Planned tax break could boost economy, create more jobs
MOST big US multinational companies don't bring their offshore earnings home, where taxes are steep.
Instead they hoard them in, among other places, Singapore and the Irish Republic, where corporate tax rates are lower.
Quite a lot of those funds are expected to be brought back to the US soon, though, thanks to a one-off tax break, enacted just before the presidential election.
This scheme, put in place by the Bush administration, is intended to boost the US economy and kick-start job creation by encouraging American companies to bring cash home, reported The Times.
American multinational companies taking advantage of this tax break could bring home up to US$350 billion ($576b) in foreign earnings.
Intel and Coca-Cola each retain some US$6 billion offshore, while General Electric has up to US$15 billion abroad.
Intel, 3M and Heinz are among several companies that intend to use a provision of the American Jobs Creation Act to repatriate overseas profits, the newspaper reported.
The Act reduces the tax on dividends repatriated from 35 per cent to 5.25 per cent.
Such a big movement of capital, expected to begin early next year, may have significant consequences.
Mr Peter Cussons, a PricewaterhouseCoopers (PwC) tax partner believes that, in the short term, it could mean a loss of overseas investment by American companies as they pump cash into their US enterprises.
The legislation came about because of growing concern over outsourcing of jobs and the trend for US companies to move manufacturing and service operations offshore in low-tax and lower-cost countries.
Analysts, however, are sceptical that many jobs will be created by President George Bush's tax holiday. Some believe companies will use it initially to pay back debt, rather than to invest in new operations.
Source: The Electric New Paper
