Overseas Cash

It is well-known that U.S. based multinational companies often hold large amounts of cash overseas to avoid income tax when repatriating foreign earnings. Current estimates are that U.S. companies hold $1.7 trillion "permanently" invested overseas. What is not well-known is that much of this amount is actually in U.S. dollars. For example, more than 93 percent of Microsoft's $58 billion in overseas cash is invested in U.S. government bonds, U.S. corporate bonds and U.S. mortgage-based securities, and most of that amount is held in accounts in the U.S. However, for accounting and tax purposes, the cash and investments are owned by a foreign subsidiary. The reason for holding U.S. dollar denominated investments is that it eliminates the possibility of a currency related loss. Of course, the money can be repatriated to the U.S parent whenever the company decides they are willing to take the tax hit, which can be substantial. United Technologies estimates that it would pay $4 billion in taxes if it repatriated all of its foreign cash holdings. One thing to keep in mind in all of this: The U.S. is the only major country to tax a domestic company's profits no matter where the profit is earned.