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Obama’s bid to tax foreign profits could cost Apple $10 billion

Obama’s bid to tax foreign profits could cost Apple $10 billion

President Obama’s proposal for a one-time 14% tax on U.S. companies’ foreign earnings stashed abroad could add up to a tax bill of about $10 billion for big names like Apple, Pfizer and Microsoft. As part of his 2016 budget plan, the president is proposing a 14% one-time tax on all earnings “held abroad” by U.S.companies. (The Republican-controlled Congress is unlikely to pass the proposal, however.) The additional revenue of $238 billion would be used to fund infrastructure projects. Obama also proposed a new permanent tax of 19% on all future profits earned abroad. Currently, U.S. firms pay a 35% corporate tax rate on foreign profits, but only if the funds are repatriated to the U.S. Most firms, however, do not bring the money home to avoid taxes, as the U.S. has the highest corporate tax rate of developed countries.Obama_0c245_image_1024w1

U.S. companies now have an estimated $2.1 trillion in foreign earnings held abroad, up sixfold from $340 billion back in 2002, according to Capital Economics. The sectors that would be impacted most by the one-time tax on profits held overseas are technology and health care — as each account for about 30% of the total earnings held abroad. Both sectors would be hit with a tax bill of an estimated $90 billion each, according to a report issued Monday by Capital Economics.

Well-known U.S. companies like Apple would also be hit with a bigger tax bill. Individual companies in those two sectors with the largest stockpile of earnings now sitting offshore, such as iPhone maker Apple, software giant Microsoft and drugmaker Pfizer “would face payments of around $10 billion each,” Capital Economics estimates. Apple, which has nearly $180 billion in cash, could afford to pay the extra tax.

Most of the foreign cash is held by a small number of large U.S. multinationals, according to Capital Economics. At the end of 2013, General Electric, Microsoft and Pfizer held as much as 10% of the total, with tech and pharmaceutical companies holding 60% of the total. At the end of 2013, General Electric held $110 billion in foreign profits abroad, followed by Microsoft with $76 billion and Pfizer with $69 billion.