Pepsi Latest Firm To Repatriate Under AJCA

by Glen Shapiro, LawAndTax-News.com, New York

26 July 2005

Pepsico Incorporated said on Friday that it plans to repatriate up to $7.5 billion of undistributed international earnings, which under the American Jobs Creation Act will incur an estimated $475 million tax expense.

Under the AJCA, firms with substantial profits earned abroad are encouraged to repatriate the income at a temporary rate of tax of 5.25% instead of the usual 35%, a move which lawmakers hope will spur domestic investment. The repatriation provision requires that funds be invested in qualified investments in the US, including compensation and benefits for employees, hiring and training, capital and infrastructure investments, research and development, and advertising and marketing expenditures.

Pepsico said the tax expense will be booked in its current third quarter. The company said it is expecting to report earnings of between $2.32 and $2.35 a share, which includes the repatriation-related tax expense. The company, which is considering an acquisition of France's Danone, expects 2005 cash from operating activities to be in excess of $5.7 billion.

Other major corporates to make repatriations under the AJCA include drugs manufacturer Eli Lilly ($8bn), and Johnson & Johnson ($11bn). According to some estimates US companies could return around $320 billion in overseas earnings to the US during the year-long tax break.

Recommended