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You are here: MacNN Forums > News > Tech News > Repatriation bill offers tax break for US return of foreign profits

Repatriation bill offers tax break for US return of foreign profits
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NewsPoster
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Jan 30, 2015, 03:04 AM
 
Democratic Senator Barbara Boxer from California and Republican Senator Rand Paul of Kentucky have jointly announced a proposed bi-partisan bill titled the "Invest in Transportation Act of 2015" in Washington today. The bill would provide funds for the US Highway Trust Fund by encouraging the "repatriation" of funds held by US businesses overseas.

Bill co-author, Senator Barbara Boxer (D-CA)
Bill co-author, Senator Barbara Boxer (D-CA)


The Highway Trust is expected to run out of money by this May, and many members of Congress are reluctant to raise its primary source of funding -- the 18.4 cents-per-gallon tax on gas -- even as fuel prices have taken a sharp drop. The bill, which embodies a "corporate tax holiday" long lobbied for by tech companies (including Google and Apple) among other US-based multi-nationals, would provide a tax break to companies bringing money held outside to the US into the country, dropping the tax rate on money voluntarily returned down to 6.5 percent from the present rate, which can go as high as 35 percent (though few companies would actually pay that rate).

US companies are estimated to be holding as much as $2 trillion in money earned mostly through foreign sales outside the US, protesting the fact that taxes were already paid on the money in the location where it is officially held. Many multi-national corporations funnel foreign sales through subsidiaries located in nations with low tax rates, but object to the idea of the money being taxed again when it enters the US.

While it is hardly the only company to do this, Apple has become something of the poster child for the completely-legal but advantageous practice due to its transparency on the topic. Apple funnels nearly all of its worldwide sales through its Irish subsidiary, where it pays an effective tax rate of about two to six percent. Apple pays around 26 percent tax on its US sales as required by law, but has lobbied for a generally lower US corporate tax rate, calling it disadvantageous to business and forcing companies, who have a fiduciary responsibility to shareholders to minimize tax liabilities, to move profits offshore.

Because most of Apple's sales are foreign (some 65 percent in the most recent quarter), nearly all of Apple's $178 billion cash hoard is actually "stuck" overseas. The present repatriation tax rate on the money is so high, Apple says, that it is cheaper (by billions of dollars) for the iPhone maker to simply borrow money for things like stock buybacks and dividend payments, which must by law be paid for from its US accounts.

At one time, Apple joined with other companies for a temporary "repatriation tax holiday," but has since abandoned that posture. The new bill, which has not yet made clear if there is a end-date on the dramatically-lower importation rate, applies only to repatriations that exceed each company's average repatriations in recent years, and funds must have been earned in 2015 or earlier. Companies have up to five years to complete the transfer.

The "extra" money that the US government would collect in taxes under the bill would be used to fund the shortfall in the Highway Trust. On top of helping to maintain and repair US transportation infrastructure, the bill would require a portion of the repatriated funds would be used for improvements such as increased wages, new hires, pensions, and other job- and economy-building purposes. None of the funds could be spent on increases in executive compensation, increases in shareholder dividends, or stock buyback for at least three years after the project ends.

While no end date was given in the white paper describing the bill, however there is also a provision that any company which inverts its profits within 10 years of participating in the program would have to repay the difference between the present rate and the tax incentive, with interest.
( Last edited by NewsPoster; Feb 2, 2015 at 01:40 PM. )
     
efithian
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Jan 30, 2015, 09:24 AM
 
The Boxer-Paul-Cook bill.
     
Inkling
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Jan 30, 2015, 09:49 AM
 
The issue isn't what this article claims, that corporate taxes have already been paid on this money earned overseas. Taxes paid overseas aren't paid again. The issue is the huge gap between those overseas taxes (averaging 17% in Europe) and those in the U.S. (30%). Narrow that gap, and this money would come home—or at least the incentive to keep it there would disappear. It's easy to suspect that politicians such as Boxer want to use temporary, band-aid fixes to shake down corporations for political donations.
Author of Untangling Tolkien and Chesterton on War and Peace
     
prl99
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Jan 30, 2015, 10:05 AM
 
Boxer represents CA and has always supported Apple. She doesn't need contributions from them. The highway system is in bad need to help and why not funnel this money directly to a cause that would help all Americans instead of simply bringing it back into the main treasury where it can be used to fund the war machine? This idea actually makes sense and is something corporations might go for as well as the people. It lists specific uses instead of simply demanding "rightful" taxes be paid. A temporary fix is better than no fix at all, something the Republicans want because any corporate tax impacts all their political cronies.
     
