Overseas Earnings of Russell 1000 Tops $2 Trillion in 2013

A Spotlight on Permanently Reinvested Foreign Earnings

Early this morning, the Permanent Subcommittee on Investigations of the Department of Homeland Security will hold a hearing on “Caterpillar’s Offshore Tax Strategy”. The purpose of the hearing is to examine the “structures and methods employed by multinational corporations to allocate income outside of the United States and how such activities are affected by the Internal Revenue Code and related regulations”.

This hearing continues a trend of interest in indefinitely reinvested earnings. Over the last few years foreign earnings of U.S. companies, especially those retained overseas as indefinitely reinvested earnings, have been increasingly in the news. Last year, Apple, Inc. caused a stir by choosing to raise $17 billion through a sale of bonds instead of repatriating earnings held offshore, which had Congress asking questions. Before that, decisions by Microsoft and Hewlett-Packard were scrutinized for similar reasons. Now, Caterpillar’s “tax strategy” is under examination. A main reason for this attention is due to the continuously growing amount of Foreign Indefinitely Reinvested Earnings (IRE) – earnings that are not subject to US corporate income tax.

In the Majority Staff Report for the hearing taking place today, the Subcommittee cites an Audit Analytics analysis of the undistributed foreign earnings of the Russell 1000. According to our analysis, such companies are holding more profits overseas than ever before. As of their most recent annual filings, the Russell 1000 companies now have over $2 trillion of indefinitely reinvested earnings – earnings that are not subject to US corporate income tax.

IRE April 2014 Picture 1

As indicated in the table above, the total indefinitely reinvested earnings of the Russell 1000 increased to $2.119 trillion, which is more than a 12% increase compared to 2012. Over the six year period that we have been tracking this data, such reinvested earnings have increased a whopping 93%. During that same period, the number of companies disclosing reinvested foreign earnings has increased 12%, from 487 in 2008 to 547 in 2013.

The table below lists the top-10 companies for 2013 with foreign IRE balances. Note that Caterpillar, which is not listed here, comes in at number 33. For a complete listing, contact Audit Analytics.

IRE April 2014 Picture 2