Friday, June 10, 2011

Repatriation Proposals Heat Up

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On May 11, a bipartisan group of six Congressmen introduced H.R. 1834, the Freedom to Invest Act of 2011. The bill, whose lead sponsors are Ways and Means Committee member Kevin Brady (R-TX) and Jim Matheson (D-UT), would reinstate for 2011 and 2012 the 85% dividend-received deduction of Code §965. Under §965, which was enacted by the American Jobs Creation Act of 2004, U.S. corporations were permitted during a single taxable year to repatriate previously untaxed overseas income, paying a reduced tax rate of 5.25%.

Although text of the new bill is not yet available, its sponsors said that it addresses criticism that the 2004 legislation did not do enough to protect American jobs. The new bill will contain a provision that would impose of a fine of $25,000 per worker to the extent that an electing corporation reduces its U.S. workforce during the two years following repatriation.

The prospects for the bill are uncertain. House Speaker John Boehner (R-OH) has stated that he would prefer that any repatriation provision be enacted as part of fundamental tax reform, rather than as a stand-alone provision. No similar legislation has been introduced in the Senate.

Meanwhile, the build-up of U.S. overseas profits continues to influence corporate decision making. Microsoft, which has an overseas cash hoard of $50 billion, recently announced that it intends to buy 100% of Skype SARL for the eye-popping price of $8.5 billion. Part of the appeal of Skype is that it is a Luxembourg company, enabling Microsoft to use its overseas cash for the purchase. There have been suggestions that Microsoft is overpaying for Skype, and the use of cheaper pre-tax dollars may have been a factor.

Harold W. Pskowski, Managing Editor for U.S. International

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