The US securities regulator is pushing more companies to disclose how much cash they hold offshore, as attention focuses on the impact of tax rules that encourage US companies to keep earnings overseas.
The Securities and Exchanges Commission has asked companies, including Dow Chemical, Fortune Brands, Caterpillar and CIT to increase the information they provide to investors about overseas earnings and cash.
Currently there is no firm rule about whether companies must disclose details of how much they hold overseas. However, the SEC typically raises questions through its public comment letters when it believes further information may be relevant and material to understanding a company’s liquidity. The letters are part of routine disclosure reviews of companies’ filings and are separate from the regulator’s enforcement activities.
People familiar with the matter said the SEC had decided to focus on the issue of overseas cash more broadly after new disclosures at Microsoft and Google earlier this year prompted interest in the issue.
The regulator’s move comes amid concerns that tax issues may be distorting business decisions, potentially leading companies to favour overseas investment over opportunities at home. President Barack Obama on Monday outlined a series of tax reforms as part of the US deficit reduction programme.
US rules require companies to pay tax of up to 35 per cent on income generated overseas and brought home. T he current administration has so far resisted lobbying by businesses for a repatriation tax break, similar to the tax holiday granted in 2004, saying it would only consider the idea in the context of broader tax reform.
The increased disclosure highlights how companies across a wide range of sectors are sitting on large piles of so-called “trapped cash”.
Attention has previously focused on technology and healthcare companies, which house intellectual property in low-tax jurisdictions and often have 80 per cent or more of their cash overseas.
Analysts at JPMorgan noted that companies such as Avon Products, the maker of beauty products, and Dover, the manufacturing and engineering company, hold “substantially all” of their cash outside of the US.
In a sample of 258 companies, the bank estimated that more than 50 per cent of cash balances were held abroad. JPMorgan said the industrials, materials, consumer and energy sectors all exhibited above-average levels of overseas cash. As recently as a year ago, barely a couple of dozen companies provided disclosure on this issue.
Bankers say that US companies are also increasingly seeking ways to put overseas cash to work in a tax-efficient manner, including through mergers and acquisitions.
Hewlett-Packard, which says “substantially all” of its cash is overseas, plans to use offshore funds in its $11bn purchase of Autonomy, the UK software company. Microsoft earlier this year said it would use offshore cash to buy Skype for $8.5bn.
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