     
    My feeling is , if they are not breaking U.S law, either change the law or shut up.
    9 Apr 2014, 02:26 PM Reply Like
  • trajan2448
    , contributor
    Comments (18) | Send Message
     
    The US is sliding down the ladder of competitiveness, corruption, integrity, and transparency. Capital ALWAYS flees greedy and corrupt governments. The US has the highest corporate tax rates in the world. Now the big multi nationals make 2/3 of their revenue overseas. There are much friendlier environments to invest at the moment, and when you have a global presence there are many offsets of US earnings. California used to have 90%+ of film and TV production, now it has 25% and heading down, and they are a precursor to what is happening nationwide. Sadly, small business has nowhere to hide, which is why the huge increase in part time workers and the declines in real earnings.
    9 Apr 2014, 10:40 PM Reply Like
  • unilifebeliever
    , contributor
    Comments (55) | Send Message
     
    Same thing is happening in Australia with high wage cost and the ability for multinational companies to replace our jobs in Asia, Australia now doesn't have a car industry after 2017 ( no cars will be produced in australia) and large companies such as qantas have shed 1/6 of their workforce because of high wage costs, it really sad to see companies outsourcing to countries where they pay their workers $2 an hour and treat them like absolute crap
    10 Apr 2014, 12:36 PM Reply Like
  • Ron Stagn
    , contributor
    Comments (7) | Send Message
     
    This all seems pretty straight forward really, its just like any other competitive market. Other countries are offering a more competitive "price" for making and holding revenues in their respective jurisdictions. If the US chooses to keep corporate tax rates about other countries then there is no incentive for those companies to ever bring money back into our economy. These corporations have the money and resources to insure they have the best and brightest people finding any and every loophole that exists in tax codes and all other sorts of legislation. As long as a loophole exists they will find it. I don't see the point in continuing to fight them on this. Reduce the corporate tax rates and watch the money flow back in. I don't have hard numbers but I feel like the amount of money in potential tax revenue lost due to overseas holdings probably counters the amount of extra revenue the US collects on its high rates. If they reduce the rates, more money will come in, possibly leading to a more optimal tax revenue total for the country.
    10 Apr 2014, 12:35 PM Reply Like
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