SEC Asking Companies More about Overseas Taxes

By Cydney Posner

This article from the WSJ discusses the SEC's continuing pressure on multinational companies to enhance their disclosures regarding their claims that they have permanently reinvested earnings offshore.  Permanent reinvestment of income overseas allows companies to avoid paying taxes on those funds unless they repatriate them, in which case the companies would be required to pay the difference between the U.S. rate and the lower rate paid overseas. In addition, companies would need to reserve funds to pay the additional taxes, unless the funds will be permanently used overseas. The SEC has been scouring claims of indefinite reinvestment offshore since at least 2011 (see my article of 6/14/11), questioning the consistency of the assertions about permanent reinvestment and asking for more details about the reinvestment plans as well as the potential tax effect if the company were to repatriate the funds. According to the article, the SEC often probes for patterns of past behavior, asking whether the company has repatriated earnings in the past, "how their accounting policies for taxes reconcile with their liquidity and cash policies, and the effect on a company's financial statements if they started paying those taxes." The article indicates that U.S. companies have about $1.7 trillion in cash owned by their foreign subsidiaries overseas.

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