Foreign profits held overseas by U.S. corporations to avoid taxes at home nearly doubled from 2008 to 2013 to top $2.1 trillion, said a private research firm’s report, prompting a call for reform by the Senate’s top tax law writer.
“The new numbers … certainly highlight what is one of the key challenges for tax reform. I do think there need to be some reforms in this area,” Senate Finance Committee Chairman Ron Wyden told reporters on Tuesday on Capitol Hill.
Under U.S. law, corporations do not have to pay income tax on most of their overseas profits until they are brought into the United States. These earnings can be held offshore for years if they are classified as indefinitely invested abroad.
Research firm Audit Analytics said in a report issued last week that the total of suchearnings was up 93 percent from 2008 to 2013, citing federal financial filings for companies listed in the Russell 1000 index of U.S. corporations.
Conglomerate General Electric Co had the biggest pile of earnings stored abroad, at $110 billion, the firm said.
Next were software maker Microsoft Corp, with $76.4 billion; drugmakers Pfizer Inc, with $69 billion, and Merck & Co Inc, with $57.1 billion; and high-tech group Apple Inc, with $54.4 billion, it said.
In response, GE said in a statement: “GE operates in more than 170 countries, and most of these overseas earnings have been reinvested in active business operations like manufacturing facilities and loans to non-U.S. customers.”
Baucus and Wyden
Congress has quarreled for years over the law that lets multinationals stash profits abroad tax-free. Some favor killing the law – known as offshore corporate income tax deferral – and some back a one-time tax holiday that would let companies bring foreign profits home, or “repatriate” them, at a low tax rate.
Debate over offshore deferral flared again in November when Wyden’s predecessor as finance committee chairman, former Democratic Senator Max Baucus, proposed doing both. Baucus resigned weeks later to become U.S. ambassador to China.
Wyden in the past has called for repeal of offshore deferral, along with a repatriation holiday, among other changes to the tax code, which he last month called “a rotten carcass that the special interests feast on.”
No decisive action is likely for now, however, with Congress deadlocked over fiscal issues at least until after the November mid-term congressional elections, according to policy analysts.
Next year lawmakers are likely to mount another push to overhaul the tax code, a politically difficult feat that has not been pulled off since 1986, when Republican President Ronald Reagan and a divided Congress managed to get it done.
The top U.S. corporate income tax rate is 35 percent, though few multinationals pay anywhere near that thanks to tax-reducing loopholes written into the code in the past 28 years, including some that have enabled wider use of offshore deferral.
Reuters
