IBM Eyes $8 Billion Repatriation

If it goes through with the plan, Big Blue could be the latest U.S.-based global company to benefit from a potentially whopping tax break provided ...
Lisa YoonFebruary 28, 2005

IBM Corp. announced late last week that it might repatriate $8 billion in undistributed overseas profits as part of a one-year U.S. tax holiday.

In an 8-K filing, the computer company said the repatriation would result in an income tax expense of up to $550 million, which it would take as a charge against quarterly earnings once the company’s management and board approve the plan.

If it goes through with the plan, IBM would be the latest multinational to reap benefits of President Bush’s American Jobs Creation Act of 2004, which offers tax breaks to U.S.-based companies. For one year, multinationals can repatriate overseas earnings at 5.25 percent — a significant cut from the normal rate of up to 35 percent.

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According to a February 19 report from the Associated Press, other companies that stand to benefit from the tax holiday include Johnson & Johnson, Dell, and Kellogg. Johnson & Johnson, which makes health-care products, plans to repatriate $11 billion. Computer maker Dell has $4 billion to return to the United States. And food-product distributor Kellogg wants to return $1 billion in repatriations.

AP cited “private estimates” as suggesting that total repatriations will top $300 billion. Few companies have said how they would use the money once it starts to stream back into domestic operations.

Though the purpose of the tax holiday is to enable multinationals to use the tax savings to create jobs back home, some experts are skeptical about how many jobs will actually be created., without specific language in the legislation earmarking the tax savings for jobs creation, the repatriated amounts may be used by firms (to pay down debt or buy back stock, according to a recent story in CFO. In other words, jobs might be created only as a side effect of strengthening companies’ financial health.