Trump tax cut could reduce overseas profit hoarding by this much

The Tax Cuts and Jobs Act that President Donald Trump signed in December will reduce the amount of profits U.S. companies stash offshore by $65 billion each year, according to a Congressional Budget Office (CBO) report. Before the tax overhaul, which reduced the corporate rate to 21% from 35%, companies shifted about $300 billion worth of profits offshore annually.

The CBO said under the new tax law, there is less incentive for a company to transfer intellectual property to an affiliate in a lower-tax country. That strategy allowed U.S. companies to report less income in the country with higher taxes.

In addition, the CBO said the reduction in the corporate rate makes the U.S. a less attractive place to stash debt, meaning companies may move debt to affiliate countries. The CBO said this change will have a positive effect on the U.S. net international investment position.

Bringing profits back onshore was one of the main drivers of the Republican-crafted tax law. As previously reported by FOX Business, 73% of Fortune 500 companies held cash overseas in 2016, when, in total, U.S. companies had $2.6 trillion stashed in tax havens. Only 58 of the 366 companies with money offshore officially disclosed what they would pay in U.S. taxes if they brought that money back onshore, but these companies owe $240 billion in additional federal taxes, according to data analyzed by the U.S. Public Interest Research Group. Applying the same rate to the remaining companies would mean $752 billion would be owed to the U.S. government if all of the money was repatriated at once.

In addition to a reduction in the business tax rate, the Tax Cuts and Jobs Act changed the U.S. global tax system to a territorial one, meaning companies are only taxed once in the country where profits are earned. Previously, a corporation had to pay both countries’ taxes under what was known as a worldwide system of taxation. Some believe this provision could still cause companies to keep profits in countries with tax rates lower than 21%.

So far, however, the White House said that more than 400 companies have increased domestic investments as a result of the new law.