{"id":664,"date":"2017-12-01T00:22:23","date_gmt":"2017-11-30T18:52:23","guid":{"rendered":"https:\/\/ga-institute.com\/to-the-point\/?p=664"},"modified":"2018-01-28T01:53:19","modified_gmt":"2018-01-27T20:23:19","slug":"repatriating-corporate-taxes-and-corporate-responsibility-corporate-citizenship-implications","status":"publish","type":"post","link":"https:\/\/ga-institute.com\/to-the-point\/repatriating-corporate-taxes-and-corporate-responsibility-corporate-citizenship-implications\/","title":{"rendered":"Repatriating Corporate Taxes and Corporate Responsibility \/ Corporate Citizenship Implications"},"content":{"rendered":"<h3><span style=\"color: #3366ff;\"><em>2017 Tax Reform Discussions\/Decisions:\u00a0 American Companies Are Being Encouraged to Bring the Money Back Home!\u00a0 Will They?\u00a0 Then What?\u00a0 Implications for Corporate Responsibility and Citizenship&#8230;<\/em><\/span><\/h3>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignright wp-image-689 size-medium\" src=\"https:\/\/ga-institute.com\/to-the-point\/wp-content\/uploads\/2017\/12\/2017-tax-reform-300x124.jpg\" alt=\"\" width=\"300\" height=\"124\" srcset=\"https:\/\/ga-institute.com\/to-the-point\/wp-content\/uploads\/2017\/12\/2017-tax-reform-300x124.jpg 300w, https:\/\/ga-institute.com\/to-the-point\/wp-content\/uploads\/2017\/12\/2017-tax-reform.jpg 591w\" sizes=\"auto, (max-width: 300px) 85vw, 300px\" \/>If the offshore earnings are granted a tax holiday under new tax reforms, will U.S. companies bring billions in cash back to the United States\u2026and what will then happen to that money?<\/p>\n<ul>\n<li>Will the prospective tax reform legislation moving along in Washington this week result in U.S. companies being able to \u201crepatriate\u201d the hundreds of billions of dollars sitting offshore in other countries?<\/li>\n<li>Will any of that money return to the United States?\u00a0 What will the monies that do return be used for by American companies?<\/li>\n<\/ul>\n<p>We share some perspectives in this brief about the possible implications for Corporate Responsibility \/ Corporate Citizenship managers.<\/p>\n<h3><strong>Background<\/strong><\/h3>\n<p><strong>The U.S. House of Representatives<\/strong> in early November passed a tax bill that would set a one-time rate of <strong>12%<\/strong> on U.S. companies\u2019 offshore cash earnings, with <strong>5%<\/strong> for non-cash holdings.\u00a0 The \u201chope\u201d is that U.S. companies would bring billions\u2019 of dollars back and plough the cash into the economy (to create jobs and expand the economy).<\/p>\n<p><strong>The U.S. Senate bill<\/strong>, still being fashioned (hourly) as we prepare this brief, would similarly provide a tax holiday to create economic growth. A joint Senate-House committee would be able to hammer out differences and create the document that goes to the White House for signature.<\/p>\n<p>The investor universe of course loves all of this!\u00a0 In anticipation, the Dow Jones Industrial Average climbed to a new record at 24,000 and higher; the S&amp;P 500 Index and NASDAQ indices have been on a tear as well.<\/p>\n<h3 style=\"padding-left: 30px;\"><span style=\"color: #3366ff;\"><em><strong>Corporate CEOs have been more reserved in their reaction.\u00a0<\/strong><\/em><\/span><\/h3>\n<p><strong>CNN Money<\/strong> reports that CEOs are not sure of where the repatriated monies would end up.\u00a0 At a <strong>Wall Street Journal CEO Council Conference<\/strong> in November, when asked by the moderator is the CEOs would invest in the United States, just a few raised their hands.<\/p>\n<p><strong>Gary Cohn<\/strong> (President Trump\u2019s economic advisor) quickly asked: \u201cWhy aren\u2019t the other hands up?\u201d\u00a0 Guess why!