How Offshore Is All That Overseas Cash?Issue 10-09-17 |
In its most basic form, the U.S. Tax Code provides that corporate income earned and held abroad is only taxed in the venue in which it is earned. Once that income is brought home, usually in the form of a dividend to a parent company, it is then taxed as U.S. income, subject to a deduction for the foreign taxes paid. Because the U.S. Tax Code provides for a U.S. tax rate that is typically higher than the foreign rate, the incentive for leaving foreign income offshore is high.
Congress is contemplating a move to allow for a lower tax rate on corporate income (and perhaps other incentives) to cause the billions of dollars held abroad to migrate home. The term "repatriation" is the term that summarizes this activity.
Many anticipate that this will cause of flood of dollars into the U.S. economy, but don't be so sure. Much of the offshore hoard has been invested in dollar denominated debt of U.S. companies and the government. There could be unintended consequences if all those investments are suddenly liquidated.