CFO Plans For Tax Holiday Cash: Fast ROI

CFO survey finds roughly half of US companies would bring back monies stashed offshore and seek to put it in fintech and high-yield investments.

Getting quick returns on repatriated funds would be a top priority for US companies if they bring back funds under the proposed Trump administration corporate tax holiday plan, found a survey conducted by C2FO, a privately held financial technology company. Investing in low-risk, quick-return outcomes with high-yielding benefits, was among the top options for the survey questions related to spending the funds for a majority of the 274 survey respondents at the AFP 2017 Treasury and Finance Conference in San Diego this October.

And where would they turn to pull such a trick? Financial technology was the answer. The sector was the hot pick for attractive investments largely for its potential to help improve performance metrics – 95% of those surveyed at the conference thought so.  Technology updates was also among the top options with 62% of the respondents saying so.

Nearly half of US companies (46%) said they would bring back monies stashed offshore, as per the survey.  

With roughly $2 trillion in American corporate funds remaining outside of American borders, a government-approved tax holiday, like the one currently being considered, could give a huge boost to the United States economy if companies were to invest these monies back home. It’s been roughly 13 years since Congress last approved a corporate tax break, called the Homeland Investment Act of 2004, that offered reduced tax rates of 5.25% during 2005 and 2006. As a result, about $312 billion in foreign-source income made its way back to American coffers.

With a nominal tax rate of nearly 40%, many American executives believe simply lowering the rate would do more good than a temporary reduction, said Sean Van Gundy, managing director of Working Capital Advisory at C2FO.

“Ireland has a pretty low rate, at about 13% or 15%, whereas the U.S. has a 38% corporate tax rate,” Van Gundy said by telephone on Monday. “That’s why it’s a big focus today and such a political hot button issue.” Few corporations pay the 38% rate, however. 

Traditionally, companies have used repatriated funds for stock buybacks or other shareholder-pleasing moves. Why wouldn’t that be the case this time? The survey suggests there’s interest in investing for returns.

“In 2004, 90-plus percent (of repatriated funds) went to stock buybacks,” he said. “There will still be some focus on that today, for sure. But I think if they have the cash, executives are looking for a quick return and that’s where fintech comes into play. So that’s where companies are trending toward putting their money to work.”

Bringing Money Home May Not Be Enough

Even if a good portion of the offshore money came back to the US, it may not make that big of a difference to boosting investments though.  For instance, Apple could stand to gain a monstrous $47 billion if the tax holiday is approved as per calculations by two Financial Times journalists. But, as Tim Cook has explained in the past, it doesn’t necessarily mean Apple would invest the same. The company prefers to borrow money for investment rather than taking funds from the company treasury for such purposes.

Some other takeaways from the survey: 46% of respondents said they would invest in research and development, while 14% said they would invest in trade finance programs for suppliers.