GE, Microsoft face US$506 billion foreign-profit tax in Obama plan

[WASHINGTON] US companies including General Electric Co, Microsoft Corp and Pfizer Inc would pay US$506 billion over the next decade under President Barack Obama's proposal to encourage them to bring back profits held overseas.

That trio tops the list of Standard & Poor's 500 Index companies in earnings reinvested outside the US, according to Bloomberg Intelligence analysts Brian Friel and Tiffany Young. Obama's budget estimates the stockpile of corporate earnings outside the US at about US$2 trillion.

US business lobbyists have been seeking policy changes to help repatriate profits at a rate they deem acceptable. Obama's plan envisions a levy of 19 per cent for future earnings and a one-time, 14 per cent tax on current profits outside the US. Many companies avoid higher US taxes by keeping their foreign profits overseas - a savings that precludes the use of that money in the US

"The odds start low, but you can see momentum building because the president's proposal here is the most in-depth proposal" he has offered, Friel said in a telephone interview from Washington. "That's an indication that he's serious about engaging with Republicans to try and strike a deal." Obama's Proposals Obama's proposals on future foreign profits and other international tax-code changes would raise an estimated US$238 billion over the next 10 years, according to an analysis by Friel and Young. The one-time tax on current earnings held abroad would fetch US$268 billion over the next decade, Friel and Young's analysis shows.

Proceeds from the one-time levy would go to invest in US infrastructure, according to Obama's budget plan.

GE led US companies with about US$110 billion of earnings reinvested outside of the US as of the end of 2013, according to data compiled by Bloomberg Intelligence. Microsoft held US$92.9 billion of its profits outside of the U.S. as of June 30, while Pfizer's total was about US$69 billion as of Dec 31, 2013, the data show.

Seth Martin, a GE spokesman, declined to comment on Obama's tax plan, as did Joan Campion, a spokeswoman for New York-based Pfizer. Peter Wootton, a spokesman for Redmond, Washington-based Microsoft, didn't immediately respond to a voice-mail message left for comment.

GE, based in Fairfield, Connecticut, keeps foreign earnings outside the US because of the need to reinvest in those operations and because "under current US law we would be taxed twice - overseas at the point of sale and again in the US, essentially charging us more to invest at home than foreign competitors," Martin said by e-mail.

Tax changes to bring back more corporate profits to the US would let companies spend more at home on dividends, buybacks, acquisitions, capital investments and workers, said Philip Orlando, chief equity strategist for Federated Global Investment Management, which oversees about US$360 billion in stocks, bonds and cash.

"That overseas money would be used to boost the US economy and financial markets, and the federal government would get a nice chunk of money to be able to fund some much-needed infrastructure spending," Orlando said by phone from New York.

The Republican-controlled Congress probably would negotiate for a lower rate than 14 per cent for the one-time repatriation and for the tax on foreign earnings to be the same as a lowered domestic corporate rate, Orlando said.

Obama's willingness to make a formal proposal "is amazingly positive," Orlando said. "If he's at least bringing it on the table perhaps we can start to have an intelligent discussion and move the numbers into areas that make sense."

BLOOMBERG