Repatriated profits go to share buybacks

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Publication October 23, 2018

Repatriated profits are being used mainly for share buybacks and debt repayments.

The US Congress took steps last December to encourage US companies to bring home the more than $2 trillion in earnings parked in offshore holding companies for reinvestment in the United States.

Tax reforms last December moved the US closer to a territorial tax system where US companies are taxed only on income from US sources, thus giving companies less reason to keep earnings parked offshore. At the same time, the tax reforms subjected the accumulated untaxed earnings then sitting offshore to US tax through a deemed repatriation. Companies can spread the taxes on them over eight years starting in 2017.

JPMorgan Chase & Co. reported in September that 95% of earnings actually repatriated to date by the 15 US firms with the largest offshore cash holdings were used to buy back shares and repay debt. It analyzed Federal Reserve Board data collected from financial reports.

JPMorgan estimates that 20% to 25% of the offshore cash will be brought back in the near term. It expects the boost this has given to US stock and bond prices to slow in the last half of 2018.


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