this is Capitalism &they bring any country 2its knees
there is no #democracy when they #consume all you do
March 4, 2015
Shenyang opens its first Apple Store on Feb. 28, 2015 in Shenyang, China.
Photograph: ChinaFotoPress via Getty Images
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Eight of the biggest U.S. technology companies added a combined $69 billion to their stockpiled offshore profits over the past year, even as some corporations in other industries felt pressure to bring cash back home.
Microsoft Corp., Apple Inc., Google Inc. and five other tech firms now account for more than a fifth of the $2.10 trillion in profits that U.S. companies are holding overseas, according to a Bloomberg News review of the securities filings of 304 corporations. The total amount held outside the U.S. by the companies was up 8 percent from the previous year, though 58 companies reported smaller stockpiles.
The money pileup, reflecting companies’ incentives to park profits in low-tax countries, has drawn the attention of President Barack Obama and U.S. lawmakers, who see a chance to tap the funds for spending programs and to revamp the tax code. That effort is stalled in Washington, and there are few signs that tech companies will bring the profits back to the U.S. until Congress gives them an incentive or a mandate.
“It just makes no sense to repatriate, pay a substantial tax on it,” said Joseph Kennedy, a senior fellow at the Information Technology and Innovation Foundation, a policy-research group whose board of directors includes executives from Microsoft and Oracle Corp. “Computing and IT companies especially have a lot of flexibility in where they declare their profits.”
Apple, Google
Microsoft, Apple and Google each boosted their accumulated foreign profits by more than 20 percent over the year, the largest increases by any of the 34 companies with at least $16 billion outside the U.S. International Business Machines Corp., Cisco Systems Inc., Oracle, Qualcomm Inc. and Hewlett-Packard Co. each added at least $4 billion.
The profits added by the eight technology companies accounted for 45 percent of the net gain in overseas funds among the corporations surveyed. At the same time, firms in some other industries felt enough pressure to meet domestic needs that they chose to take the tax hit by bringing money home.
Duke Energy Corp., based in Charlotte, North Carolina, took a $373 million tax charge against earnings in February as part of a plan to get access to $2.7 billion in accumulated foreign profits. Stryker Corp., a Kalamazoo, Michigan-based maker of medical devices, is planning to repatriate $2 billion this year.
Apache Corp., a Houston-based oil and gas company, had $17 billion indefinitely reinvested overseas at the end of 2013. Now, it has none.
“The company made the decision to utilize international cash to pay down U.S. debt and grow its North American operations,” Castlen Kennedy, a spokeswoman, said in an e-mail.
GE Leads
General Electric Co. topped the list for the fifth straight year. The company now has $119 billion outside the U.S., an increase of 8 percent from the end of 2013 and a 27 percent gain since 2010.
By contrast, Microsoft has more than tripled its offshore holdings since 2010. Apple, which counts only part of its non-U.S. holdings as indefinitely held offshore, increased that portion to $69.7 billion from $12.3 billion in 2010. Cisco now has $52.7 billion outside the U.S., up 10 percent since 2013.
Microsoft referred back to 2012 Senate testimony by Bill Sample, its vice president for worldwide tax. Sample said then that the Redmond, Washington-based company is “fundamentally a global business” and that U.S. law creates a disincentive for U.S. investment.
Kristin Huguet, a spokeswoman for Cupertino, California-based Apple, declined an interview request.
Google Needs
Google referred to a December 2013 letter that the Mountain View, California, company sent to the Securities and Exchange Commission. It said Google needs $20 billion to $30 billion for future acquisitions outside the U.S., $12 billion to $14 billion for foreign subsidiaries’ share of developing intellectual property and $2 billion to $4 billion for capital expenditures.
John Chambers, Cisco’s chief executive officer, said on Bloomberg TV on Feb. 20 that his company is investing in India, Israel and France in the absence of U.S. tax law changes.
“I’d prefer to have the vast majority of my employees here,” Chambers said. “And our tax policy is causing me to make decisions that I don’t think is in the interest of our country, or even in our shareholders, long term.”
