When Congress wanted to encourage U.S. corporations to repatriate foreign earnings in 2004 it enacted a provision allowing corporations to deduct 85% of the qualifying dividends received from foreign corporations they controlled. Foreign earnings are generally not taxed until they are repatriated, but can be taxed as high as the top corporate rate of 35% paid as dividends to U.S. corporations.
A recent analysis of the new IRS figures by Grant Thorntons National Tax Office shows that manufacturers were responsible for 81% of the qualifying dividends. Pharmaceutical manufacturers alone accounted for over 30% of the qualifying dividends -- just 29 corporations claiming an average deduction of almost $3 billion.
This data is significant because only 843 corporations took deductions, but that those corporations repatriated $312 billion in qualified dividends for a total combined deduction of $265 billion.
Corporations with earnings in high-tax jurisdictions are often able to use foreign tax credits to reduce U.S. taxes on repatriated income, but companies with Controlled Foreign Corporations (CFCs) in low-tax jurisdictions have less incentive to bring profits home. Over 60% of cash dividends were repatriated from Europe, 26% from CFCs incorporated in the Netherlands, almost 10% from Bermuda CFCs and 5.5% from Cayman Islands CFCs. Almost 10,000 U.S. corporations had CFCs in 2004, but just 843 took advantage of the deduction.
