Profit Repatriation Slows in the Second Quarter After Tax Overhaul

lunes, 24 de septiembre de 2018


U.S. companies repatriated $169.5 billion in foreign profits in the second quarter-more than in most recent periods, but underscoring a cautious approach to shifting huge sums across borders.

The figure marks a decline from a revised $294.9 billion in the first quarter, the three months immediately after Congress passed sweeping tax legislation.

Todd Castagno, an accounting and tax-policy analyst at Morgan Stanley, had projected $150 billion to $200 billion in second-quarter repatriations.
While the report met analyst expectations, it still trailed public promises made in the lead up to the legislative overhaul.

The transfers represent a combination of newly earned foreign profits, which have never been subject to U.S. tax, and profits long accumulated by foreign subsidiaries.

Policy makers backing the December tax overhaul predicted it would lead companies to bring to the U.S. much of the estimated $2.7 trillion they had stockpiled offshore at least in part to avoid U.S. taxes. In turn, they argued, companies would invest much of the money in U.S. operations and jobs.

Before 2018, the U.S. generally taxed foreign profits only as companies transferred them to a U.S. parent. Profits reinvested overseas, or simply held as cash or securities by foreign subsidiaries, could avoid the levy. Last year’s tax overhaul ended that practice, instead imposing a one-time tax on accumulated foreign profits. That sharply reduced the additional cost of repatriating foreign funds.

Still, a Wall Street Journal analysis of securities filings and statements by more than 100 publicly traded U.S. companies found few had disclosed significant repatriations in the first six months of 2018.

Much of the accumulated profits has been plowed back into factories, equipment and other assets outside the U.S., with perhaps half in cash or marketable securities. The Journal found companies tended to transfer foreign funds to their U.S. parents when there was a specific need, such as an acquisition. Companies have also sharply increased share repurchases.

“Tax reform does make repatriation more tax-efficient, but it doesn’t necessarily make it more business efficient,” said Matthew Becker, national tax office managing partner at BDO USA LLC. “There are certainly some businesses who simply had cash offshored almost exclusively for tax reasons, but that I think is the minority.”

Mr. Becker expects repatriations to ebb and flow, but remain elevated for some time.

“I think it will taper after a few years,” he said.

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