The Bloomberg analysis covers 304 large U.S.-based companies that are required to report annually how much they hold outside the country in profits, which isn’t the same thing as cash.
Won’t Repatriate
It’s a measure of accumulated profits, including those reinvested in active businesses and factories. The companies say they won’t repatriate these profits, and they haven’t assumed that they will pay future U.S. taxes that would be owed if they did.
“One of the reasons that they’re holding the hoards of cash abroad is they don’t want to pay the repatriation tax when they bring it back,” said Rosanne Altshuler, a Rutgers University economist who studies international taxation.
The analysis starts with corporations in the Standard & Poor’s 500 Index and excludes purely domestic firms, real estate investment trusts and companies with headquarters outside the U.S. It includes each company’s most recent annual report, many of which were filed over the past month.
The companies owe taxes at the full U.S. corporate tax rate of 35 percent on profits they earn around the world. They get tax credits for payments to foreign governments and don’t have to pay the residual U.S. tax until they bring the money home.
Offshore Incentive
Keeping money overseas is particularly easy for technology and pharmaceutical companies whose profits stem from intellectual property that can swiftly be moved.
“It’s very easy to place a patent in another country and accrue the income there,” Altshuler said. “They’re very sensitive to differentials in corporate tax rates.”
Gilead Sciences Inc., for example, reported that it held $15.6 billion outside the U.S. as of Dec. 31, up from $8.6 billion a year earlier. That’s because the intellectual property for the company’s blockbuster drug -- Sovaldi -- was in Ireland before the Food and Drug Administration approved it in 2013.
Corporations that rely on intellectual property -- trademarks, logos or patents -- have an advantage over heavy industrial companies and the financial industry, which relies on providing services to customers, said Jennifer Blouin, an associate professor of accounting at the University of Pennsylvania’s Wharton School.
“You can’t move an oil rig out of certain jurisdictions,” she said. “You can’t shift the service income without moving the people.”
Shareholder Obligation
Companies have a duty to their shareholders and they’re responding logically to the incentives in the system, Kennedy said. “Companies are strongly driven by the need to increase shareholder value, and especially any public company has to meet market expectations,” he said.
Whatever the reasons, the potential tax revenue from offshore profits is tempting to U.S. lawmakers, who have been struggling to fund road projects and revamp the tax system.
Obama and top Republicans on the tax-writing committees say they won’t repeat a 2004 law that gave companies a voluntary repatriation holiday with a 5.25 percent tax rate.
Instead, Obama earlier this year proposed applying a 14 percent mandatory tax on the stockpiled profits and a 19 percent minimum tax on foreign earnings going forward.
The one-time tax would generate $268 billion over six years, which Obama wants to use for infrastructure.
Because the one-time transition tax is levied on past earnings, it doesn’t distort companies’ decisions, Altshuler said. The real questions are the rate and the details of the tax system for future earnings.
Obama’s plan hasn’t advanced in Congress, amid Republican objections to some of the details and the idea of using one-time money for needs such as highway construction.
The president met March 2 with the chief executive officers of Xerox Corp., Micron Technology Inc., Qualcomm, IBM and EMC Corp., which have a combined $114 billion in accumulated offshore profits.
“The president and the executives also discussed a shared desire to work with Congress to enact pro-growth, business tax reform,” the White House said in a statement.
That doesn’t mean it’s going to happen anytime soon.
For more, read this QuickTake: Tax Inversion
Companies markets offshore profits technology Tech Money Washington Intellectual Property Taxes
The Price of Oil Is About to Blow a Hole in Corporate Accounting
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by Asjylyn Loder
12:00 AM WET
March 4, 2015
An oil well in the Permian Basin on Feb. 5, 2015 in Garden City, Texas. (Photo by Spencer Platt/Getty Images)
Photographer: Spencer Platt/Getty Images
(Bloomberg) -- There’s one place in the world where oil is still $95 a barrel.
On paper.
