Trump’s big tax wind­fall for multi­na­tion­als

The Star Early Edition - - INTERNATIONAL - Lynn­ley Brown­ing

MULTI­NA­TION­ALS are in line for a wind­fall from Pres­i­dent Don­ald Trump’s call to cut the tax rate on US com­pa­nies’ stock­piled over­seas earn­ings, but a select few would do bet­ter than oth­ers.

Ap­ple and Pfizer may en­joy an ex­tra earn­ings bump be­cause of their pre­vi­ous ac­count­ing ma­noeu­vres, while com­pa­nies in­clud­ing Microsoft, Merck & Co and Exxon Mo­bil might have to log a one-time earn­ings hit, data recorded in their pub­lic fil­ings sug­gest.

The dif­fer­ence, which could mean a book­keep­ing boost of as much as $7.9 bil­lion (R101.2bn) for Ap­ple and $5.3bn for Pfizer, can be found on both com­pa­nies’ balance sheets. Both have cre­ated multi­bil­lion-dol­lar “de­ferred tax li­a­bil­i­ties” to re­flect the US taxes they ex­pect to owe on their ac­cu­mu­lated off­shore in­come.

Those li­a­bil­i­ties are based on the cur­rent US cor­po­rate in­come tax rate of 35 per­cent – but Trump and con­gres­sional Repub­li­cans have pro­posed slash­ing the rate on ac­cu­mu­lated for­eign earn­ings to just 10 per­cent or lower. If they suc­ceed, Ap­ple and Pfizer would be able to pay their lower-than-an­tic­i­pated tax bills and then ad­just their balance sheets, with one-time ad­di­tions to their earn­ings worth bil­lions, tax ex­perts say.

“These com­pa­nies will be happy campers,” said Bret Oliver, a tax part­ner at Price­wa­ter­house­Coop­ers.

The book­keep­ing ad­just­ments wouldn’t be tied to ac­tual busi­ness growth, so from an in­vestor’s point of view, they’d drive a “lower qual­ity” rise in earn­ings per share, said Ron­ald Graziano, a di­rec­tor and global ac­count­ing strate­gist at Credit Suisse Group. Still, com­pa­nies that have cre­ated large tax li­a­bil­i­ties for their off­shore earn­ings “wouldn’t have to come up with cash” for their tax bills, be­cause they’ve al­ready ac­crued for it, he said. “It’s a mas­sive ben­e­fit.”

But can Trump’s open­ing bid lure com­pa­nies and cash home?

It’s im­pos­si­ble to dis­cern the pre­cise ef­fect on com­pa­nies – they gen­er­ally dis­close only por­tions of their tax plan­ning to share­hold­ers ev­ery year.

Also, it’s unclear how ex­ten­sively com­pa­nies could lower their US repa­tri­a­tion taxes fur­ther by claim­ing cred­its for for­eign taxes they’ve al­ready paid on over­seas in­come – the con­gres­sional plan and Trump’s plan have been silent on that ques­tion.

“If the goal is to raise rev­enue, we would as­sume that they will limit the use of for­eign tax cred­its,” said Eric Toder, co-di­rec­tor of the Ur­ban-Brook­ings Tax Pol­icy Cen­tre and a for­mer Trea­sury tax-pol­icy econ­o­mist.

To ar­rive at its es­ti­mates, Bloomberg used pub­lic dis­clo­sures from a num­ber of com­pa­nies that re­port large off­shore earn­ings, along with cal­cu­la­tions en­dorsed by three tax and ac­count­ing spe­cial­ists.

Microsoft cre­ated a rel­a­tively small de­ferred tax li­a­bil­ity for its off­shore in­come, so it may have to take a one-time earn­ings hit of as much as $11.7bn for its repa­tri­a­tion tax bill. For Merck, the tab could be as much as $5.1bn, and Exxon’s could be as much as $5.4bn.

A spokesman for Microsoft de­clined to com­ment, while a spokes­woman for Merck didn’t re­spond to e-mailed re­quests and calls for com­ment.

Scott Sil­vestri, a spokesman for Exxon, said the oil com­pany doesn’t have any de­ferred tax li­a­bil­i­ties for un­remit­ted for­eign earn­ings, but does have for­eign tax cred­its that could help to re­duce its tax bill.

Dif­fer­ences in cor­po­rate tax plan­ning stem from some quirks of the US tax code that Trump and con­gres­sional Repub­li­cans want to end. Un­like other de­vel­oped coun­tries, the US taxes its cor­po­ra­tions on their global in­come – not just their do­mes­tic earn­ings. How­ever, com­pa­nies can de­fer pay­ing tax on their for­eign in­come un­til they de­cide to “repa­tri­ate” it to the US. – Bloomberg

US pres­i­dent and some law­mak­ers are propos­ing a for­eign earn­ings’ tax cut to just 10% or lower.

PHOTO: REUTERS

The Ap­ple logo is seen on a com­puter screen in an il­lus­tra­tion file photo taken in Bordeaux, France, ear­lier this year. Be­cause of its book­keep­ing ma­noeu­vres Ap­ple could score R101.2 bil­lion in ex­tra earn­ings.

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