As you scurry to pay your taxes, hundreds of U.S. companies are saving billions of dollars by parking their money outside the U.S. and avoiding taxation. With a recent Bloomberg study showing that big companies added more than $200 billion to their offshore balances over the past year, bringing the total to $1.95 trillion, many wonder what can be done.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, goes through why Apple (AAPL 0.83%), Microsoft (MSFT 1.05%), IBM (IBM 1.56%), and dozens of other major corporations keep their cash outside U.S. borders. Dan notes that the key is the U.S. tax system, which doesn't tax offshore profits until they get repatriated, giving them valuable tax deferral. Moreover, Dan points out that in 2004, Pfizer (PFE 0.52%), Hewlett-Packard (HPQ), and dozens of other companies took advantage of a repatriation tax holiday that greatly lowered their tax bill. Although policymakers think another tax holiday might be a mistake, one proposal involves lowering U.S. corporate taxes to make them more competitive with the rest of the world and reduce the incentive that Apple, Microsoft, IBM, and others have in keeping money overseas.