Cisco was not exactly embracing President Obama’s plan to tax offshore profit. Under the plan, Obama wants to impose a U.S. tax on profits U.S.-based companies make from overseas operations, and close a loophole that allows them to hide foreign subsidiaries.
Cisco and other high tech bellwethers realized a benefit of more than $1 billion from lower foreign tax rates in their most recent fiscal years, according to this story in the AP. That could be lost if Obama’s proposal becomes law.
Most other industrialized countries do not tax foreign income of their native companies, according to this story from Reuters. Cisco says a U.S. tax on foreign profits might actually hurt the U.S.
“If rules are changed on tax deferral and we are taxed in the U.S. on non-U.S. profit, this significant additional U.S. tax cost would adversely impact our ability to invest and grow our business in the U.S.,” Cisco spokesman John Earnhardt said in the Reuters story.
That could indeed happen. But Cisco and others are already offshoring and outsourcing some company operations.
Perhaps taxing foreign profits might curtail that activity. But it could also prompt a more dramatic response from business: courting acquisition by foreign companies just for the tax advantages of not being headquartered in the U.S.
Revising the foreign tax policy while eliminating the offshore subsidiary loophole would raise over $200 billion in 10 years, Obama has said.
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