WASHINGTON: Major U.S. multinationals are pushing the Trump administration to deepen the tax break it has already tentatively proposed on $2.6 trillion in corporate profits being held offshore, a key piece in Washington’s intricate tax reform puzzle. As President Donald Trump tries to deliver on his campaign promise to overhaul the tax code, lobbyists for technology, drug and other manufacturers are working with officials behind closed doors, six lobbyists working with various industries told Reuters. In line with tax cuts already embraced by Republicans in the House of Representatives, the lobbyists said they are telling the White House and Treasury Department that if companies are forced to bring home, or repatriate, foreign earnings, they want a sharply reduced tax rate. The lobbyists are making an aggressive case that cutting the tax rate on offshore profits to 10 percent from 35 percent, as the administration has indicated it may favor, is not enough.
Rather, the lobbyists said they want a lower, bifurcated rate of 3.5 percent on earnings already invested abroad in illiquid assets, such as factories, and 8.75 percent on cash and liquid assets. During the 2016 presidential campaign, Trump proposed setting the rate at 10 percent, and argued it could be used to raise tax revenue to pay for tax cuts or infrastructure. Discussion of hard numbers in the long-running repatriation debate may indicate tax reform is advancing on Trump’s slow-moving domestic policy agenda. Or it may just be lobbyists trying to set the early framework for a long slog ahead, which could be adjusted if they get concessions elsewhere. “For us, it’s how you create a tax environment where you give business long-term certainty,” one lobbyist said.
The changes being discussed are part of larger tax reform, another lobbyist said: “Our international tax system is out of whack with the rest of the world. This system is not sustainable.” The lobbyists’ demands represent the latest effort in a push by corporate America that has been under way since 2004-2005, the last time Washington let multinationals pay only a small fraction of the taxes due on their foreign profits. Repatriation and comprehensive tax reform are important to the economy, Apple Inc (AAPL.O) CEO Tim Cook said earlier this month on CNBC. “The administration … they’re really getting this and want to bring this back and I hope that that comes to pass,” he said. Apple held $239.6 billion of cash and securities offshore as of April 1. Under current law, U.S.-based corporations are supposed to pay 35-percent income tax on profits worldwide. But companies can defer that tax on active profits left outside the country. The deferral rule has incentivized multinationals to park profits offshore and about $2.6 trillion in earnings is being held overseas by more than 500 U.S. companies, according to Audit Analytics, a corporate research firm. Nearly a third of that is held by 10 companies, including Apple, Microsoft Corp (MSFT.O), Pfizer Inc (PFE.N) and General Electric Co (GE.N), the firm said. All four of those companies declined to comment. These companies and hundreds of others could bring their foreign profits into the United States at any time, but they do not in order to avoid paying the 35-percent tax due.
