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Nicole Tichon

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The Big Fake on Repatriation

Posted: 06/17/11 01:25 PM ET

Multinational corporations are again swarming the Hill, trying to give Democrats and Republicans a reason to give tax amnesty in the form of a highly discounted tax rate of just over 5 percent to bring money back from offshore locations. They allege that this special tax holiday would enable them to do good-sounding things like creating jobs and investing in the U.S. Perhaps they think lawmakers and taxpayers have amnesia, because history told a much different story back in 2004, as reported by the New York Times:

A Republican-controlled Congress ... allowed companies to repatriate some $300 billion in 2005 and pay only 5.25 percent in taxes. As for all of those promised factories and jobs, they did not materialize. Research by three prominent economists, including Kristin Forbes, a former top economic adviser to President George W. Bush, found that between 60 cents and 92 cents of every dollar brought home found its way into shareholders' pockets.

But the most disingenuous part is that the very industries arguing that they need this repatriation holiday in order to invest in the U.S. have been able to do so for years without a tax holiday. It's apparent from recent activities of multinationals that it's possible to invest in one's company and expand one's business without special tax treatment.

One must surmise that there are other reasons hi-tech and pharmaceutical industries are again taking up this battle -- perhaps reasons less popular with taxpaying citizens and businesses. It's a naked attempt to skirt their tax obligation, pure and simple, while shifting the burden onto the rest of us.

As the New York Times reported:

Large multinationals are not refraining from investing in the United States because their money is locked up abroad. Many have large piles of cash in the United States, too. Interest rates are near historic lows, and banks will trip over themselves to lend to big multinationals sitting on mountains of cash. If they are not investing, it is because of the uncertain economic outlook.

Even in times of economic uncertainty, some of the biggest names in these industries have managed to invest in and expand U.S. operations without special tax amnesty.

According to Blooomberg, drugmakers Merck and Pfizer have been quite successful at this practice:

Merck & Co Inc., the second-largest drugmaker in the U.S., last year brought more than $9 billion from abroad without paying any U.S. tax to help finance its acquisition of Schering-Plough Corp., securities filings show. Merck is also appealing a federal judge's 2009 finding that Schering-Plough owed taxes on $690 million it had earlier brought home from overseas tax-free.

The largest drugmaker, Pfizer Inc., imported more than $30 billion from offshore in connection with its acquisition of Wyeth last year, while taking steps to minimize the tax hit on its publicly reported profit.

Disclosures in Switzerland and Delaware by Eli Lilly & Co. show the Indianapolis-based pharmaceutical company carried out many of the steps for a tax-free importation of foreign cash after its roughly $6 billion purchase of ImClone Systems Inc. in 2008.

Another example: the Qualcomm-Atheros deal. The Wall Street Journal reported in January that, "Qualcomm seems to have found a way to bring home the bacon without losing a slice."

This just makes the repatriation argument more hollow.

If the money already exists, is offshore and can be used to do said tasks, why get an additional tax break to reduce their obligation?

If you paid a tax rate higher than 5.25 percent this year, you paid a greater percentage of your money in taxes than these large corporations would pay if this tax break is passed by Congress.

Multinationals will continue trying to lull lawmakers and taxpayers into complacency with phrases like "job creation" and "deficit reduction" -- things that most Americans agree need to be addressed. While the phony way they are trying to carve a tax break for themselves under the umbrella of these concepts may fool some in Congress, as was demonstrated at the recent Third Way event, they shouldn't fool American taxpayers.

What should make taxpayers even more incredulous and lawmakers skeptical is that the current system already gives multinational companies huge advantages over domestic ones, including small businesses, which are often real job creators.

Bloomberg continues:

"The current U.S. international tax system is the best of all worlds for U.S. multinationals," said David S. Miller, a partner at Cadwalader, Wickersham & Taft LLP in New York. That's because the companies can defer federal income taxes by shifting profits into low-tax jurisdictions abroad, and then use foreign tax credits to shelter those earnings from U.S. tax when they repatriate them, he said.

If they really want to bring jobs and money back to the country that has helped them build their empires, they wouldn't support a tax "holiday." If they want to contribute to the institutions that provide the infrastructure, national security, financial stability and public safety that make America a desirable place to do business, they wouldn't support a tax "holiday."

They'd support paying all of their taxes all the time.

 

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