Companies’ Offshore Profits Keep Piling Up
U.S. corporations added at least $206 billion to their stockpiles of offshore profits last year, parking earnings in low-tax countries until Congress gives them a reason not to. They have accumulated $1.95 trillion outside the U.S., up 11.8 percent from a year earlier, according to securities filings from 307 corporations.
The increase in profits held outside the U.S. has been particularly large and steady at technology companies, many of which have assigned patents and other intellectual property to units based in low-tax locales. Three of them—Microsoft (MSFT), Apple (AAPL), and IBM (IBM)—accounted for $37.5 billion, or 18.2 percent of the total increase in 2013. In three years, Microsoft’s profits held offshore have more than doubled. Apple’s have more than quadrupled. Google’s (GOOG) stash has more than doubled in the past three years, to $38.9 billion from $17.5 billion.
The corporate tax rate in the U.S. runs as high as 35 percent, but companies don’t pay U.S. taxes on profits earned abroad as long as that money remains offshore. Multinationals reported earning 43 percent of their 2008 overseas profits in Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland—more than five times the share of workers and investment they have in those jurisdictions, according to a 2013 Congressional Research Service report. That report cites academic estimates of the annual tax-revenue loss to the U.S. that range from $30 billion to $90 billion. “The loopholes in our tax code right now give such a big reward to companies that use gimmicks to make it look like they earn their profits offshore,” says Dan Smith, a tax and budget advocate at the U.S. Public Interest Research Group.
A spokesman for IBM didn’t respond to requests for comment. Apple pointed to May 2013 congressional testimony submitted by Chief Executive Officer Tim Cook, who said the company doesn’t use “tax gimmicks” and supports comprehensive tax code changes that might raise the company’s taxes. Microsoft said it had no comment beyond 2012 congressional testimony by Bill Sample, corporate vice president for worldwide tax, in which he said that the company complies with tax laws.
Credit: Business Week