<\/p>\n<p><strong>We\u2019ve look at this approach before<\/strong>:<\/p>\n<p><strong>President Barack Obama<\/strong> in February 2015 proposed a one-time tax rate of <strong>14%<\/strong> on what was estimated to be <strong>US$2.1<\/strong> trillion in profiles stashed outside the United States by major U.S. corporations. (The rate now is 35%,)<\/p>\n<p>The proposal was designed to encourage companies to bring funds back to the U.S. and use the monies for infrastructure (roads, bridges, etc.<\/p>\n<p>The proposal went nowhere; now-<strong>Speaker Paul Ryan<\/strong> criticized the proposal as \u201cenvy economics,\u201d and that broad-based reforms in the tax code are needed.<\/p>\n<h3><strong>Bloomberg Reported the Following in June 2017<\/strong><\/h3>\n<p>Large-cap U.S. companies have lots of money stashed offshore, such as:<\/p>\n<ul>\n<li><strong>General Electric<\/strong>, $83 billion profits abroad<\/li>\n<li><strong>Microsoft<\/strong>, $126 billion<\/li>\n<li><strong>Cisco<\/strong>, $68 billion<\/li>\n<li><strong>Oracle<\/strong>, $60 billion<\/li>\n<li><strong>DuPont<\/strong>, $96 billion<\/li>\n<li><strong>Apple<\/strong>, $256 billion (#1on Bloomberg\u2019s tally)<\/li>\n<li><strong>Wal-Mart Stores<\/strong>, $86 billion<\/li>\n<li><strong>Alphabet<\/strong>, $93 billion<\/li>\n<li><strong>Johnson &amp; Johnson<\/strong>, $66 billion<\/li>\n<\/ul>\n<p>The Top 50 (said Bloomberg) had almost one trillion US dollars being stored offshore.\u00a0 Just techie giants Apple, Microsoft and Cisco Systems alone have more than $400 billion stored overseas.<\/p>\n<h3><strong>McKinsey Shares Expert Perspectives<\/strong><\/h3>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignright wp-image-644 size-full\" src=\"https:\/\/ga-institute.com\/to-the-point\/wp-content\/uploads\/2017\/11\/McKinsey-Logo.jpg\" alt=\"\" width=\"240\" height=\"160\" \/>The management consultants <strong>David Cogman<\/strong> (Hong Kong partner) and <strong>Tim Koller<\/strong> (New York City partner) at <strong>McKinsey &amp; Company<\/strong> shared these perspectives in June 2017:<\/p>\n<ul>\n<li>The McKinsey estimate is that between $1.5 trillion \/ and $2.5 trillion of untaxed profits is offshore\u2026the real number has not been clearly established.<\/li>\n<\/ul>\n<p style=\"padding-left: 30px;\">The \u201chealthiest thing to do\u201d is to have companies bring the cash back to the United States.<\/p>\n<p style=\"padding-left: 30px;\">The details in the deal (to do so) should be clear about \u201cwho\u201d holds the cash and \u201cwhat\u201d should happen to it.<\/p>\n<p style=\"padding-left: 30px;\">Important:\u00a0 McKinsey says the 500 largest US non-financial companies have more than $1 trillion <em>more<\/em> than their businesses really need \u2013 the majority of the money is stored offshore in non-US overseas subsidiaries to avoid US income taxes due if the money was repatriated.<\/p>\n<p style=\"padding-left: 30px;\">Consider that the companies\u2019 combined market cap at start of 2017 was $17.9 trillion and revenues were a collective $8.9 trillion. A level of $1.66 trillion in cash reserves is about 10% of total market cap and 20% of revenues.\u00a0 A 2% threshold for cash reserves is the generally accepted practice, the consultants said.\u00a0 <em>What do you do with the rest?<\/em><\/p>\n<p>They go on:<\/p>\n<ul>\n<li>The excess cash is not good for the economy; it is not being used productively.<\/li>\n<li>Companies are tempted to make acquisitions or capital investments that might over time actually destroy value.<\/li>\n<li>The excess cash distorts investing.\u00a0 An Apple share in May 2017 at $156 market price represents $49 in Apple cash (and $107 in operations).