Volume 22, No. 5

Untaxed Foreign Earnings In 2012: A Look At The S&P 500:  It’s widely known that U.S. multinationals can arbitrage their taxation on a global basis. The essence of the game: park as much of your company’s expenses as possible in the high-tax countries of the world to minimize the income earned in those countries, and maximize your revenues and profits in the low-tax countries. It’s a game that provokes puzzlement for shareholders at times, and outrage on the part of the public and lawmakers.

It’s not hard to see why the public and lawmakers get perturbed. Any taxpayer will always be jealous of someone else - particularly a faceless corporation – who has a lesser tax bill. Lawmakers naturally want to maximize tax revenues. Shareholders face puzzlement though, because the results of the arbitrage game look like they would benefit shareholders, but often, the cash generated by the tax savings remains trapped in the country of its origination. Multinationals are reluctant to bring the cash back to the United States for fear of triggering “repatriation taxes.” Shareholders can be puzzled by the high level of cash on firms’ balance sheets, while managers don’t use it to improve the lot of the shareholders. In this report, we’ll take a look at where foreign untaxed earnings went in the S&P 500 companies in 2012.

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