TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, December 14, 2005

AP on Repatriation of Foreign Profits

Interesting Associated Press story this afternoon:  Companies Mum on How They Will Spend Funds:

Everything about this year's corporate "tax holiday" for foreign profits is big. So far, more than 400 companies have indicated they'll bring back about $222 billion to the United States. Supporters have made big claims; "repatriation," they say, will lift the economy, help companies and create U.S. jobs. What's not so big is the amount of information companies are giving investors about how they'll spend the money.

Few companies have disclosed anything about their spending plans; most that have talk only in general terms. Many say it's a competitive disadvantage to get too specific. While companies are required to tell the government about how they'll spend repatriated funds, it appears they don't have to tell shareholders a thing. For example, companies like Hewlett-Packard Co. and DuPont Co. are repatriating sums of cash that amount to a major portion of their capital structure, and have settled on how they'll spend the money -- yet they've said little about their plans.

"Shareholders own the company, and shareholders have a right to know what's happening to the cash," said Lee Sheppard, a contributing editor at Tax Notes, a widely respected weekly publication about tax issues. "The shareholders do have a right to ask, 'What are you going to do with it?'"

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I read that the 2004 repatriation of corporate profits from overseas resulted in a tax break from 35% to 5%, and shortly thereafter corporations started to transfer even more jobs overseas, so that they could build up even more off shore profits, then sit back and wait for another round of repatriation. Seems to me like this backfired on the USA, we lost the tax revenue and we lost even more jobs. I'd suggest an alternative. List all companies in the newspapers (every sunday) that have foreign profits not moved back to USA, and then ask every buyer in the USA for those products, (Private, Corporate, and Government), simply to stop buying those companies products until they change their ways. I see many of my friends now seeking information on USA / North America manufacturing content and factoring that into their buy decisions. I would also suggest that we reduce corporate tax rates to be competitive world wide and get rid of depreciation on anything other than buildings. Depreciation causes companies to have tax liability after they had to spend the money on those assets. That reality is especially dangereous when you must invest inorder to be competitive with cheap labor.

Posted by: Gary McLeod | Feb 21, 2009 8:28:12 AM