Trillions Held Overseas to Keep from Paying US Taxes (Infographic)

Big Companies, Big Hoards of Cash

Trillions Held Overseas to Keep from Paying US Taxes (Infographic)
November 9, 2015

You may have heard presidential candidates talk about repatriation and how different approaches to the subject should play a part in tax reform. What is repatriation and why does it matter with respect to US taxes?

To explain, it is important to look at one unique aspect of the US tax code: the US is one of the few countries that not only taxes the US portion of the profits of US-based multinational corporations but also taxes the portion that is earned overseas. Repatriation is the legal term associated with bringing those profits back into the US for use and/or taxation. Companies can defer the tax until the profits are brought back into the country as dividends and can avoid paying taxes entirely if those profits are permanently reinvested in the foreign country.

Overseas profits are taxed at 35% minus taxes that are paid to the host country. Those high rates give great incentive for companies to keep overseas profits out of the US and in turn complain that their assets are "trapped" overseas, where they must be reinvested in foreign subsidiaries. However, some of those subsidiaries arguably exist only to avoid taxes, and funds are arguably not "trapped."

Citizens for Tax Justice (CTJ) posted a recent study regarding profit from Fortune 500 companies that could be repatriated into the US for tax purposes. They found that 358 of the 500 companies operate subsidiaries within a jurisdiction that could be considered a tax haven, and 60% of those companies have at least one tax haven set up in Bermuda or the Cayman Islands.

Altogether, the Fortune 500 companies have over $2.1 trillion accumulated and held in overseas profits, and thirty of those companies account for $1.4 trillion of the total. CTJ estimates that the $2.1 trillion would generate approximately $620 billion in tax revenue for the federal coffers.

Some of the largest offenders include Apple (NASDAQ:AAPL), with $181.1 in offshore profits, General Electric (NYSE:GE) with $119 billion, Microsoft (NASDAQ:MSFT) with $108.3 billion, and Pfizer (NYSE:PFE) with $74 billion. Some companies have less in total profits stashed abroad but do have a huge number of subsidiaries — for example, the private equity firm KKR (NYSE:KKR) has 258 different tax haven subsidiaries, with 217 of those located in the Cayman Islands.

In an even more egregious twist, a significant amount of "offshore" profits are actually held within the US system and invested in US assets while registered in the name of a foreign subsidiary. At one point, a Wall Street Journal investigation found that 93% of Microsoft's overseas bookings were invested in US assets. Thus, these assets enjoy the relative stability of US-based investment without the corresponding tax burden.

For more in-depth information on Fortune 500 tax havens, the full CTJ report may be downloaded here.

Proposed remedies for this problem range from rewriting the rules to cut down on the abuse of tax havens to reducing the corporate tax rate to encourage repatriation or offering a one-time repatriation deal or amnesty to bring the profits back into the country.

One bipartisan framework for addressing the problem was announced in June by Senators Rob Portman (R-OH) and Chuck Schumer (D-NY). They proposed effectively ending taxing repatriated profits and simply imposing a smaller tax on overseas profits whether they come home or not. That ends the need for the shell game of tax havens, but it will require a delicate balance to find a rate suitable to all sides.

Whether or not the Portman-Schumer approach works, one thing is clear — the Treasury is missing out on a significant amount of tax revenue. We hope that Congress will eventually find a way to access that revenue.

  Conversation   |   13 Comments

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Carla Truett | 11.10.15 @ 16:01
Wow! Those numbers are huge!
Sarah | 11.10.15 @ 16:01
that's an impressive infographic.... amazing when you see the numbers
Erin | 11.10.15 @ 16:01
And yet we just keep giving more and more to them. Makes sense.
Elaine | 11.10.15 @ 16:01
Why does this not surprise me one bit. Big business knows how to keep their money for themselves.
Victor | 11.10.15 @ 16:02
who would know, and they talk so much about taxes
Angie | 11.10.15 @ 16:02
There should be more incentives in place to keep business here.
Nancy | 11.10.15 @ 16:02
I'm just shaking my head. This info is so disgusting.
Steffanie | 11.10.15 @ 16:02
Speechless right now
Daniel Dohlstrom | 11.10.15 @ 16:03
Just a staggering amount of money there
Beverly | 11.10.15 @ 16:03
Those numbers are mind-boggling
Heather | 11.10.15 @ 16:04
This is why the tax loopholes need to be closed. Not only are they shipping our jobs overseas but their money as well. Come on America we are better than this!
trish | 11.10.15 @ 16:08
Wow, to see it in print makes it even more disturbing!
Meredith L | 11.10.15 @ 16:09
This is my issue! Bring the money back or start penalizing Big Corp!
$commenter.renderDisplayableName() | 12.05.16 @ 04:42
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