tax notes international - Tuck School of Business - Dartmouth College

Figure 2. Annual Flow of Tax-Advantaged Foreign Earnings of 40 U.S. Multinationals, 2003-2007
Billions
$140
$120
$100
$80
$60
$40
$20
$0
$60.1
$67.6
For this group of 40, the accumulated stock of unrepatriated
foreign earnings hit a temporary low in
2005 of $300.3 billion. Under the Jobs Act provisions,
these companies repatriated a total of $184.8 billion of
foreign earnings — about 90 percent in that year. By
the end of fiscal 2007 these multinationals had replenished
their stash of unrepatriated earnings to $518 billion
— a 72 percent increase in two years. These totals
are shown in a solid line in Figure 1. Company-bycompany
figures are presented in the table at the end
of the article.
Another view is provided in Figure 2. It shows
growth in the stock of unrepatriated foreign earnings
plus earnings repatriated under the Jobs Act. In other
words, it shows the annual change in accumulated foreign
earnings that would have occurred each year without
the Jobs Act. This is a measure of how much
profit multinationals are keeping offshore to maximize
tax advantages. From 2003 to 2007 the annual increase
approximately doubled — from $60 billion to $122 billion.
The two figures show multinationals are loading up
on unrepatriated earnings at a far greater rate than before
the tax holiday legislated in 2004. This is a result
of higher worldwide profitability since the prior recession
and an increasingly larger share of business activity
taking place abroad. But as documented previously
in these pages, it is also a result of greater profit shifting
by multinationals out of the United States and into
$95.0 $96.4
$122.1
2003 2004 2005
Fiscal Years
2006 2007
Source: Dotted line in Figure 1.
foreign jurisdictions. (For that discussion, see Tax Notes
Int’l, Mar. 17, 2008, p. 910, Doc 2008-4725, or2008
WTD 49-5.)
What’s Next?
HIGHLIGHTS
These data suggest that the pressure for another repatriation
holiday may be greater than ever. Despite
this, it looks like the growing opposition could thwart
any repeat.
First of all, there is widespread skepticism that these
repatriations work as advertised. For most lawmakers,
the debate about the need for a repeat of the ‘‘onetime’’
tax relief for repatriated dividends centers on the
economy and job creation. Did those lucky multinationals
increase jobs as they told Congress they would
and as they outlined in their legally required dividend
repatriation investment plans? The evidence is in, and
the answer clearly is no. (Dharmapala, Foley, and
Forbes, ‘‘The Unintended Consequences of the Homeland
Investment Act: Implications for Financial Constraints,
Governance, and International Tax Policy,’’
2008.)
Besides job creation, there is the additional issue of
how temporary repatriation relief affects the web of
global tax checks and balances. Repeated ‘‘one-time’’
relief would send a signal to multinationals that they
no longer need to consider profits shifted offshore as
trapped. This increases the benefit of aggressive transfer
pricing practices that would otherwise be held in
TAX NOTES INTERNATIONAL FEBRUARY 2, 2009 • 377
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