Thursday, March 14, 2013

Foreign Cash Balances Grow

U.S.-based companies saw their offshore cash balances grow by $183 billion last year, to more than $1.9 trillion. One of the main reasons for the growth in offshore cash balances by U.S. companies is the worldwide tax system, which requires U.S.-based companies to pay income tax on earnings from any country when repatriated. In contrast, most other industrialized countries charge little, if any, tax on foreign earnings. The comparison of international tax rates can be seen by examining the potential taxes owed by Microsoft and Citigroup on foreign cash balances. Microsoft would owe $19.4 billion if it repatriated its $60.8 billion in offshore cash, implying it had paid a foreign tax rate of 3.1 percent. Meanwhile, Citigroup would owe $11.5 billion in taxes on its $42.6 billion in foreign tax, implying a foreign tax rate of 8 percent.