The White House announced details from President Obama’s 2016 budget on Monday, including a one-time tax on offshore corporate earnings and a new tax on offshore profits going forward.
That’s bad news for tech giants like Apple, Google, and Microsoft, which have big overseas businesses and keep most of their cash abroad to avoid paying US taxes on it.
Under the President’s plan, companies will pay a one-time 14% tax on “untaxed foreign earnings that U.S. companies have accumulated overseas,” and at least 19% on future offshore earnings, according to Politico.
“The core of the President’s proposal is a 19 per cent minimum tax on foreign earnings that would require U.S. companies to pay tax on all of their foreign earnings when earned — with no loopholes or opportunities for deferral — after which earnings could be reinvested in the United States without additional tax,” says the proposal.
Companies can usually defer paying taxes on cash they keep outside the US. But as the president’s budget proposal says, “This transition tax would mean that companies have to pay U.S. tax right now on the $US2 trillion they already have overseas, rather than being able to delay paying any U.S. tax indefinitely.”
The White House says revenue from these tax reforms, which would also lower the highest rate companies could pay from 35% to 28%, would pay for transportation and infrastructure projects for the next six years.
The President’s budget is the second attempt to capitalise on companies’ offshore cash in less than a week.
Last Thursday Senators Barbara Boxer (D-CA) and Rand Paul (R-KY) announced a tax repatriation holiday that would let companies pay just 6.5% on money they bring home.
That revenue would also pay for transportation projects.
It’s unclear whether either proposal will make it through Congress. Senator Orrin Hatch, Chair of the Senate Finance Committee, has already expressed scepticism over the Boxer-Paul plan.
President Obama’s plan could face resistance from Republicans, who now have a majority in both the House and the Senate.
Regardless of whether these specific proposals make it in to law, it’s clear that lawmakers are taking a closer look at offshores cash, and thinking about it as a new revenue opportunity.