More U.S. Profits Parked Abroad, Saving on Taxes

By:  Scott Thurm and Kate Linebaugh

U.S. companies are making record profits. And more of the money is staying offshore, and lightly taxed.

A Wall Street Journal analysis of 60 big U.S. companies found that, together, they parked a total of $166 billion offshore last year. That shielded more than 40% of their annual profits from U.S. taxes, though it left the money off-limits for paying dividends, buying back shares or making investments in the U.S. The 60 companies were chosen for the analysis because each of them had held at least $5 billion offshore in 2011.

The practice is a result of U.S. tax rules that create incentives for companies to maximize the earnings, and holdings, of foreign subsidiaries. The law generally allows companies to not record or pay taxes on profits earned by overseas subsidiaries if the money isn't brought back to the U.S.

Big American companies are booking more of their sales in faster-growing foreign markets. But companies also are moving more of their earnings overseas by assigning valuable patents and licenses to foreign units.

Untaxed foreign earnings are part of a contentious debate over U.S. fiscal policy and tax code. The current system attracts criticism from many points of view. Business groups want the U.S. to tax profit based on where it is generated, as many countries do, rather than globally, as the U.S. does now. Moreover, they point out, tax rates are higher in the U.S. than in many other nations, putting American companies at a disadvantage.

Others say that the growing cash hoards often are the result of sophisticated corporate maneuvers to shift profits to low-tax countries.

Within the group of 60 companies, the Journal found 10 that parked more earnings offshore last year than they generated for their bottom lines. They include Abbott Laboratories, whose store of untaxed overseas earnings rose by $8.1 billion, to $40 billion. The increase exceeded the pharmaceutical maker's net income of $6 billion, which was weighed down by a $1.4 billion charge related to early repayment of debt. Including that charge, Abbott reported a pretax loss on its U.S. operations.

An Abbott spokesman declined to comment.

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