Thanks to tax code, major U.S. companies spreading hundreds of billions in cash around, abroad
General Electric most savvy company in avoiding taxation
Thanks to a loophole in domestic tax laws, some major U.S. corporations such as Pfizer, Microsoft and Apple are spreading their cash stockpile around the world in order to avoid taxation. By far the most adroit U.S. Company in tax evasion is General Electric, which increased its tax-free cash accumulation to $108 billion, up from an estimated $94 billion in 2010.
A tax code that encourages U.S. companies to indefinitely keep profits from their foreign subsidiaries outside of the country.
According to recent surveys of company filings from the Securities and Exchange Commission, some companies to take advantage of this loophole have been the Microsoft Corporation, which increased its stockpile to $61 billion, up 36 percent from 2011 and up from $30 billion in 2010. Apple Inc. raised its ante to $40 billion, up 73 percent from 2011.
It's a trend that many corporations have been quick to join. Sixty of the country's largest nonfinancial corporations kept $166 billion in cash outside of the U.S. last year, shielding more than 40 percent of their profits from taxes. According to the Wall Street Journal, that's from total overseas earnings of $1.3 trillion, up 15 percent from 2011.
A separate analysis of 83 of the largest nonfinancial corporations found that companies increased by $183 billion their foreign-based cash accumulations, representing a 14.4 percent rise from 2011, according to Bloomberg. Microsoft, Apple and Google Inc. together hold $134.5 billion in cash abroad.
"The corporate system is broken and it's broken primarily because of international," tax law professor at the University of Southern California, Edward Kleinbard, told Bloomberg.
The propensity to keep profits outside of the U.S. was most prevalent among tech and healthcare companies. Twenty-six of them on the list of 60 kept $120 billion abroad last year.
The Federal Reserve, in the first quarter of 2012, estimated in its Flow of Funds report that U.S. nonfinancial companies held $1.7 trillion in liquid assets, or cash in the first quarter of last year. This figure only accounts for U.S.-based assets.
The first half of last year was much higher, according to IRS figures. The total amount of liquid assets was listed at $5.1 trillion. That means for every dollar a U.S. nonfinancial company held inside the U.S., it held three dollars abroad.
According to Pulitzer Prize-winning financial journalist and author David Cay Johnston, the reasons for hoarding cash abroad are threefold.
1. Profits held overseas aren't taxed if they're owned by offshore subsidiaries.
2. Companies have had no incentive to invest these proceeds due to lackluster growth in jobs and wages that suppress demand for goods and services.
3. Mountains of cash held in offshore accounts provide a nice cushion if the economy worsens.
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