The newly proposed tax cuts by President Donald Trump’s administration is lucrative for US tech companies since they stand to save billions of dollars. The Republican-backed tax framework will kick-start Congress’ US tax code revamp and will include a proposal to cut existing corporate taxes down to 20 percent from 35 percent. Congress is also expected to make changes that will stop corporations from shipping capital and jobs overseas as well as reduce taxes on foreign profits.
The 2016 Moody Report on US Monies Stashed Abroad
According to 2017 figures released by Moody, an annual investor report, Apple holds over $231 billion overseas which represents 94 percent of its total cash hoard as at the end of 2016. The other tech giants that have stashed lots of money overseas include Microsoft, with 95 percent of its total $131 .2 cash hoard stashed abroad; Cisco, 87% of $71.8 billion; Alphabet, 60% of $86.3 billion; and Oracle, 88% of $52.8 billion.
The total amount of money held overseas by United States companies reached $1.3 trillion in 2016 up from $1.2 trillion reported in 2015.
President Trump had promised to give companies a one-time 10% repatriation rate during his 2016 presidential campaigns. However, that figure was not included in the recently released nine-page proposal. According to the proposed framework, the existing offshoring model will be transformed into a new American model that will see a reduced tax rate implemented, which will apply to all US multinational corporations.
Tim Cook, Apple’s CEO, made a different statement in 2016 which hinted that the tech giant had provisioned billions for profit repatriation purposes to the US. However, Apple did not comment on its CEO’s remarks. Cook’s comments came after a European Commission decision ordered Apple to pay Ireland back taxes. Apple is a huge advocate of tax reforms on profits made outside the US.
Effect of the Tax Reforms
In 2004, President George W. Bush’s tax holiday for US companies did not produce the desired effect on the national economy. This is because many of the companies that utilized the tax cuts used the money repatriated to enrich shareholders rather than create job opportunities.
Fred Foldvery, an economics lecturer at San Jose State University, said that the main aim of companies was to benefit shareholders. He remained confident that despite the challenges faced, the proposed permanent tax reductions would be a step forward with long-term benefits to the country’s economy.