US firms’ untaxed cash more than India’s GDP
Over $2.6 trillion is held as untaxed cash in offshore accounts by top US companies like Apple, Google, IBM, Pfizer, Pepsi and Coke, McDonald’s etc. according to a report by the Washington-based Institute for Tax and Economic Policy (ITEP).
This is the highest-ever hoard held offshore by American companies and represents a net tax loss of a staggering $767 billion for the US government.
The $2.6 trillion untaxed funds are more than the combined GDP of 153 countries, four times the US defence budget, and slightly more than the total mandatory spending of $2.45 trillion on social security , food security , medicare and unemployment by the US government in 2015.
The untaxed treasure hoard is more than India’s GDP . According to Richard Phillips of ITEP , this information was dug out from 10-K filings, that is, annual reports filed by companies with the US Securities and Exchange Commission.
Of the 500 top companies in the US, 322 were found to have large offshore holdings.
How is it possible for companies to keep their profits abroad and evade taxes? The answer lies in a well-exploited loophole in the US tax code, says Phillips.
“The US tax code has a provision, known as deferral, which allows companies to pay no additional US taxes on their offshore earnings until that money is repatriated.When it is technically repatriated, the companies have to pay the full US tax rate, minus any foreign taxes they have already paid,” he told TOI.
Eyeing this cash, President Donald Trump has proposed an amnesty scheme under which companies can bring back their offshore wealth by paying a one-time 10% tax.
The going rate for corporate taxes in US is 35% and, so, a huge concession is being offered. President George W Bush had granted a similar amnesty in 2004 with a onetime tax rate of 5.25% only .However, it was thought to be a failure with companies hoarding more cash abroad hoping for tax holidays.
Phillips thinks the best policy to end this hoarding of cash would be to require companies to pay US tax immediately on their offshore earnings, rather than allowing them to defer these taxes as under current law. Without the incentive of tax avoidance, companies would simply stop hoarding their cash offshore, he said.