(Bloomberg) Microsoft Corp.’s stockpile of offshore profits rose to $108 billion, with a 17 percent increase over the past year as the company continues reaping profits in low-tax foreign jurisdictions.
The company crossed the $100 billion mark, making it just the second U.S. corporation—after General Electric Co.—to do so, according to a securities filing July 31. Apple Inc. has more cash abroad than Microsoft, but it already has assumed for accounting purposes that it will pay tax on some of the stockpile and thus has less than $70 billion offshore that would affect earnings directly if repatriated.
What’s keeping Microsoft’s cash abroad is the U.S. tax code. The company would be required to pay the difference between its foreign taxes and the 35 percent U.S. corporate tax rate if it brought the money home.
To get its $108.3 billion back, Microsoft would have to pay the U.S. $34.5 billion in taxes. That equals a 31.9 percent rate, which suggests that the company has paid as little as 3.1 percent in taxes on its foreign income, because of operations in low-tax Ireland, Singapore and Puerto Rico.
The Internal Revenue Service and Microsoft are in the midst of an intense legal battle over the company’s transfer pricing, or intracompany transactions. The federal government is auditing the company’s returns as far back as 2004, and Microsoft has challenged the government’s hiring of outside lawyers.
Peter Wootton, a spokesman for Microsoft, declined to comment.
Repatriating Profits
Under current law, U.S. companies owe the full 35 percent rate on profits they earn around the world, but they don’t have to pay the U.S. until they repatriate the profits. That gives companies an incentive to book profits overseas and leave them there, and that’s just what they’ve done.
U.S. companies have more than $2 trillion amassed outside the U.S., according to a Bloomberg News review earlier this year of the securities filings of 304 companies.
Apple has more than $200 billion in cash stockpiled, with almost 90 percent of it overseas. As of its most recent annual report, Apple had $69.7 billion in profits on which it hasn’t assumed taxes.
U.S. lawmakers are looking for ways to get some of that cash back in the U.S. President Barack Obama supports a one-time 14 percent tax on stockpiled profits, with the proceeds going to highways and other infrastructure programs. Some Republicans favor a similar approach and are working on a detailed plan.
—With assistance from Dina Bass in Seattle.
