In a shocking reveal, a US-based institute has published a report stating that some of biggest US companies like Google, Apple, IBM, Pfizer, Pepsi and Coke, McDonald's etc. are currently holding over a whopping $2.6 trillion in offshore accounts. According to the report by Institute for Tax and Economic Policy (ITEP), of the 500 top companies in the United States, 322 have large offshore holdings.

The report highlights that the $2.6 trillion figure is the highest-ever hoard held offshore by US companies and has costed the country's government a net tax loss of a jaw-dropping $767 billion.

The ITEP unraveled all the data from the 10-K filings, which are the reports filed by US companies with the US Securities and Exchange Commission.

If looked closely, one would observe that the untaxed funds from the US companies is more than India's GDP, four times the US defence budget, and is almost equal to the $2.45 trillion mandatory spending on social security, unemployment, food security and medicare by the US government in the year 2015.

The obvious question that arises here, is how all of this is possible? How are these American companies succeeding in keeping their profits abroad and evading the country's taxes? Well, as they say, if there's a will, there's a way, and the American companies seemed to have figured out a loophole in the US tax code that works in their favour.

ITEP's Richard Phillip explained the loophole in an interview to TOI. According to him, there this one provision in the US tax code, known as deferral, which allows companies to pay no additional US taxes on their offshore earnings until that money is repatriated. Only when the money gets technically repatriated, the companies are liable to pay the full US tax rate, minus any foreign taxes that they might have already paid.

Understanding the amount of cash that is stashed abroad and hoping to bring it back to the country, President Donald Trump has even proposed an amnesty scheme under which these companies can bring back their offshore cash by just shelling out a one-time 10 per cent tax.

Considering the fact that the current rate for corporate taxes in the US is 35 per cent, the 10 per cent one-time tax concession is a generous deal being offered by the government.

It is interesting to note that former President George W Bush has even had a similar amnesty scheme in 2004, where the companies just had to pay a one-time tax of 5.25 per cent. However, according to financial experts, that scheme turned out to be a big failure as the companies that had more cash stashed abroad were hoping the government to come up with tax holidays to bring the money back in the country.

Since this practice of stashing capital abroad has been going on for quite sometime now, financial experts weigh in that one of the best ways to make this practice obsolete is by making the companies pay US tax immediately on their offshore earnings, rather than giving them a significant window of time to postpone these taxes as is the situation under the current law. As soon as this tax avoidance privilege is taken away, the companies will have to bring the cash to the country and stop hoarding them offshore.

[Top Image: Bloomberg]

Post a Comment

Previous Post Next Post