Fox Business invited me to appear yesterday on “After The Bell” with Liz Claman and David Asman to discuss (i) the IRS reopening the disclosure initiative for offshore bank accounts and (ii) the ongoing debate about whether Congress should implement a corporate repatriation holiday. A link to the video is below the fold. (more…)
Posted tagged ‘repatriation’
Tax Foundation: Rethinking U.S. Taxation of Overseas Operations
December 1, 2011Our in-house and private-practice corporate readers will likely enjoy one of the Tax Foundation’s newest reports: Rethinking U.S. Taxation of Overseas Operations. As the abstract describes:
The United States produces a third of the world’s wealth but contains less than 5 percent of the world’s population. This disparity pushes many U.S. businesses and entrepreneurs to embrace globalization to improve productivity and expand market reach. Large and small businesses alike are increasingly using the tools of faster information, cheaper transportation, and overseas workforces that blur the traditional notions of taxes and services based on geographic lines.
The U.S. government can effectively promote this dynamism and growth with a tax system that taxes profits earned in the United States but leaves taxation on activity occurring in other countries to those other countries. Instead of pursuing this economic concept of neutrality, however, the U.S. government seeks to tax the profits of U.S. corporations wherever in the world they are earned. This worldwide tax system differs from most other countries, where only activity within the country’s borders is taxed (territoriality).
U.S. corporations operating overseas therefore face a unique combination of burdens not borne by their international competitors: taxes owed to the United States, taxes owed to the country where the operating activity takes place, and a complex tax system that attempts to reduce the resultant economic harm but involves an array of credits and definitions (primarily the Internal Revenue Code’s Subpart F).
Many of the report’s “key findings” won’t come as news to our corporate readership. For example, one of the findings is that “Under Subpart F, ‘active’ income can be deferred from U.S. tax until repatriated home, while ‘passive’ income (royalties, interest, dividends) is generally subject to immediate U.S. taxation.”
Nevertheless, the report makes a number of interesting criticisms of the Subpart F regime – e.g., that the regime is based on an outdated model of corporate operations. The solution, according to the report, is to move to a territorial tax system, an idea that has drawn recent support from the House Ways and Means Committee as well as GOP presidential candidates. As the report acknowledges, however, ““[F]rom a tax collection standpoint, it could be said that a worldwide tax system is better than a territorial taxation system as a tax revenue source.” (citation omitted) Given the federal government’s yawning budget deficits, the interests of the “tax collection standpoint” may well prove paramount.
The complete report is available here.
The Repatriation Dilemma Revisited
December 7, 2010By David L. Bernard
TaxBlawg’s Guest Commentator, David L. Bernard, is the recently retired Vice President of Taxes for Kimberly-Clark Corporation, a past president of the Tax Executives Institute, and a periodic contributor to TaxBlawg.
My recent post titled The Repatriation Dilemma: Cash may be King, but is Earnings Per Share the Ace of Trump? discussed how taxes may be one of the reasons why cash is building in the balance sheets of corporate America. Specifically, the U.S. tax cost that may result from repatriating cash earned outside the U.S. in low-tax jurisdictions may simply be too high. While shareholders wonder why cash build-ups are not resulting in increases in share buy-backs and dividends, company executives “doing the math” conclude that spending up to a third of the cash in U.S. taxes to repatriate is not prudent.
The post triggered much interest. There have been phone interviews with both the Wall Street Journal and CFO Magazine regarding potential stories. A former Chief Tax Officer (CTO) recalled similar analyses and decisions during his “in-house” days, but did not take issue with the conclusion. Another reader lamented that it was just another example of how U.S. multinationals choose not to take part in the U.S. economy. (Hmmm, do you wonder if he or she purposely pays more tax than legally obligated?) In any event the level of interest in this topic suggested that a sequel is warranted.
Past Is Prologue: Is Another Repatriation Holiday On The Way?
October 20, 2010A little over a month ago, our guest commentator, Dave Bernard, pointed out that a significant number of multinational companies have built up large stockpiles of cash in low-tax jurisdictions around the world. While these stockpiles had been noticed by various journalists, Dave explained that the persistence of these stockpiles could largely be explained by U.S. tax policy, which discourages companies from repatriating cash earned abroad due to the earnings impact of bringing the money back to the U.S.
The Repatriation Dilemma: Cash May Be King, But Is Earnings Per Share Trump?
September 1, 2010By David L. Bernard
TaxBlawg’s Guest Commentator, David L. Bernard, is the recently retired Vice President of Taxes for Kimberly-Clark Corporation, a past president of the Tax Executives Institute, and a periodic contributor to TaxBlawg.
The financial press can’t stop talking about the amount of cash on corporate balance sheets. Journalists and arm-chair analysts alike point to the $1.84 trillion in cash on the balance sheets of non-financial U.S. companies as a reason to be bullish on the stock market, figuring that eventually cash-rich companies will splurge on dividends and stock buy-backs, if not on pursuing growth opportunities. There’s probably truth to that, but there is also a good chance that some of the cash will never be spent. Why? Because much of this largesse has been earned outside the United States in low tax jurisdictions, and repatriating this would cost billions in cash taxes and earnings.
The Chief Tax Officer (“CTO”), CFO and Corporate Treasurer have many discussions on the desire to return cash to the U.S. and the amount of the resulting “hit” to income that would result. Some companies may have more of a tolerance for the reduction in earnings per share attendant with repatriation of low taxed earnings than others, but the growth in cash in corporate balance sheets suggests that earnings per share still trumps the desire to return cash to the U.S. when the tax burden is too great.
