Why companies keep cash outside US? Tax benefits of having cash outside US? Which countries are used by US companies to hold cash? Off Shore Cash

What to Learn from the Top 3 Companies with Cash Outside the US in 2023

As a business consultant, you know how important it is to stay on top of the latest trends and best practices in your industry. One of the most interesting and controversial topics in the business world today is the issue of offshore cash.

Key Takeaways

  • Offshore cash is the profits that US-based multinational companies keep in their foreign subsidiaries, instead of bringing them back to the US and paying taxes on them
  • The top three companies with cash outside the US in 2023 are Apple, Microsoft, and Cisco, with a combined total of $470 billion
  • These companies keep their cash outside the US for tax avoidance and strategic flexibility
  • The Biden tax plan proposes to raise the corporate tax rate and the minimum tax on foreign profits, among other measures
  • Other companies should decide whether to keep cash outside the US based on their own circumstances and goals

Offshore cash refers to the profits that US-based multinational companies keep in their foreign subsidiaries, instead of bringing them back to the US and paying taxes on them. According to some estimates, there is more than $2.8 trillion in offshore cash held by American corporations in 2023, which is a record high.

Why do these companies keep so much cash outside the US? And should other companies follow their lead? In this article, we will look at the top three companies with cash outside the US in 2023, and what we can learn from them.

Apple: The King of Offshore Cash

Apple is the undisputed leader when it comes to offshore cash. The tech giant has a whopping $270 billion in cash and marketable securities outside the US in 2023, which is more than any other company. That's enough money to buy Netflix six times over.

Apple keeps its cash outside the US for two main reasons: tax avoidance and strategic flexibility. By keeping its profits in low-tax jurisdictions like Ireland, Apple can avoid paying the 28% corporate tax rate that applies to repatriated earnings in the US under the Biden tax plan. This allows Apple to save billions of dollars in taxes every year.

Apple also uses its offshore cash to fund its global operations, such as research and development, manufacturing, marketing, and acquisitions. By having access to a large pool of cash outside the US, Apple can take advantage of opportunities and respond to challenges in different markets without relying on external financing.

Microsoft: The Software Giant with a Huge Cash Pile

Microsoft is another tech giant with a huge amount of cash outside the US. The software company has $130 billion in cash and marketable securities overseas in 2023, which is 98% of its total cash balance.

Like Apple, Microsoft keeps its cash outside the US for tax reasons and strategic reasons. Microsoft has been accused of using aggressive tax planning strategies to shift its profits to low-tax countries like Bermuda and Ireland. By doing so, Microsoft can avoid paying taxes on its foreign earnings until they are repatriated to the US.

Microsoft also uses its offshore cash to support its global expansion and innovation. Microsoft has invested heavily in cloud computing, artificial intelligence, gaming, and social media in recent years, and has used its offshore cash to fund some of these ventures.

Cisco Systems: The Networking Leader with a Large Offshore Stash

Cisco Systems is the third-largest company with cash outside the US. The networking leader has $70 billion in cash and marketable securities overseas, which is 97% of its total cash balance.

Cisco also keeps its cash outside the US for tax avoidance and strategic flexibility. Cisco has been criticized for using tax havens like Bermuda and Switzerland to reduce its tax burden on its foreign earnings. Cisco has also lobbied for a tax holiday or a lower tax rate on repatriated earnings, arguing that it would use the money to create jobs and invest in the US economy.

Cisco also uses its offshore cash to fund its global growth and diversification. Cisco has been expanding into new markets like cloud computing, cybersecurity, Internet of Things, and collaboration tools in recent years, and has used its offshore cash to make some strategic acquisitions.

The Biden Tax Plan and Its Implications for Offshore Cash Management

In 2021, the Biden administration proposed a series of tax reforms to curb offshore tax avoidance and encourage US companies to bring back their foreign earnings. These include:

  •  Raising the corporate tax rate from 21% to 28%
  •  Increasing the minimum tax on foreign profits from 10.5% to 21%
  •  Eliminating some tax loopholes and incentives
  •  Creating a global minimum tax of 15% on multinational corporations

The Biden tax plan aims to generate more revenue for the government and level the playing field for domestic businesses. However, it also poses some challenges and uncertainties for companies with offshore cash.

Some of these challenges are:

  • Higher tax liability and lower after-tax profits
  • Reduced competitiveness and attractiveness in foreign markets
  • Increased complexity and compliance costs
  • Potential retaliation or resistance from foreign governments and regulators

Some of these uncertainties are:

  • The likelihood and timing of the tax plan being passed by Congress
  • The possibility and extent of future changes or revisions to the tax plan
  • The impact and effectiveness of the tax plan on the economy and the business environment

Should Other Companies Follow Their Lead?

The question of whether other companies should follow the lead of Apple, Microsoft, and Cisco depends on several factors, such as:

  • The size and scope of their global operations
  • The tax rates and regulations in their foreign markets
  • The availability and cost of external financing
  • The opportunities and risks in their industry
  • The potential impact on their reputation and social responsibility

There is no one-size-fits-all answer to this question. Each company needs to weigh the pros and cons of keeping cash outside the US, and decide what is best for their long-term goals and values.

However, some general guidelines that can help companies make this decision are:

  • Keep enough cash in the US to cover your domestic needs, such as payroll, taxes, dividends, and debt payments
  • Keep enough cash outside the US to cover your foreign needs, such as R&D, manufacturing, marketing, and acquisitions
  • Keep some cash in reserve for unexpected events, such as economic downturns, natural disasters, or legal disputes
  • Keep your cash in safe and liquid assets, such as bank deposits, money market funds, or treasury bills
  • Keep your cash in diversified currencies and locations, to reduce the risk of currency fluctuations and political instability
  • Keep your cash in alignment with your corporate strategy and vision, and communicate it clearly to your stakeholders

By following these guidelines, companies can optimize their cash management and maximize their value creation.

If you want to learn more about how to manage your cash effectively and grow your business globally, contact us today. We are a team of experienced business consultants who can help you with your cash strategy and other business challenges 😊

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