One must wonder, how stupid are we really when even the major financial media outlets do not understand international accounting and corporate cash flows? The idea that because offshore accounting allows domestically domiciled transnational corporations to benefit by allocating profits to foreign corporate locations, whether a real facility or a mail box address is only a tax accounting game. It has zero to do with where the actual cash profits thus protected reside, zero! All of that cash supposedly sitting in offshore accounts is a bogus fabrication, as most of it is managed in the United States where it “resides.”
These are simply digits in a bank and are totally controlled at corporate headquarters and almost all of it in domestically hosted bank accounts, and as such, this “horde” can be invested in anything the company wishes from stock repurchase programs and M&A to actual investments in productive corporate assets. It is only the later that will benefit from lower corporate taxes in America, which is a good thing, but the idea of a tsunami of cash being “repatriated” to the United States is simply absurd, though from the perspective of propaganda optics, a very powerful, though false image. It is almost laughable how idiotic the idea is; tax accounting is not indicative of anything but tax accounting. The cash is not sitting in overseas banks or in overseas financial instruments, it is mostly right here in the good ol USofA.
Lowering domestic corporate taxes, however, may lead to marginal dollars being invested through capital spending on domestic expansion and corporate real asset purchases rather than in offshore activities, which is certainly a worthy goal, but the numbers are rather miniscule when compared to the fictitious overseas cash hordes everyone is so excited about.
The truth is laid out below by Yves Smith the economist whose site, Naked Capitalism, is always worth a visit.
Yet again, we debunk the myth that tax gaming leads US companies to hoard cash overseas. Tax accounting has nada to do with where money sits.
We’ve written regularly how the press and public have been snookered into believing the bogus idea that clever tax structuring by tech and Big Pharma companies that result in them having large profits booked in offshore entities for tax purposes is tantamount to having cash overseas. The idea is ridiculous. Apple, who has been the biggest exploiter of this device, holds its cash in New York banks and runs it out of an internal hedge fund in Nevada. The fact that an offshore legal entity, most often Irish, is where profits are booked for tax purposes has squat to do with where money sits and how it can be deployed. The practical result of profits being held offshore is they are not included in the reported profits of the US public company.