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Cash Offshore

US tech and pharma park cash offshore – FT.com

Parking cash and not bringing it back here to save tax dollars.

Perfectly legitimate due to the crazy corp tax code and the way we tax the profits of foreign US operations.

We tax them twice: once over there and once over here if the dough comes back — but the dough does not come back. More likely, the company waits and waits for Congress due to aid the competitiveness of US corporations and when nothing but gibberish comes from the small intellectual elite in that faraway capitol they invert and multiply overseas.

BYE, BYE Pfizer ($PFE), Amgen ($AMGN) and now tonight we hear about Medtronic ($MDT) proposing to buy Covidien ($COV) based in where else? … Dublin, Ireland.

EU to Investigate Corporate Tax Codes in Ireland, Luxembourg, Netherlands

Probe Follows Criticism in Europe of Low Tax Rates Paid by Global Corporations

The FT reviewed the accounts of 14 cash-rich tech and pharma companies that provided data on their offshore cash. Apple, Microsoft, Google, Pfizer, Cisco Systems, Oracle, Qualcomm, Johnson & Johnson, Merck, Amgen EMC, eBay, Eli Lilly and Medtronic together held $479bn of offshore cash and equivalents at the end of their last financial year – just over half of the $947bn that Moody’s estimated was held by US non-financial companies. All the companies except Pfizer reported falls in their tax rates which ranged from 10 per cent to 66 per cent.

via US tech and pharma park cash offshore – FT.com.

With all the rhetoric about companies dodging tax rates and paying less – this whole thing is really about the flexibility to increase dividends for shareholders who, if they own the companies in taxable accounts, will pay a higher individual income tax rate on the dividends than the company will… So, yes, it avoids tax but the end goal is to increase the dividend-paying ability of the company.

The easiest solution would be for the US to go to a “territorial” tax system so companies do not need to park cash overseas – if they earned it there they pay taxes there, and that’s it. The US government won’t miss out, especially if the companies pay out the cash in dividends, which are taxed at higher rates that Ireland’s rate anyway.

Taxes with ValueAligned Partners

It’s not just big corporations that have to worry about taxes — it’s people just like you. If you have money in mutual funds, you could be subject to large capital gains distributions that will leave you with a large tax bill come April.

How can you solve the tax problem associated with mutual funds? Invest in stocks of great companies via separately managed accounts.  Contact me at david@www.valuealigned.com or 732-800-2375 to learn more.