Don’t expect U.S. companies to repatriate cash: experts

Giving U.S. companies a tax break to repatriate their foreign cash hoards was one of Donald Trump’s major campaign promises, but while money may come “roaring back” from some jurisdictions, experts say Canada isn’t likely to be one of them.

Trump, who will be inaugurated in January, has frequently touted a tax plan that includes “a deemed repatriation of corporate profits held offshore at a one-time tax rate of 10 per cent.”

It is aimed at enticing American companies to send home some of the estimated US$2.9 trillion in accumulated earnings offshore, according to Japanese financial holding company Nomura, much of which sits in jurisdictions where companies pay well below the current 35 per cent U.S. corporate tax rate. (Under current rules, U.S. companies must pay the difference between what they have already paid in foreign taxes and the U.S. rate if they bring the cash home.)

But while 10 per cent may be a sweet deal for U.S. firms with operations in low-tax jurisdictions, such as the Bahamas, it is less of an incentive for firms that have already been subjected to Canada’s middleof-the-pack corporate tax rate of 27 per cent (including the provinces), said Jack Mintz, an economist and President’s Fellow at the School of Public Policy at the University of Calgary.

“It doesn’t mean that some companies won’t do some (remissions), but I don’t expect a major cash drain,” Mintz said.

Going the compulsory route would guarantee bigger immediate tax revenues for the U.S. government, which could then be dedicated toward a spending goal, such as infrastructure, another plank in Trump’s platform.

Economists have also questioned whether tax holidays and deemed repatriations have negative long term consequences, because they incentivize companies to shift profits offshore in anticipation of future breaks.

While it is tough to determine how much U.S. foreign earnings are held in Canada, Nomura analysts Charles St. Arnaud and David Wagner estimate that roughly $200 billion, or seven per cent of the total, is held here.