Tag Archives: fiscal cliff

Overseas Cash and Justin Bieber

As tax reform is discussed in preparation for our upcoming leap off the fiscal cliff, among the topics has been corporate tax reform, in particular how American companies are taxed on their overseas income. As the system currently works, as long as US companies keep their cash offshore, they don’t have to pay US taxes. Once they bring that money back, it’s a flat 35% tax rate. So, not surprisingly, US companies with multinational operations have a lot of cash stashed overseas. Read all about it here, here, here and here.

The thing is, some of these companies have so much cash overseas, and so little here in the US, that they’re borrowing money to fund their operations here, or to fund dividends and stock buybacks. But they (the companies and the reporters covering this topic) are making it seem like the companies CAN’T bring the money back to America. Let’s be very clear: they CAN bring the money back, it will just cost them 35%.

For example, here is how the WSJ described it:

Each of these companies is grappling with a growing problem that comes from keeping Uncle Sam away from their foreign income: How to round up enough cash in the U.S. to cover items like dividends, share repurchases, debt repayments and pension contributions.

And here is how a CFO described it in the WSJ:

“You end up with the really peculiar result where you are borrowing money in the U.S. while you show cash on the balance sheet that is trapped overseas,” said Bruce Nolop, former chief financial officer of Pitney Bowes and E-Trade Financial and now a director at Marsh & McLennan. “It is a totally inefficient capital structure.”

Now I understand why companies are keeping their cash overseas: it’s their job to minimize taxes. And I can certainly see why they would rather borrow at historically low interest rates (like 5%) than pay a 35%. No complaints from me on either front. But for the companies to act like it’s just impossible for them to bring the cash home annoys me. They choose not to bring the cash home, for good reasons, but if they really wanted to they could. It’s like saying that you can’t get Justin Bieber to play at your daughter’s bat mitzvah. You can, but it’s going to cost you a boatload.