Business

US Companies Moved $2.5 Trillion Overseas To Avoid Taxes

SAUL LOEB/AFP/Getty Images)

Daily Caller News Foundation logo
Robert Donachie Capitol Hill and Health Care Reporter
Font Size:

Within the last decade, U.S. companies moved $2.5 trillion overseas in efforts to avoid prohibitive corporate taxes, according to findings by one economist.

The United States has the third highest corporate income tax rate out of the top 35 industrialized nations, according to the Organization for Economic Co-operation and Development (OECD). (RELATED: How The US Measures Up To Globe In Corporate Tax Rates)

The battle between Apple and the European Union concerning tax competition is generating interest in the trend of American companies moving operations overseas to avoid burdensome U.S. tax rates and regulations. (RELATED: Ireland Doesn’t Want Apple’s Taxes, Just Its Business)

U.S. corporations moved a record $2.5 trillion dollars overseas, economist at Capital Economics Andrew Hunter tells Business Insider. That is effectively 14 percent of the U.S. GDP.

It is only a small fraction of U.S. firms that are doing this. The movement of capital overseas is almost solely concentrated to a few large firms and sectors. GE and Microsoft each have over $100 billion overseas, Hunter explains. Pharmaceuticals and technology firms are the greatest offenders. Big pharma is responsible for 27 percent and tech firms are responsible for almost 40 percent of the total $2.5 trillion.

If all of that capital was repatriated, the U.S. could very well see a significant boost to its economy. Considering that $2.5 trillion is larger than the GDP of 28 nations, the potential boon to the U.S. economy may be significant.

One reason we may not see American firms repatriate their overseas earnings is that “all income that a U.S. company earns anywhere in the world is potentially subject to a tax rate of up to 35 percent,” Scott Greenberg, analyst at the Tax Foundation, tells The Daily Caller News Foundation.

Greenberg highlights two significant features of the U.S. tax system which ensure companies can avoid paying the 35 percent on foreign earnings. The first way is for companies to “defer their tax liability on foreign-source income until the money is repatriated,” Greenberg tells TheDCNF. The other avenue for companies to take is to “claim a foreign tax credit for the taxes they’ve already paid to foreign governments on their income earned abroad.”

Instead of bringing earnings back home, corporations are more likely to continue reinvesting their profits abroad where they receive a more favorable tax rate. This is likely a major reason companies like Pfizer, Facebook, and Apple all have corporate operations in Ireland-a nation with a corporate tax rate of just 12.5 percent.

“I can’t speak to the circumstances of specific U.S. companies, although it’s clear that at least some U.S. companies are keeping their foreign profits offshore so as not to pay a second layer of taxes upon repatriation to the U.S.,” Greenberg explains to TheDCNF.

Follow Robert on Twitter

Send tips to robert@dailycallernewsfoundation.org

All content created by the Daily Caller News Foundation, an independent and nonpartisan newswire service, is available without charge to any legitimate news publisher that can provide a large audience. All republished articles must include our logo, our reporter’s byline and their DCNF affiliation. For any questions about our guidelines or partnering with us, please contact licensing@dailycallernewsfoundation.org.