<\/li>\n<\/ul>\n<p>Ten companies in two industries hold three-out-of-four dollars in earned profits offshore:\u00a0 in <strong>pharmaceuticals<\/strong> (just three companies), and in <strong>technology<\/strong> (seven firms).\u00a0 The other quarter of the total is spread across other industries.<\/p>\n<p>Most likely the funds if they came back would in some cases be directed to shareholders (via share repurchases and dividends) \u2013 not in capital investments.<\/p>\n<p>About 1\/3 of the cash overseas is held by companies that generate profits in the USA; 2\/3 are companies generating earnings in other countries\u2026and companies are keeping profits there right now.<\/p>\n<p>The last time (2004) there as a structured repatriation plan, the money that came back at a lower rate was used for share re-purchases by the firms.<\/p>\n<p>McKinsey\u2019s experts explain that the more cash that accrues, the harder it is for firms to find good uses (options) for it. (Few new jobs were created; that plan was passed by Congress and enthusiastically signed into law by <strong>President Bill Clinton<\/strong> as the <em><strong>American Jobs Creation Act!)<\/strong><\/em><\/p>\n<h3><strong>The 20-Year Trend of the Offshore Cash Stash<\/strong><\/h3>\n<p>As we prepared this brief, <em><strong>The New York Times<\/strong> <\/em>published a story:\u00a0 \u201c<a href=\"https:\/\/www.nytimes.com\/2017\/11\/29\/business\/taxes-offshore-repatriation.html\">How Tax Bills Would Reward Companies That Moved Money Offshore<\/a>.\u201d<\/p>\n<p>The \u201cstashing\u201d of cash offshore is a 20-year trend, enabled by changes in tax policy in 1996 as the modern globalization trends took hold.<\/p>\n<p>American companies expanded both markets (sales) and operations offshore; over time, the offshore earnings remained in the respective nations, paying a lower tax rate than the USA, and could not be brought back without a huge tax bill resulting.\u00a0 So what to do?<\/p>\n<p>The current Republican Congress&#8217;s initiative to repatriate the money offshore is focused on some (estimated) <strong>$3 trillion<\/strong> in corporate cash and other assets being held in Bermuda, Grand Cayman. The Island of Jersey, and other \u201ctax havens.\u201d<\/p>\n<p>US\u00a0 companies do have a high rate on profits (<strong>35%<\/strong>) but avoid paying taxes on funds earned offshore as long the monies stay in another country.<\/p>\n<p>The Times\u2019s headline comes from a white shoe law firm (<strong>Proskauer Rose)<\/strong> \u2013 US multinationals have shifted profits (earnings) abroad and deferred taxes; the proposed tax bill(s) <em>will reward them for doing so.<\/em><\/p>\n<h3><strong>G&amp;A Institute Shared Perspectives<\/strong><\/h3>\n<p><strong>Implications for Corporate Responsibility \/ Corporate Citizenship in the USA<\/strong><\/p>\n<p><em><strong>If<\/strong> <\/em>the Senate and House bills are reconciled,<em><strong> if<\/strong> <\/em>the White House then agrees, and the tax plan becomes law, and <em><strong>if<\/strong><\/em> U.S. companies are offered the opportunity to bring offshore earnings back home at a lower rate\u2026t<em>hen what?<\/em><\/p>\n<ul>\n<li>Investors would be pleased with moves to boost the value of their shares through special dividends or share buybacks.<\/li>\n<\/ul>\n<h3 style=\"padding-left: 30px;\"><em><span style=\"color: #3366ff;\">That\u2019s good news for an important group of stakeholders of public companies.<\/span><\/em><\/h3>\n<h3 style=\"padding-left: 30px;\"><em><span style=\"color: #3366ff;\">What are the messages then beyond the investor base?\u00a0 Think about the company\u2019s stakeholder base&#8230;<\/span><\/em><\/h3>\n<ul>\n<li>What might the expectations of the workforce be?