U.S. Firms Earned Record $1.9 Trillion Overseas in 2012

U.S. multinationals boosted their offshore earnings by 15 percent last year to $1.9 trillion, avoiding hefty tax bills by keeping their earnings overseas, according to a report by research firm Audit Analytics.

The U.S. corporate overseas cash stockpile has grown by 70 percent over the past five years, said the company whose data covers the Russell 3000 index of the largest U.S. corporations.

According to the report, General Electric had the most indefinitely reinvested overseas earnings at $108 billion, while pharmaceutical giant Pfizer came in second with $73 billion.

U.S. multinationals boosted their offshore earnings by 15 percent last year to $1.9 trillion, avoiding hefty tax bills by keeping their earnings overseas, according to a report by research firm Audit Analytics.

The U.S. corporate overseas cash stockpile has grown by 70 percent over the past five years, said the company whose data covers the Russell 3000 index of the largest U.S. corporations.

According to the report, General Electric had the most indefinitely reinvested overseas earnings at $108 billion, while pharmaceutical giant Pfizer came in second with $73 billion.

“It would probably be nice to have this money in our country being used in our economy, but at the moment we see it growing elsewhere,” said Don Whalen, general counsel and director of research at Audit Analytics.

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The findings are significantly higher than a January Moody’s estimate,which put the U.S. foreign cash pile at $840 billion, or 58 percent of the total corporate cash holdings. Several factors, including the high tax cost of repatriating the money, have pushed companies to sit on it abroad, according to Moody’s. 

“Based on better overseas growth prospects and domestic cash consumption represented by dividends, share buybacks, and the majority of acquisitions, we expect overseas cash balances will continue to grow unless tax laws encourage U.S. companies to repatriate money,” they explained. 

Under existing U.S. laws, U.S.-based multinationals do not have to pay U.S. corporate income tax on foreign earnings as long as the earnings do not enter the United States. Accounting rules also let the companies avoid recognising a tax expense if management intends to keep the earnings indefinitely reinvested overseas.

Companies say the country’s top tier corporate tax rate of 35 percent is so high that it doesn’t make financial sense to bring more cash back than necessary. Even if the money is repatriated, they argue that the cash isn’t available to them to use as they please, such as distributing it to shareholders through dividends and buybacks.

Several U.S. companies have been lobbying Congress to replace the current corporate tax system with one that would tax only their domestic profits. The U.S. is the only major economy whose tax authorities claim a share of a domestic company’s profits no matter where those profits are earned.

Others firms are pushing for a one-time “tax holiday” to allow the repatriation of funds at a reduced rate, similar to a 2004 effort which allowed firms a tax rate of just 5.25 percent.

The Obama administration however opposes a tax holiday, saying the 2004 effort did bring profits into the country, but that money was not widely used for hiring or capital investment.

“Unfortunately, there is no evidence that it increased U.S. investment or jobs, and it cost taxpayers billions,” said former assistant treasury secretary Michael Mundaca last year. 

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