9th April 2014
American companies are successfully lowering their domestic tax liabilities by offshoring billions of dollars in profits. US firms have stockpiled close to a trillion dollars in offshore accounts to reduce their tax bills, according to research by Moody’s.
Cash reserves belonging to American businesses totalled $1.64 trillion last year, a 12 per cent increase from the year before. Of that, well over half, around $947 billion, is stored offshore, up from around $840 billion a year ago.
Apple alone accounts for roughly ten per cent of the cash hoard, indicative of the company’s high-profile use of offshore tax planning to reduce its liabilities. Microsoft, Google and Verizon are among the other leading offshoring companies.`
Accusations by some critics that companies are hoarding money abroad do not ring true, moreover. Moody’s reports that capital spending rose from $862 billion in 2012 to $869 billion last year, the highest level on record.
Some companies are pushing for a tax holiday to repatriate funds, but whether the tax-hungry US administration would go for this is up for debate. America’s 35 per cent corporate tax rate is a barrier to repatriation of funds, but attempted reforms have so far failed.
Indeed the White House has signalled its intention to step up efforts to curb offshoring by US companies. It wants tougher tax rules for American corporations using hybrid structures to reduce their liabilities in the US. Globally, of course, the likes of Apple and Google have come under fire from consumers for reducing their tax liabilities in this way.
Meanwhile a Citizens for Tax Justice (CTJ) survey recently showed that American companies are paying more in tax for their overseas operations than they do domestically. Of the firms in the survey with significant offshore profits, two-thirds paid higher corporate tax rates to foreign governments where they operate than they did on their US earnings. This report highlighted a number of methods used by companies to reduce tax bills, which included offshore tax sheltering.