An inefficiency in the US tax code is causing US multinationals to hold more and more cash overseas.
According to data analysed by Bloomberg, US companies are now holding about $US2 trillion abroad.
The multinational companies have accumulated $US1.95 trillion outside the U.S., up 11.8 per cent from a year earlier, according to securities filings from 307 corporations reviewed by Bloomberg News. Three U.S.-based companies — Microsoft Corp. (MSFT), Apple Inc. and International Business Machines Corp. — added $US37.5 billion, or 18.2 per cent of the total increase.
The basic issue is that US companies are taxed again on money they make abroad when they repatriate that money to the US (for investment or dividends). So they opt to let it pile up in bank accounts abroad.
The US government has in the past had “holidays” where the money could be repatriated tax free, but there was found to be little economic benefit of that. While eliminating the repatriation tax makes sense to some, opponents have argued that this would merely create an incentive to book more and more revenue offshore (which companies can find creative ways to do) to avoid US taxes. And so it keeps piling up.