New U.S. Tax Rules Are a Gift to Europe

The effects of the Trump administration corporate tax reform on U.S. multinationals that were, as of the end of last year, holding some $1.4 trillion in cash overseas, are largely beneficial: Now these companies finally know how much of that money the U.S. wants -- and there's also some long-awaited clarity on how foreign profits will be taxed going forward. What's less clear is how the changes will affect European plans to tax U.S. companies' profits where they're made. So far, it looks as though the new U.S. rules are a gift to European nations that they should hurry up and use.

Up front, the U.S. government is taxing the accumulated foreign cash at 15.5 percent to treat it as repatriated. That's something of a relief to the biggest cash holders. Apple, whose foreign subsidiaries held $252.3 billion in cash and equivalents as of the end of September 2017, had been making provisions for U.S. federal taxes on its foreign profits. At the end of September, the company had on its books a deferred tax liability of $36.4 billion related to foreign subsidiaries' earnings. That's about 14.4 percent of the cash pile, meaning Apple will pay only slightly more than it has budgeted for the formal repatriation of the money (in reality, much of it was already invested in U.S. assets, anyway).