US Giants Ask Bush For Tax Break On Overseas Profits

by Leroy Baker, Tax-News.com, New York

20 November 2001

US multinationals, including such behemoths as Microsoft, Procter & Gamble, Pfizer, and Johnson & Johnson are to ask President Bush to include a tax break on overseas earnings in his economic stimulus package.

The initiative is intended to encourage the overseas subsidiaries of US multinationals to send profits home rather than reinvesting them in the country in which they are based, and analysts have predicted that if passed, the measure could save US giants around $100 billion.

At present, foreign subsidiaries remitting profits to the United States face a 35% tax penalty, a factor which has meant that in many of the larger multinationals, there is an explicit policy of non-remittance to the US based parent company. Johnson & Johnson, for example, are thought to have $9.5 billion permanently invested overseas, and Compaq Computer has announced that it will not return around $6.2 billion in foreign profits to the US because, as things stand at the moment, it would be forced to pay $2.1 billion in American taxes on them.

The proposal recommends the temporary reduction of this tax to a level of 5.25%, and has the support of several prominent politicians from both sides of the political divide. Senator Robert Torricelli, a New Jersey Democrat, stated recently that the tax break would raise US tax revenues if implemented, as companies would never otherwise repatriate their profits.

Under the terms of the proposal, companies would only benefit from the tax break if they had been paying taxes in the US on some portion of their overseas income for at least three years. They would also have to agree to continue the same level of repatriation for another ten years.

Given the prevailing mood of the American public regarding what many see as corporate profiteering on the back of the tragic events of September 11th, this new proposal is unlikely to be well received. However, the multinationals seem optimistic. 'It's a pretty daring proposal, but it would be effective,' commented Bill Sample, Microsoft's director of domestic taxes, last week.

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