The Financial Times’ Gillian Tett needs to talk to experts on corporate taxation rather than take dictation from the likes of Apple’s Tim Cook. Her current column, A real-world solution to the tax repatriation ruckus, is unabashedly inaccurate and misleading.
Massive Tett Error #1. Corporate cash for companies like Apple is not offshore. Tett:
President Barack Obama proposed raising an additional $238bn in tax by imposing a one-off levy of 14 per cent on repatriated cash piles if they were used for infrastructure spending… What the American economy needs is not on-off populist measures to ban tax inversions or repatriate overseas cash piles….the dismal status quo: a world of ever-growing offshore cash piles
This is nonsense and means that the basic premise of the article is 100% off base.
Corporate profits are booked in offshore entities. Tax books are not the same as accounting books or movement of cash. As top tax expert Lee Sheppard wrote in Tax Notes in 2013 (no online source):
But for reporting companies subject to generally accepted accounting principles and U.S. worldwide taxation, let’s stop talking about ‘‘offshore’’ earnings and ‘‘bringing the money home.’’ The earnings are merely booked offshore. The earnings are by and large not banked offshore. To the extent that the much-ballyhooed $2 trillion of deferred foreign earnings is classified as permanently reinvested in cash, most of that cash is sitting in U.S. banks, where it is propping up their capital.
Apple, for instance, runs its “offshore” profits as an internal hedge fund out of Nevada.
Massive Tett Error #2: Allowing companies to repatriate profits will lead to more investment and spending. Tett:
So investors would do well to note that cash repatriation is a topic on which Mr Trump has also been articulate — and unusually precise. Notably, under his tax plan American companies would pay a one-off discounted rate of 10 per cent if they “bring their cash home and put it to work in America”. Some of his advisers privately say this rate could be cut further — to, say, 5 per cent — if there was clear evidence of the cash being used to create jobs.
Again, we have the misrepresentation about “cash” being overseas. But corporate claim that they would invest more in the US if they were allowed to book those offshore profits in the US is demonstrably false. Why? The US gave companies a repatriation holiday in 2004, after a bout of the very sort of whinging they are engaging in now. And what did they do? They increased dividends and executive pay.
It’s not that hard to get input from a tax pro to understand what the real issues are. But the Financial Times too often veers between top-notch reporting and analysis to using its brand to promote corporate pet issues. Sadly, Tett, who regularly writes incisive columns, is also too willing to sell out her personal brand to dubious causes like this one.