Moody's Predicts Increase In US Firms' Offshore Cash Piles

by Mike Godfrey, Tax-News.com, Washington

08 November 2016

The level of cash holdings kept in foreign jurisdictions by US multinationals will continue to increase unless changes to domestic corporate tax rules are introduced, Moody's Investors Services has said.

According to a new report from the ratings agency, US non-financial companies rated by Moody's will increase their cash holdings to USD1.77 trillion by the end of the year, from USD1.68 trillion at the end of 2015, with almost three quarters (74 percent) of these cash holdings held abroad.

Commenting on the findings, Richard Lane, a Senior Vice President at Moody's, observed: "Without tax reform that reduces the negative financial consequences of repatriating money to the US, we expect offshore cash levels to continue increasing."

The US taxes corporate income on a "worldwide" basis, but there is a deferral system for the active earnings of foreign subsidiaries of US multinational companies, as long as the profits remain abroad. Therefore, tax is only payable when these profits are repatriated as dividends to the US. But rather than repatriate income and face a high statutory corporate tax rate of 35 percent, US corporations have instead stockpiled cash overseas.

Moody's said that corporate cash holdings have more than doubled in the last ten years, driven by rising cash levels at technology companies, which now hold almost half of all cash that is held by US non-financial companies.

According to Moody's, the top five cash holders are Apple Inc., Microsoft Corp., Google parent Alphabet Inc., Cisco Systems Inc., and Oracle Corporation. Moody's projects that Apple's cash will exceed USD250bn by the end of calendar 2016, based on reported results for its fiscal year that ended in September.

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