17/08/18

Falling offshore T-bond holdings highlight U.S. cash repatriation

(Reuters) - Dollars are going home. In low-tax jurisdictions from Ireland to the Bahamas, the stock of Treasury bond holdings is down $22 billion this year in a sign U.S. companies are repatriating cash held offshore after changes to how foreign earnings are taxed.

Over the years, U.S. multinationals have accumulated an estimated $3 trillion in worldwide profits offshore, held in cash as well as securities including U.S. Treasuries. This is the result of a rule under the previous tax regime allowing them to defer paying tax on offshore profits as long as the money was not repatriated to the United States.

But a powerful incentive to repatriate these earnings has come from changes which eliminated the “deferral” rule but reduced the rates at which company profits accumulated abroad are taxed — to 15.5 percent for cash holdings and 8 percent for more illiquid investments.

Both rates are far below the 35 percent rate that would have been charged on repatriated foreign profits before the law was passed, and below a new 21 percent corporate income tax rate.

As a result, $300 billion was repatriated in the first quarter of 2018, U.S. balance of payments data indicates.