Note: This post has been updated to reflect a correction of an error.
The total disclosed amount of indefinitely reinvested foreign earnings – which are not subject to US corporate income tax – continues to increase. From about $1.1 trillion in 2008, the amount of untaxed earnings has more than doubled, to $2.3 trillion in 2014.
Over the last few years these earnings have been attracting increased attention. On April 1, 2014, the Permanent Subcommittee on Investigations of the Department of Homeland Security held a hearing on “Caterpillar’s Offshore Tax Strategy”. As summarized in their investigation report:
For the last decade, the Permanent Subcommittee on Investigations of the U.S. Senate Homeland Security and Government Affairs Committee has examined how U.S. multinational corporations have exploited and, at times, abused or violated U.S. tax statutes, regulations, and accounting rules to shift profits and valuable assets offshore to avoid U.S. taxes. The Subcommittee’s ongoing investigation has resulted in a series of hearings and reports. Two recent hearings presented case studies of how some U.S. multinational corporations have employed complex transactions and licensing agreements with offshore affiliates to exploit tax loopholes, shift taxable income away from the United States to tax haven jurisdictions, and indefinitely defer paying their U.S. taxes, even when using some of that offshore income to run their U.S. operations.
The report goes on to document how Caterpillar shifted billions of dollars in profits away from the United States and into Switzerland, where they had been able to negotiate an effective corporate tax rate of 4%-6%. This enabled them to avoid $2.4 billion in U.S. taxes on those profits.
Caterpillar isn’t the only company that has encountered such investigations; the tax strategies of Apple, Microsoft, and Hewlett-Packard have also come under scrutiny. All told, at 561 companies, more than half of the Russell 1000 disclose indefinitely reinvested earnings.
As previously mentioned, the total indefinitely reinvested earnings of the Russell 1000 increased to $2.3 trillion, which is an 8.6% increase compared to 2013, and a staggering 110% increase compared to 2008.
Considering this upward trend, it’s no wonder President Obama proposed a one-time 14% tax on the (already accumulated) $2.3 trillion earnings in his 2016 budget. That rate would be followed by a 19% minimum tax on any future foreign profits.
Below is a list of the top 10 companies ranked by their amount of indefinitely reinvested foreign earnings. Caterpillar, which is not listed here, came in at 32, up one spot since 2013. To see a complete list, please contact us for a copy of the full report.
Correction: Micron Technology (MU) is incorrectly shown as having $49.1 billion of indefinitely reinvested foreign earnings as of 8/28/14. The company actually disclosed $4.91 billion. Google, (GOOG), with $47.4 billion, should be shown in the 10th position.