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GE shows way by ending wait for tax Godot

NEW YORK (Reuters Breakingviews) – General Electric is ending its wait for tax Godot. As part of a broader restructuring, the U.S. conglomerate will bring home $36 billion of cash and pay $6 billion in taxes on it. The decision helps GE deliver a capital return plan with sufficient heft to make a mark. It also should be big enough to be noticed by other companies paying a price for leaving massive hoards of money overseas.

American multinationals have more than $2.1 trillion of earnings reinvested overseas, according to research outfit Audit Analytics. When funds come back, companies owe the difference between the foreign tax rate paid and the typically higher domestic one. That’s often a big hit, especially for tech firms and drugmakers that typically book large slugs of their profit in low-tax jurisdictions.

GE has more reasons than most to make the move. The sale of an additional $165 billion of assets, many of them in foreign countries, will generate more cash than could reasonably be reinvested offshore. The net $30 billion will help fund a new $50 billion share repurchase plan. Moreover, GE’s canny tax maneuvering – its reported rate last year was 10 percent – doesn’t score any political points. It’s especially awkward for a company so emblematic of corporate America and which sells to the government and operates in heavily regulated industries such as healthcare, energy and aerospace.

The last U.S. tax holiday to encourage capital repatriation was in 2004. It’s hard to see divided politicians agreeing on another one soon. Some companies have tired of the delay, and the tiny rates earned on Treasuries held by their offshore entities.

EBay, for one, took a $3 billion charge a year ago on plans to bring home $9 billion. Its shares fell 5 percent, which may have scared others from following suit. The online auctioneer’s plans were vague, however, and there may have been understandable fears the cash would be squandered on overpriced startups. GE has made clear most of the cash will be handed back to investors. In this case, what’s good for GE is good for America – and probably for other companies, too.


– GE said on April 10 it would repatriate $36 billion of cash held offshore in connection with its plan to exit most of its commercial finance operations. The company says it will pay $6 billion in taxes as a result of the transfer.

– GE has more than $100 billion of reinvested earnings overseas.

– U.S. companies have more than $2.1 trillion of reinvested earnings overseas according to Audit Analytics.

– GE presentation on restructuring plan:

(On Twitter Editing by Jeffrey Goldfarb and Martin Langfield)

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