US companies repatriate over half a trillion dollars in 2018, but pace slows

US companies have sent home over half a trillion dollars of cash they held overseas in 2018 to take advantage of tax changes, but data suggest the pace is slowing, potentially removing a key source of support for Wall Street.

Dollar repatriation in the JulySeptember period fell to US$ 93 billion, around half of secondquarter volumes and less than a third of the US$ 300 billion or so sent home from January to March, US current account data shows.

The repatriation bonanza followed new regulations that allowed the US government to tax profits accumulated overseas, regardless of where the money was held.

Prior rules allowed companies to ‘defer’ US tax on worldwide profits unless they repatriated the money.

The change offered a powerful incentive to bring home some of the US$ 3 trillion US firms were believed to hold in jurisdictions ranging from Ireland to Switzerland, either in cash or in securities such as US Treasuries.

But investment bank JPMorgan said the flows were on “a rapidly decelerating trajectory”.

The current account data shows repatriation in all sectors.

Looking at just non-financial companies, JPMorgan calculates US$ 60 billion was repatriated in the third quarter, versus US$ 225 billion in the first quarter and US$ 115 billion in the second quarter.

Because companies had probably already pre-booked a one- off tax hit for the year, repatriation will have dwindled further in the last quarter, it predicted.

Repatriation flows are also evident from data released by the US Treasury International Capital, or TIC.

That shows Treasury bond holdings falling in locations that are well known as low-tax jurisdictions or overseas bases of US companies or that host significant fund management or custody business.

Ireland, which hosts the European hubs of US technology and pharmaceutical companies such as Apple and Pfizer, saw Treasury holdings drop by US$ 40 billion between end-2017 and end- October 2018, TIC data released on Dec 17 shows. — Reuters