In “U.S. Companies Brought Back Foreign Profits as Coronavirus Struck,” the author discusses the motivations and reasons behind unusually high repatriation of foreign profit by American companies. More than 120 billion dollars have been brought back since the beginning of 2020. The tax reform which took place in 2017 allows American corporations to bring back foreign earnings without paying domestic taxes. Prior to the act, multinational corporations residing in the United States would defer from paying taxes by reinvesting the profits into international markets. While cash flow abroad increased, the company’s cash flow in the domestic market depended solely on the profits from the American market. Not only does it decrease capital spending in the United States, but it also limited the growth of the operating cash flow. The 2017 tax reform was timely because under current circumstances, which can be described as economic stagnation, money brought back from foreign markets can surge the American economy.
Lack of positive cash flow may lead to a situation when a company requires external financing. Currently, the government is limited in its ability to support all businesses because of the magnitude of the coronavirus problem. Therefore, companies need to be able to rely on their own capital, and foreign earnings will definitely assist in this situation. Bank of America, for instance, is already planning how it will spend the international profit on the workforce and branches. Other companies may use this money to pay back their liabilities, further stimulating the economy and aiding the solvency of companies. During these trying times, investing in the domestic market should be a priority, and increasing the cash flow at home is one of the primary mechanisms for reaching this objective.
References
By Richard Rubin and Theo Francis Updated, 2020. U.S. Companies Brought Back Foreign Profits as Coronavirus Struck. Published. Web.