Tuesday, March 6, 2012

Qualcomm joins chorus for MNC tax reform

At Tuesday’s Qualcomm shareholder’s meeting, the company’s executives joined the chorus of Fortune 500 leaders who called for reducing taxation of multinational US companies when they repatriate foreign income that’s already been taxed offshore.

The list of proponents is heavily skewed towards high-margin IT companies, including Apple, Google, Microsoft and Oracle, as well as more traditional market leaders like GE and Pfizer. Bloomberg estimated that 70 US companies hold $1.2 trillion offshore.

In response to a shareholder question, CFO William Keitel said that of Qualcomm’s more than $20 billion in cash, about 60% of that is offshore. CEO Paul Jacobs said that 75% of employees are onshore, but that 90% of revenues are generated offshore because that’s where companies build products. That money “has a little note attached to it: don’t spend me in the United States,” Jacobs said. He also said he was leaving Tuesday for a meeting Wednesday by proponents of the change.

As I see it, there are three issues here:

  • Economics. Clearly encouraging bringing that money back would encourage more capital investment and hiring in the United States.
  • Budget Deficit. Reducing taxes would theoretically widen the deficit. In practical terms, if firms don’t repatriate their money — and thus don’t pay any repatriation tax — then there’s no loss. There’s also the issue of whether economic growth (e.g. increase in jobs) would increase other tax receipts, but that’s hard to measure.
  • Politics. In an election year, it will be difficult for either side to openly support big business. Democrats are attacking big business (although in the past they’ve been closely aligned with big NYC Wall Street financiers). Republicans are already wary of being too aligned with business interests: Romney is wary of being seen as more of a plutocrat than he already is, while his two main rivals have more of a Main Street than Wall Street bias.
If either side wins a clear mandate, it’s possible there will be a settlement next year (or during the lame duck session). However, given the recent rhetoric, I can’t see how a Democratic Congress would support such an effort, so to me the only way it would pass is if both houses are decidedly GOP (give or take a few centrist Democrats) to work with whatever initiative next year’s president proposes.

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