\u00a0 (Raises\u2026hiring of more hands to help with tasks\u2026special bonuses for outstanding performance\u2026more help with healthcare benefits?)<\/li>\n<li>What are the expectations of the local communities in which your company has facilities?\u00a0 Will new jobs be created in town?\u00a0 New capital investments made (locally)?\u00a0 Will new funds flow to help meet community needs?\u00a0 Will philanthropy be expanded?<\/li>\n<\/ul>\n<h3 style=\"padding-left: 30px;\"><em><span style=\"color: #3366ff;\">What are the expectations of donor recipients, not-for-profit partners?<\/span><\/em><\/h3>\n<ul>\n<li>Will more funds be directed to Corporate Responsibility programs and partnerships?\u00a0 Will existing programs be expanded?\u00a0 Things like cooperative STEM education programs?<\/li>\n<\/ul>\n<h3 style=\"padding-left: 30px;\"><span style=\"color: #3366ff;\"><em>If tax reform is passed and \u201ccompanies are rewarded,\u201d key messages are needed!<\/em><\/span><\/h3>\n<ul>\n<li>What are the benefits to be enjoyed by stakeholders as the cash comes home to America?<\/li>\n<\/ul>\n<h3 style=\"padding-left: 30px;\"><em><span style=\"color: #3366ff;\">All of this ties in some ways to the strategies, actions and communications related to companies\u2019 corporate responsibility \/ citizenship \/ sustainability.<\/span><\/em><\/h3>\n<h3 style=\"padding-left: 30px;\"><em><span style=\"color: #3366ff;\">Is your firm ready for the questions to come from stakeholders as the good news about lower corporate tax rates spreads to all corners?<\/span><\/em><\/h3>\n<h3><strong>References<\/strong><\/h3>\n<ul>\n<li>McKinsey &amp; Company insights:\u00a0 <a href=\"https:\/\/www.mckinsey.com\/business-functions\/strategy-and-corporate-finance\/our-insights\/the-real-story-behind-us-companies-off-shore-cash-reserves\">https:\/\/www.mckinsey.com\/business-functions\/strategy-and-corporate-finance\/our-insights\/the-real-story-behind-us-companies-off-shore-cash-reserves<\/a><\/li>\n<li><em>The New York Times<\/em>, November 2017: <a href=\"https:\/\/www.nytimes.com\/2017\/11\/29\/business\/taxes-offshore-repatriation.html\">https:\/\/www.nytimes.com\/2017\/11\/29\/business\/taxes-offshore-repatriation.html<\/a><\/li>\n<li><em>The New York Times<\/em>, November 2017 \u2013 After a Tax Crackdown, Apple Found a New Shelter for Its Profits (from Ireland to Island of Jersey): <a href=\"https:\/\/www.nytimes.com\/2017\/11\/06\/world\/apple-taxes-jersey.html\">https:\/\/www.nytimes.com\/2017\/11\/06\/world\/apple-taxes-jersey.html<\/a><\/li>\n<li>Bloomberg June 2017:\u00a0 The Top 50 companies have the highest share of cash held overseas &#8212; <a href=\"https:\/\/www.bloomberg.com\/graphics\/2017-overseas-profits\/\">https:\/\/www.bloomberg.com\/graphics\/2017-overseas-profits\/<\/a><\/li>\n<li><em>The Wall Street Journal<\/em>, March 2013: <a href=\"https:\/\/www.wsj.com\/articles\/SB10001424127887324034804578348131432634740\">https:\/\/www.wsj.com\/articles\/SB10001424127887324034804578348131432634740<\/a><\/li>\n<li><em>The New York Times<\/em>, on \u201cA Tax Cut That Lifts the Economy \u2013 this story also has a chart of corporate holdings outside the USA: <a href=\"https:\/\/www.wsj.com\/articles\/SB10001424127887324034804578348131432634740\">https:\/\/www.wsj.com\/articles\/SB10001424127887324034804578348131432634740<\/a><\/li>\n<li>The CNN report on the Wall Street Journal CEO Conference:\u00a0 <a href=\"http:\/\/money.cnn.com\/2017\/11\/15\/news\/economy\/gary-cohn-tax-ceo-repatriation\/index.html\">http:\/\/money.cnn.com\/2017\/11\/15\/news\/economy\/gary-cohn-tax-ceo-repatriation\/index.html<\/a><\/li>\n<li>Reuters: <a