If someone tells you they know what’s going to happen with the $2.7 trillion in profits that U.S. companies are holding overseas, be skeptical. It’s been hard to get a straight story on the subject for some time, and the mystery is only going to deepen. In fact, stockpiles of foreign profits have now vanished entirely from some public company disclosures, including Apple’s.
It wasn’t supposed to be this way. The repatriation of foreign profits was supposed to be a feel-good story of 2018. When Congress passed its tax reform law late last year, it held the promise that vast amounts of foreign cash would finally come home. Members of Congress promised it. The president promised it. And corporations, which had complained over the years that stiff tax rates were the only thing keeping their money offshore, sure implied it.
But none of that talk has come to fruition. In contrast to the President’s promise that “in excess of $4 trillion” would come back “very shortly,” a Wall Street Journal investigation of the 108 public companies that account for the overwhelming majority of profits held overseas found that they had repatriated only $143 billion thus far in 2018. The reason for the gulf between government promises and reality remains something of a mystery. When it asked around, The Wall Street Journal came back with no fewer than eight explanations as to why corporations aren’t repatriating their money more quickly. They included the explanation that “large-scale corporate financial decisions like this aren’t made overnight” (according to a White House spokeswoman), that they are putting their foreign profits to work in overseas expansion (certain companies), that low-interest rates mean corporations have no need for domestic cash (a University of North Carolina business school professor), and that only about half of the $2.7 trillion held abroad is in liquid assets (Morgan Stanley analyst). All of these reasons leave things clear as mud.
The relatively small amount of cash repatriated is not the only way that predictions have proven wrong. Policymakers suggested that when the funds did come back, they would be invested in U.S. operations, providing a direct boost to the economy. By contrast, according to a Federal Reserve report, the repatriated money has led to a dramatic increase in stock buybacks that benefit investors.
And now, the tax reform legislation may have an unintended effect that further obscures the fate of foreign-held profits. Apple stopped disclosing how much cash it holds overseas on the theory that the information is “no longer material.” Calcbench has identified scores of other companies that have simply stopped reporting their “unremitted foreign earnings,” including GE, Walmart, Abbott Labs, Cigna and more.
It seems clear now that only a small portion of the $2.7 trillion that was promised to return is going to make it home. As for the rest, it is disappearing from public filings entirely—leaving investors to wonder where it went. And if anyone tells you they know what happened to it, you might not want to believe them.