The U.S. Securities and Exchange Commission requires drillers to calculate the value of their oil reserves every year using average prices from the first trading days in each of the previous 12 months. Because oil didn’t start its freefall to about $45 till after the OPEC meeting in late November, companies in their latest regulatory filings used $95 a barrel to figure out how much oil they could profitably produce and what it’s worth. Of the 12 days that went into the fourth-quarter average, crude was above $90 a barrel on 10 of them.
So Continental Resources Inc., led by billionaire Harold Hamm, reported last month that the present value of its oil and gas operations increased 13 percent last year to $22.8 billion. For Devon Energy Corp., a pioneer of hydraulic fracturing, it jumped 31 percent to $27.9 billion.
This year tells a different story. The average price on the first trading days of January, February and March was $51.28 a barrel. That means a lot of pain -- and writedowns -- are in store when drillers’ first-quarter numbers are announced in April and May.
“It has postponed the reckoning,” said Julie Hilt Hannink, head of energy research at New York-based CFRA, an accounting adviser.
Cash Flow
Companies use the first-trading-day-of-every-month calculation to estimate future cash flow and to tally how much crude can be profitably pumped out of the ground. The SEC introduced the formula in 2009 as part of wider changes in how the regulator required drillers to report reserves. Prior to the shift, the value of the reserves was measured based on the oil price on the last day of the year, which also caused distortions.
There are no current plans to revisit or modify SEC reporting rules, Erin Stattel, an SEC spokeswoman, said in an e-mail. She declined to comment further.
Most shale drillers are reporting increases in what’s known as proved reserves. The SEC requires oil producers to submit an annual tally, along with an estimate of the present value of the future cash flow from those properties. The estimates are limited to what the firm is reasonably certain it can extract from existing wells and prospects scheduled to be drilled within five years. The reports are based on factors such as geology, engineering, historical production -- and price. To count as proved, the resources must be economic to develop given existing market conditions.
“What the SEC requires isn’t thorough enough to get to the numbers investors really want,” said Mike Kelly, an analyst with Global Hunter Securities in Houston. “What is the true cost of producing a barrel of oil? And what is the real value of the assets?”
A similar pricing formula helps determine whether some companies need to write off their oil and gas properties.
Market Value
West Texas Intermediate for April delivery fell 31 cents to $50.21 a barrel on the New York Mercantile Exchange at 12:30 p.m. local time. Brent dropped 52 cents to $60.50.
Continental provides one example of how much the price move matters. The company’s Feb. 3 press release announcing the $22.8 billion figure included a disclaimer saying the estimate didn’t represent market value.
Three weeks later, Continental published more detail in its annual financial report to the SEC. Using current prices instead of the SEC-prescribed $95 a barrel would erase $13.8 billion, or 61 percent, from the value of Continental’s oil and natural gas properties. It would also mean that 10 percent of the company’s reserves, the equivalent of 135 million barrels, would be too expensive to pump with prices where they are, the company said in the filing.
SEC Rules
“Continental just follows the rules like everyone else that are mandated by the SEC” and provided additional details to investors in its filing, John Kilgallon, the company’s vice president of investor relations, said in an interview.
Continental shares have risen almost 14 percent this year. Devon’s stock is little changed. That compares with the Bloomberg Intelligence North America Independent Exploration & Production Index, which has risen more than 2 percent since the beginning of 2015.
The drillers in the index will lose an estimated 89 cents per share in the first quarter of 2015, according to data compiled by Bloomberg Intelligence. The companies gained $1.13 in the first quarter of 2014 and 26 cents in the three months ended Dec. 31, the data show.
Devon follows SEC regulations and provides updates “in the course of regular disclosures under SEC rules,” Tim Hartley, a company spokesman, said in an e-mail.
The company’s Feb. 17 press release said that its proved oil reserves rose “to the highest level in company history.” Three days later, in its SEC filing, the Oklahoma City-based driller said it expects to take writedowns “beginning with the first quarter of 2015.” The company didn’t offer details except to say that it doesn’t expect the amounts to have an impact on cash flow or liquidity. However, they will be material to its net earnings.
To contact the reporter on this story: Asjylyn Loder in New York at aloder@bloomberg.net
To contact the editors responsible for this story: Bob Ivry at bivry@bloomberg.net Dan Stets
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