href=\"https:\/\/www.reuters.com\/article\/us-usa-budget-tax\/obama-targets-foreign-profits-with-tax-proposal-republicans-skeptical-idUSKBN0L51IX20150201\">https:\/\/www.reuters.com\/article\/us-usa-budget-tax\/obama-targets-foreign-profits-with-tax-proposal-republicans-skeptical-idUSKBN0L51IX20150201<\/a><\/li>\n<li>The issues were debated back in 2012 as then-Senator Carl Levin (Michigan) held hearings on \u201cTax Avoidance by Multinational Corporations:\u00a0 Info at: <a href=\"https:\/\/web.archive.org\/web\/20120924031542\/http:\/www.levin.senate.gov\/newsroom\/press\/release\/subcommittee-hearing-to-examine-billions-of-dollars-in-us-tax-avoidance-by-multinational-corporations\/?section=alltypes\">https:\/\/web.archive.org\/web\/20120924031542\/http:\/\/www.levin.senate.gov\/newsroom\/press\/release\/subcommittee-hearing-to-examine-billions-of-dollars-in-us-tax-avoidance-by-multinational-corporations\/?section=alltypes<\/a><\/li>\n<li>Finally, if you want to set up a Cayman Islands \u201coffshore company,\u201d it is easy (you don\u2019t have to be a huge multinational, although that helps).\u00a0 Just connect with Cayman Enterprise City: <a href=\"http:\/\/www.caymanenterprisecity.com\/\">http:\/\/www.caymanenterprisecity.com\/<\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>2017 Tax Reform Discussions\/Decisions:\u00a0 American Companies Are Being Encouraged to Bring the Money Back Home!\u00a0 Will They?\u00a0 Then What?\u00a0 Implications for Corporate Responsibility and Citizenship&#8230;<br \/>\nIf the offshore earnings are granted a tax holiday under new tax reforms, will U.S. companies bring billions in cash back to the United States\u2026and what will then happen to that money?<\/p>\n<p>Will the prospective tax reform legislation moving along in Washington this week result in U.S. companies being able to \u201crepatriate\u201d the hundreds of billions of dollars sitting offshore in other countries?<br \/>\nWill any of that money return to the United States?\u00a0 What will the monies that do return be used for by American companies?<br \/>\nWe share some perspectives in this brief about the possible implications for Corporate Responsibility \/ Corporate Citizenship managers<\/p>\n","protected":false},"author":15,"featured_media":689,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[128,1091,840,564,43,42,1087,1035,1085,1082,708,1081,1015,838,1083,1089,647,1090,1092,1084,1019,789,1079,1080,1088,561,1086],"class_list":["post-664","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-alphabet","tag-american-jobs-creation-act","tag-apple","tag-cisco","tag-corporate-citizenship","tag-corporate-responsibility","tag-david-cogman","tag-dupont","tag-gary-cohn","tag-general-electric","tag-johnson-johnson","tag-mckinsey","tag-mckinsey-company","tag-microsoft","tag-oracle","tag-pharaceuticals","tag-president-barack-obama","tag-president-bill-clinton","tag-proskauer-rose-law-firm","tag-speaker-paul-ryan","tag-stem-education","tag-tech","tag-the-new-york-times","tag-the-wall-street-journal","tag-tim-koller","tag-wal-mart-stores","tag-wall-street-journal-ceo-council-conference"],"acf":[],"_links":{"self":[{"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/posts\/664","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/comments?post=664"}],"version-history":[{"count":7,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/posts\/664\/revisions"}],"predecessor-version":[{"id":914,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/posts\/664\/revisions\/914"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/media\/689"}],"wp:attachment":[{"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/media?parent=664"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/categories?post=664"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/tags?post=664"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}