Liberty Global tax win may open up repatriation floodgates
This analysis is by Bloomberg Intelligence Government Analyst Andrew Silverman. It appeared first on the Bloomberg Terminal.
A taxpayer victory in a case challenging restrictions on the tax-free repatriation of foreign cash could result in U.S. companies, especially in technology, bringing back billions of dollars held overseas. The case may also limit the government’s future ability to attack tax abuse. A win could give plaintiff Liberty Global a $110 million refund.
Tech may benefit most from tax-repatriation win
Alphabet, Meta, Oracle and Microsoft still hold hundreds of millions of dollars offshore that could be brought back to the U.S. tax-free if territorial regulations issued in 2019 are withdrawn. The U.S. District Court in Colorado hears a case this month that will determine whether rules restricting companies’ ability to bring cash into the U.S. were invalidly issued. If, as we believe, the challenge is successful, many multinationals could seize the opportunity to bring cash back.
The majority of the revenue earned by the largest U.S. technology companies is earned overseas. In 2021, Alphabet earned 54% of its revenue (or $140 billion) offshore. Meta pulled in 59% ($70 billion) from non-U.S. sources.
Largest annual F/X gains, losses of S&P companies
Liberty global likely gets $110 million refund
A successful challenge to the U.S. territorial tax rules by plaintiff Liberty Global could lead to a $110 million refund for the company. The sale of a Belgian company to Liberty’s U.K. parent resulted in a dividend to Liberty and, the IRS argues, $110 million of U.S. corporate tax. Liberty claims it’s exempt from the levy because the regulations mandating it are invalid. If the court agrees with Liberty and awards it a refund, other similarly situated multinationals could also claim hundreds of millions of dollars in refunds. Newell Brands, for example, has made similar assertions in its SEC filings. Newell is reserving for an income tax expense as high as $220 million.
Transaction at issue in Liberty global case
Tax litigation could spike after Liberty win
A victory by Liberty Global would probably spur other businesses to challenge Treasury regulations, because the court would be finding fault with recent tax rulemaking. There’ve been a string of successful cases the past few years challenging regulations under the Administrative Procedure Act, but the regulations and the rulemaking behavior at issue in those cases occurred long ago. A successful challenge of recently issued rules would invite questions about today’s Treasury Department and could significantly limit the government’s ability to take regulatory action to prevent tax abuse.
If the court finds that Treasury’s rulemaking practices are in violation of the APA, companies could begin routinely refocusing tax-enforcement actions on the validity of the regulations.
Court filing