DiabloConQueso
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Jan 30, 2015, 10:52 AM
 
If the money was earned overseas, then bringing it into the US wouldn't be the money "com[ing] home," it would be taking the money away from its home.

If Samsung exports TVs to the US, and people in the US buy those TVs with US dollars, would Samsung taking that profit out of the US and into South Korea be "taking the money home?"
     
climacs
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Jan 30, 2015, 10:55 AM
 
what would REALLY make sense, would be to raise the 18.4ยข/gal federal gasoline tax while gasoline prices are so low. It has not changed in over 20 years, while autos have become more and more fuel-efficient so that significantly less tax is paid per mile driven than 20 years ago.
     
I-ku-u
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Jan 30, 2015, 11:06 AM
 
The author of this article is either unable to use logic, or is misrepresenting the bill.
"The new bill, which has not yet made clear if there is a end-date on the dramatically-lower importation rate, applies only to repatriations that exceed each company's average repatriations in recent years, and funds must have been earned in 2015 or earlier. Companies have up to five years to complete the transfer."
So if the funds repatriated have to have been earned in 2015 or earlier *and* companies have up to 5 years to complete the transfer, then clearly the program can't last beyond 2020, because after that date no earnings would be eligible for repatriation.
     
Feathers
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Jan 30, 2015, 12:30 PM
 
There is limited credence that can be given to any article that is written and published anonymously. "Electronista Staff" ??? I'll expend energy challenging the content of an article when the author is prepared to spend an equal amount of energy standing over it without the shield of invisibility.
     
prl99
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Jan 30, 2015, 01:01 PM
 
@Feathers Check out http://www.boxer.senate.gov/press/related/BoxerPaulWhitePaper012915.pdf from Senator Boxer's official publication then decide.
     
climacs
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Jan 30, 2015, 01:23 PM
 
if I understand this correctly: "The rate is only for repatriations that exceed each company's average repatriations in recent years", if a company did not have any repatriations in "recent years", then all of their repatriation would be subject to the temporary 6.5% rate? While companies that have repatriated - let's Company A repatriated an average of $100M/yr for the past 5 years - will only qualify for the 6.5% rate once they've repatriated $100M at the existing tax rate? I guess I understand why, but it seems that this unfairly punishes companies that have been repatriating all along.
     
Flying Meat
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Jan 30, 2015, 03:21 PM
 
Eh, taxes aren't punishment.
Eh, the taxes would be levied on monies OVER the example 100M/yr, so Company A would potentially not want to change their repatriation rate upward unless they were willing to take the measly 6.5% on that additional money.
Eh, I could be wrong on that second one, but not the first.
     
Charles Martin
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Jan 30, 2015, 07:58 PM
 
Inkling: the article does not suggest that foreign taxes will be paid again, it says that the money has been taxed once by the country in question, and then will be taxed again by the US, which is double-taxation.

Diablo: yes, the term "repatriation" is inaccurate. It should be "patriation," but I'm not in charge of what it's called.

I-ku-u: I understand your confusion, but the article is right. The bill as you observe appears to have a five-year limit, but you can rest assured that this is a negotiating point that will get changed. What was meant was that this is does not appear to be a temporary "tax holiday" has has been previously mooted with a time-limit for companies to apply by, but that this is unclear. We're seeking comment from Boxer's office.

Feathers: you appear to be confused about this site. All news articles are written by staff and unsigned. Only editorials and reviews have names on them. This is how the site has operated for nearly 20 years. As suggested, you don't have to rely on our facts -- you can make up some of your own if you prefer (but we're not here to "debate" you about them).
Charles Martin
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