This time the investors of a U.S. listed company would be the beneficiaries of a shift of a huge amount of cash from overseas accounts to the United States – a direct impact of the new tax rules just implemented in the country.
In the next few months, about $67 billion in foreign profits would be brought back into its home country by tech company Cisco, the company announced on Wednesday.
The bulk of that cash would be put to use for share buybacks and increased dividends for its shareholders as the maker of gear for computer networks plans to pass on most of it to them.
About $44 billion is set to go to the pockets of the investors of Cisco, in total.
Cisco is the latest large U.S. corporate which has decided to bring back cash to the U.S. shores which had been stashed away in foreign accounts for years now.
The fear of payments of high rates of taxes had previously dissuaded a large number of U.S corporates from bringing back to the U.S the profits that they made overseas. Now a one-off lower tax rate is offered for all of the money that such corporates have stocked away over seas if brought into the U.S. under the new taxation laws that was passed by the Congress in December and later singed by U.S. President Donald Trump to enact it into a law.
According to the new rules, large U.S. corporates would now not be able to excuse themselves from paying taxes in the U.S. on international profits that they had made earlier through the route of keeping away the profits in foreign countries. Corporates now have to pay taxes on such amounts irrespective of whether they bring it into the country or not.
According to an estimate by Moody’s, about $1.4 trillion of cash has been kept in foreign accounts by U.S. corporates. About $600 billion of that amount is being held by the five largest tech companies – Microsoft, Apple, Google, Oracle and Cisco.
The U.S. economy could get a boost by increased investments and hiring in case the U.S. corporates were given an incentive to bring the cash back to the U.S., argued the supporters of the tax changes. But the critics had claimed that there would be no impact om the economy by such incentives because most of the companies would be incentivized to pay higher dividends to shareholders and engage in share buy backs.
And that is exactly what Cisco seems to be engaging in. The announcement by the company augured well with investors as the share of the company saw an uptick of 7 per cent.
But a different approach at suing such foreign money has been taken by Apple as the company has pledged to create more jobs and do investments in addition to its plans of rewarding the shareholders. The company has promised that in the next five years it would create about 20,000 jobs in America and conduct investments of about $30 billion in its facilities in the U.S. even as the company would be paying up a tax of about $38 billion against the total amount of money that it had stashed away in overseas accounts.
(Adapted from Money.cnn.com)