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Microsoft, IBM Top List of U.S. Tech Firms with Biggest Overseas Profit Hauls

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Cisco Systems Inc. CEO John Chambers
John Chambers, CEO of Cisco Systems Inc., during the St. Petersburg International Economic Forum 2013 (SPIEF) in St. Petersburg, Russia. Photographer: Simon Dawson/Bloomberg

When it comes to the politically inflammatory issue of U.S. companies holding trillions of dollars in profits overseas, two tech firms get the lion's share of attention and blame for the practice: Apple and Cisco Systems.

That's because their chief executive officers, Tim Cook and John Chambers, have been among the most vocal lobbyists for a tax holiday to bring the cash home at a rate lower than the 35 percent currently required by the U.S. government.

Yet Apple and Cisco aren't the biggest hoarders of overseas cash. According to Bloomberg Rankings , which looked at the regulatory filings of the 70 companies in the S&P 500 Information Technology Index and the five in the S&P 500 Internet & Catalog Retail Index, the distinction belongs to Microsoft and IBM.

Microsoft had $76.4 billion and IBM had $44.4 billion in foreign profits on their books in 2012 that were untaxed by the U.S., according to the documents. The companies were followed by Cisco, with $41.3 billion, and Apple, with $40.4 billion.

Microsoft responded to a request for comment by pointing to congressional testimony from September, when Bill Sample, corporate vice president for worldwide tax at Microsoft, said that U.S. taxes on foreign earnings create a "disincentive for U.S. investment" and need changing to be competitive with many U.S. trading partners. IBM did not respond.

It's estimated that U.S. corporations have more than$2 trillion in offshore earnings that are not being taxed by the U.S. As my colleague Jesse Drucker has reported, companies funnel cash overseas to lower their tax rates and in some cases have figured out ways to bring the money home tax-free through acquisitions and other means.

President Obama has waded into the issue. In February 2012 he proposed reducing the top corporate rate for most companies to 28 percent from 35 percent while eliminating tax breaks and changing other core features of the tax code.

One of the central concerns about a tax holiday is that it was tried before - in 2004 - and it did little to encourage the companies that took advantage of the break to create jobs or spur domestic investment, several independent economic studies have shown. However, the holiday did encourage companies to do one thing: to hoard overseas profits in expectation of another tax break.

Chambers may address the overseas topic when Cisco reports earnings on Wednesday. He's said in the past that the issue has "well over a 60 percent probability of being resolved in a positive way."

Whatever the eventual outcome, one thing is certain: The following companies have a deeply vested interest in it. Here are the top 25 U.S. technology companies with the most untaxed overseas profits:

1. Microsoft, $76.4 billion

2. IBM, $44.4 billion

3. Cisco Systems, $41.3 billion

4. Apple, $40.4 billion

5. Hewlett-Packard, $33.4 billion

6. Google, $33.3 billion

7. Oracle, $26.2 billion

8. Dell, $19.0 billion

9. Intel, $17.5 billion

10. Qualcomm, $16.4 billion

11. Corning, $11.9 billion

11. EBay, $11.9 billion

13. Xerox, $8.3 billion

14. EMC, $8.1 billion

15. Western Digital, $6.3 billion

16. Texas Instruments, $5.5 billion

17. Western Union, $4.4 billion

18. Broadcom, $4.2 billion

19. Analog Devices, $3.2 billion

19., $3.2 billion

21. Computer Sciences, $3.0 billion

22. Adobe Systems, $2.9 billion

23. Symantec, $2.8 billion

24. Altera, $2.7 billion

25. MasterCard, $2.6 billion

(TE Connectivity, with $18 billion in overseas cash, and Seagate Technology with $2.8 billion, were excluded from the list because both are based outside the U.S.)

Methodology: Bloomberg ranked the 70 companies in the S&P 500 Information Technology Index, along with the five companies in the S&P 500 Internet & Catalog Retail Index, based on the amount of undistributed earnings held outside the U.S. The top 25 companies are displayed. Data were from the latest available annual report or form 10-K filed by the company. Five companies (Fidelity National Information Services, Fiserv, Paychex, SAIC and did not have information available.

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