WASHINGTON — At the White House on Dec. 15, business executives asked President Barack Obama for a tax holiday that would help them tap more than $1 trillion of offshore earnings, much of it sitting in island tax havens.
The money — including hundreds of billions in profits that U.S. companies attribute to overseas subsidiaries to avoid taxes — is supposed to be taxed at up to 35 percent when it’s brought home, or “repatriated.” Executives including John Chambers of Cisco Systems Inc. say a tax break would return a flood of cash and boost the economy.
What nobody is saying publicly is that U.S. multinationals are already finding legal ways to avoid that tax. Over the years, they’ve brought cash home, tax-free, employing strategies with nicknames worthy of 1970s conspiracy thrillers — including “the Kil ler B” and “the Deadly D.”
Merck, the nation’s second- largest drugmaker, last year brought more than $9 billion from abroad without paying any tax to help finance its acquisition of Schering-Plough, securities filings show. Merck is also appealing a federal judge’s 2009 finding that Schering-Plough owed taxes on $690 million it had earlier brought home from overseas.
The largest drugmaker, Pfizer Inc., imported more than $30 billion from offshore in connection with its acquisition of Wyeth last year, while taking steps to minimize the tax hit on its publicly reported profit.
“Sophisticated U.S. companies are routinely repatriating hundreds of billions of dollars in foreign earnings and paying trivially small U.S. taxes on those repatriations,” said Edward Kleinbard, a law professor at the University of Southern California in Los Angeles.
Companies use various repatriation strategies to avoid about $25 billion a year in federal income taxes, he said.
