A loophole in the new U.S. tax law could allow multinational
corporations like Apple Inc to avoid paying billions of dollars in taxes
on profits stashed overseas, according to experts.
Stemming from a Republican overhaul of international business taxes,
the loophole involves the tax rates - 15.5 percent or 8 percent - that
companies must pay on $2.6 trillion in profits they are holding abroad.
By manipulating their foreign cash positions, a determining factor under the new law, a U.S. multinational could potentially save money by shifting profits to the lower rate from the higher one, according to Stephen Shay, a senior lecturer at Harvard Law School.
The savings could amount to more than $4 billion in Apple’s case alone, he said.
The sweeping Republican tax law was President Donald Trump’s first major legislative triumph since he took office almost a year ago. Rushed through Congress, and approved over the unanimous opposition of Democrats, it took effect this month, delivering tax cuts and tax code changes that large, U.S.-based multinationals had sought for years.
One of those changes was a one-time tax break on about $2.6 trillion in profits that multinationals have socked away overseas in recent years under a “deferral” rule that let companies hold profits offshore tax-free, as long as the money was not brought into the United States, or repatriated.
There is no such deferral under the new law and accumulated overseas profits will now be taxed at either 15.5 percent for cash holdings or at 8 percent for more illiquid investments.
Both rates are far below the 35 percent rate that would have been charged on repatriated foreign profits before the law was passed, and below a new 21 percent corporate income tax rate.
To knock their taxes even lower, experts said, multinationals could have leeway to shift foreign earnings into the 8 percent tax bracket and out of the 15.5 percent bracket.
By manipulating their foreign cash positions, a determining factor under the new law, a U.S. multinational could potentially save money by shifting profits to the lower rate from the higher one, according to Stephen Shay, a senior lecturer at Harvard Law School.
The savings could amount to more than $4 billion in Apple’s case alone, he said.
The sweeping Republican tax law was President Donald Trump’s first major legislative triumph since he took office almost a year ago. Rushed through Congress, and approved over the unanimous opposition of Democrats, it took effect this month, delivering tax cuts and tax code changes that large, U.S.-based multinationals had sought for years.
One of those changes was a one-time tax break on about $2.6 trillion in profits that multinationals have socked away overseas in recent years under a “deferral” rule that let companies hold profits offshore tax-free, as long as the money was not brought into the United States, or repatriated.
There is no such deferral under the new law and accumulated overseas profits will now be taxed at either 15.5 percent for cash holdings or at 8 percent for more illiquid investments.
Both rates are far below the 35 percent rate that would have been charged on repatriated foreign profits before the law was passed, and below a new 21 percent corporate income tax rate.
To knock their taxes even lower, experts said, multinationals could have leeway to shift foreign earnings into the 8 percent tax bracket and out of the 15.5 percent bracket.
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