Which U.S. Company Is Keeping the Most Profit Offshore?

American companies have hoarded foreign profits abroad for years, as bringing that cash back to the United States would subject them to the highest corporate tax rate in the industrialized world. Recently, Rep. Dave Camp (R-Mich.) released his proposed tax reform plan, which would close loopholes, enact a repatriation tax holiday, and exempt from taxes 95% of foreign profits repatriated to the U.S. While I have highlighted the companies with the most cash abroad before, one company stands above the rest in keeping profit outside the U.S.

You may be surprised which one it is.

The problem
The reform proposal from Camp, who is chairman of the House Ways and Means Committee, would begin exempting 95% of repatriated foreign profits in 2015. Pre-2015 earnings could be repatriated through a one-time tax at a special rate of 8.75% for cash, or 3.5% for earnings and profits that were reinvested in foreign operations.

This would be a big boon to the tech sector -- especially for Apple (NASDAQ: AAPL  ) and Microsoft (NASDAQ: MSFT  ) , which have a combined $200 billion in cash abroad. Apple CEO Tim Cook has said he plans to pay out most of the company's domestic cash flow as dividends while leaving the rest abroad so as not to incur the current 35% federal corporate tax rate. For its part, Microsoft has used its offshore cash to fund acquisitions, notably the $7.2 billion purchase of Nokia. Otherwise, its cash abroad just sits unused to avoid paying the high tax rate.

It's not just the tech sector that has taken advantage of our current tax system, though. One company has gone to great lengths to minimize its taxes, and it doesn't appear on the list of the companies with the most cash abroad, because it has reinvested its foreign profits into foreign operations.

The king of offshore profit
Let's see if you can guess the company based on the following:

  • This company paid an income tax rate of 4.2% in 2013, down from 14.6% in 2012.
  • This company used to own one of the largest television networks in the country.
  • This company has large manufacturing and financial operations.

Give up? Let's see if this helps.

Source: Wikimedia Commons.

That's right: General Electric (NYSE: GE  )  . As of the end of 2013, GE had a whopping $110 billion in offshore earnings. That's 43% more than the No. 2 company, Microsoft, which held $76 billion in offshore earnings. The top 10 are shown below:

 

Company

Offshore Profits

1.

General Electric

$110 billion

2.

Microsoft

$76 billion

3.

Pfizer

$69 billion

4.

Merck

$57 billion

5.

Apple

$54 billion

6.

IBM

$52 billion

7.

Johnson & Johnson

$51 billion

8.

Cisco

$48 billion

9.

ExxonMobil

$47 billion

10.

Procter & Gamble

$42 billion

Source: Companies' most recent 10-Ks.

These 10 companies are holding a combined $600 billion in offshore earnings, while U.S. companies as a whole are sitting on somewhere between $1.5 trillion and $2 trillion worth of foreign earnings.

If the Camp plan passes, General Electric would be able to repatriate most of its profit at the 3.5% rate, as it has reinvested the money in operations around the world. Apple and Microsoft would have to repatriate theirs at the 8.75% rate, as they have simply been hoarding cash abroad.

Bottom line
It is estimated that the Camp plan would result in a 1.5% GDP boost to the U.S. economy over the next decade. It's anybody's guess whether the bill will pass or, if it should pass, what the result would be. However, one thing is certain: In both the public and private sectors, governance functions best when stakeholders educate themselves, take an active interest in what's going on, and use their voices and their votes to let Congress know where they stand.

Educate yourself, take an active interest in the companies you own, and hold management accountable for how they allocate your cash.

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