Companies' foreign cash sits in US banks
Execs park that money to avoid paying a high corporate tax rate. But even though the cash is classified as being overseas, it makes its way into US accounts.
As a result, billions of dollars are off limits. But the money isn't sitting in some Cayman Island bank vault. Instead, most of it is actually here in the U.S. and untouchable to those companies who refuse to pay the taxes.
It's a weird scenario outlined by The Wall Street Journal this week. The U.S. taxes all of a company's profits -- even the profits made in other countries. But the government only taxes the profits if a company wants to bring it back for use in the U.S.
If a company keeps the money overseas, then no taxes apply. Large corporations have been fighting this rule for years, saying it limits their success and the growth of the U.S. economy. But so far, the rule still stands.
But if you're a Google (GOOG) or an EMC (EMC), what exactly do you do with all that overseas cash? You don't want to get hit with volatile currency-exchange rates, so you want to keep it in U.S. dollars. And you want to keep it in the safest place possible -- which would be the U.S.
So some companies park the cash in accounts in Ireland, the Cayman Islands and Singapore, the Journal reports. But the money ultimately gets funneled into U.S. accounts through a "correspondent bank" in the U.S.
The companies will also plow that cash into government and corporate bonds. "In accounting terms, the location of the funds may be just a technicality," writes the Journal's Kate Linebaugh.
Take EMC, for example. The company had about $10.6 billion in cash last year, the Journal reports. Nearly half of that was held overseas and not subject to the tax on repatriated earnings. But of that amount, 75% was actually in the U.S. or in U.S. investments.
Google has $29.1 billion in cash held overseas. But most of that money is held within the U.S.
It's all pretty silly. If lawmakers can ever figure out a way to allow companies to repatriate that cash at a lower tax rate, moving it back would be incredibly easy. The money is already here.
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