Homeward bound?

Democrats and Republicans may have had differing views of the $140 billion tax cut President Bush signed last month. But corporations and inves-tors saw only one thing: dollar signs.

And rightly so. The bill cuts corporate tax rates and provides a new deduction for manufacturers. The provision that has many executives and shareholders really salivating lets U.S. corporations repatriate profits held by foreign subsidiaries at a deeply discounted tax rate through the end of 2005. This feature was one of many designed to help corporations swallow another part of the legislation, which repealed an export subsidy that had sparked a two-year trade war with the European Union.

According to Bear, Stearns & Co., companies belonging to the Standard & Poor's 500 index have $518 billion socked away overseas. That's a huge potential boon to the bottom lines of U.S. multinationals. Drug giant Pfizer, for example, had $29 billion in accumulated unrepatriated foreign earnings as of June 30, 2003, the date the bill uses to calculate how much companies can bring back at a 5.25 percent tax rate rather than the prevailing rate of 35 percent. Other companies that stand to benefit greatly from the change include Exxon Mobil Corp., IBM Corp., General Electric Co. and Hewlett-Packard Co. (see table).

But repatriation might not be the windfall that many expect. Although Johnson & Johnson has said it will likely repatriate between $7 billion and $10 billion next year, some of the biggest potential beneficiaries aren't sure whether they'll bring profits back home or how much they'll move.

For one thing, there's uncertainty about the conditions governing repatriation. The law allows profits to be moved home as long as they are "reinvested" in new hires, worker training, infrastructure, research and development or capital investments. But it also states that this list "is not exclusive." Consequently, some companies don't know whether repatriation will make sense for them. Furthermore, many already have invested the money in building business abroad and thus aren't in a position to bring it back.

"This isn't a pile of cash sitting in a bank," says Patricia McConnell, an accounting and tax policy analyst at Bear Stearns. "It's invested in bricks and mortar overseas."

The bill's vagueness regarding what constitutes reinvestment in the U.S. leaves plenty of room for creativity. Just about the only thing that's off-limits is executive compensation. Some analysts suggest that companies might use the funds to buy back stock and boost their earnings per share.

"You may infer that if Congress wanted to exclude stock repurchases, it would have done so," says Robert Willens, a tax expert at Lehman Brothers.

Pfizer CFO David Shedlarz said in a conference call last month that the company was weighing whether to take the tax break and may not decide until next year: "We have to carefully go through exactly what will qualify in terms of reinvestment opportunities on behalf of the company."

Among other multinationals, ExxonMobil, GE and General Motors Corp. all say the cut shouldn't affect them much because they reinvest the bulk of foreign profits where they are generated.

Not every U.S. company feels that way. More than 40 companies and trade groups representing the technology, manufacturing and drug industries last year lobbied intensely for the repatriation language in the tax bill. "All of them expressed the intent of using this provision," says Idil Oyman, spokeswoman for Representative Philip English, a Pennsylvania Republican who sponsored an early version of the tax bill.

Peter Oppenheimer, CFO of Apple Computer, a member of the lobbying coalition, said in a conference call last month that Apple will study whether to repatriate earnings but hasn't decided yet. The company held more than half of its $4 billion in cash and short-term investments overseas in 2002.

Because companies have just one year to repatriate at the lower rate, the IRS is hurrying to clarify how the money can be reinvested. But regardless of how it rules, some companies probably still won't make the deadline. "Very few companies actually believed Congress would pass this bill," says Bear Stearns' McConnell, "so very few did the tax planning to bring this money back."

Cash stash

U.S. corporations stand to gain handsomely from a new tax law that lets them repatriate income earned

海外在降息。Here are the biggest potential

beneficiaries.

Company

Accumulated

unrepatriated

foreign

earnings

($ billions)*

Pfizer

$29.0

Exxon Mobil Corp.

17.0

IBM Corp.

16.6

General Electric Co.

15.0

Merck & Co.

15.0

Hewlett-Packard Co.

14.5

Johnson & Johnson

12.3

General Motors Corp.

11.8

DuPont

10.3

ChevronTexaco Corp.

10.1

*As of June 30, 2003.