US Companies Park More Money Offshore to Avoid Taxes

Monday, 11 Mar 2013 12:19 PM

By Sandy Fitzgerald

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American corporations are making billions in record profits, but 60 of the nation's largest companies are parking 40 percent of their profits offshore in an effort to escape U.S. taxes, a survey by the Wall Street Journal reveals.

According to the Journal, the companies put $166 billion in offshore bank accounts last year and even more than that in 2011, taking advantage of U.S. tax rules that create incentives for companies that maximize the earnings and holdings of foreign subsidiaries. Under the law, companies don't have to record or pay taxes on profits earned by subsidiaries, if the money is not pumped back into the United States.

The current system is under fire, however, because the amount of tax money being lost every year is staggering, especially when considered against the $85 billion budget sequester that took effect on March 1.

The Journal found that just 19 of 60 companies included in its survey would have to pay a total of $98 billion to the government if profits from their subsidiary earnings were used in the United States. That's more than the automatic spending cuts, or sequester, now underway across the government.

According to the Joint Committee on Taxation, a change in the law now would bring in $42 billion in taxes this year alone.

In 2004, Congress enacted a temporary tax holiday, and companies repatriated $312 billion in foreign earnings. While the holiday was intended to stimulate the economy, few jobs were created and companies used most of the money to repurchase shares and pay dividends, which it cannot do with money while it's parked offshore, the Journal noted.

The Journal found that about 75 percent of the total kept offshore by the 60 companies it surveyed, belonged to 26 healthcare and technology companies. Many of them have shifted their intellectual properties, such as patent rights, to their foreign subsidiaries, a move that allows to reduce their U.S. tax payments.

As a result, Seattle-based Microsoft Corp. saw a $16 billion holdings boost in the last fiscal year, with its foreign operations accounting for 93 percent of its pretax profit. By shifting intellectual property to subsidiaries in Singapore, Ireland, and Puerto Rico, the company avoided about $4 billion in U.S. taxes in 2011, the Journal noted.

The Journal survey also found that Apple held $40.4 billion in untaxed earnings outside the United States as of Sept. 29 of last year and would owe $13.8 billion in taxes if the money was brought back to the U.S.

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