US Hi-Tech Firms Lobby For Tax Cut On Foreign Earnings

by Mike Godfrey, Tax-News.com, Washington

09 April 2003

Companies in the hi-tech sector are urging Congress to pass into law a change to the tax code that would give firms in the sector a one year tax break on repatriated foreign earnings.

Firms such as Hewlett Packard, Sun Microsystems and Intel are lobbying Congress to pass a bill which would reduce taxation on profits generated by overseas operations from 35% to 5.25% for one year. It is thought that this would give the industry a much needed shot in the arm, at the same time as bringing an extra $135 billion back to the United States which could be invested in new R&D and expansion programmes.

Many large tech companies have made major investments abroad, in places such as Ireland, Singapore, Malaysia, China and Israel. Intel for example says 70% of its sales are made abroad, whilst Hewlett Packard reports 65% of its earnings come from foreign sources. However, they argue that because US taxes are prohibitively high, they prefer to re-invest profits in the countries from which they originated.

The Congressional Joint Committee on Taxation estimates that the tax break could benefit the Treasury by $4 billion in the first year due to the flow of money back into the country. However despite this, the technology lobby's pleas are likely to fall on deaf ears as the lawmakers haggle over the more significant matter of Bush's economic stimulus plan. Besides, the same Taxation Committee estimates suggest that over ten years, the tax cut would actually cost the Treasury $4 billion.

The technology industry has joined hands with pharmaceutical multinationals such as Eli Lilly to form an official governmental lobby coalition. The group, known as the Homeland Investment Coalition, intends to press its case for tax cuts on foreign earnings. According to reports, the group has recently sent a letter to Rep. Bill Thomas, the Chairman of the House Ways and Means Committee, urging lawmakers to find room for the issue in President Bush's tax plan.

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