When a corporation holds its money overseas, you'd expect it to keep its cash, well, overseas. But a report in the Wall Street Journal reveals that many large American companies, including Google and Microsoft, have large foreign cash reserves in U.S. financial institutions.
Kate Linebaugh reported the story, and explains how it works.
"My headquarters might be in Connecticut, but I have another operation in Ireland," she says. "And that operation in Ireland keeps their money at a bank in New York."
And Linebaugh's imaginary scenario isn't rare. American banks and securities hold $1.7 trillion of foreign corporate cash. Why? Taxes, of course.
"Any income that any U.S. company earns around the world, if they bring it back to the U.S., they have to pay a 35 percent tax on it," Linebaugh says. "If they say, we need this money for our foreign operation, they don't have to pay the tax."
That's despite the fact that the money is in U.S. banks. Neither the government nor corporations are happy with the tax code as it stands now. Some members of Congress want additional revenue from companies, who in turn want to be able to more freely spend foreign cash that's in the U.S.
"The corporate tax system as its set up right now is not working for anyone," Linebaugh says.
One example she cites: Microsoft. The company keeps 93 percent of its "foreign cash" in the U.S., totaling $53.94 billion.
"It's referred to as trapped cash," Linebaugh says. "What to do with this $1.7 trillion that is trapped overseas will be front and center."
Not quite overseas though, right?
"Sorry," Linebaugh corrected herself. "$1.7 trillion held by their foreign subsidiaries right here, down the street, at the bank."
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