AFP Press Release

Association for Financial Professionals Urges Congress to Lower Tax Rates on Repatriated Offshore Cash Balances

Tax Cuts on Foreign Earnings Will Benefit U.S. Economy

January 26, 2009 – BETHESDA, MD – The Association for Financial Professionals (AFP) sent a letter to members of Congress today calling for legislative language that permits lowering the tax rate U.S. corporations pay on repatriated offshore cash balances. AFP, representing over 16,000 treasury and financial professionals, urged Congress to consider measures that will incent companies to return foreign earnings to the U.S. to spur economic growth.

“Allowing firms to repatriate funds and bring back foreign earnings into the U.S. will free up much needed working capital for U.S. companies,” said Jim Kaitz, President and CEO of AFP. “As Congress considers President Obama’s economic recovery package, we strongly urge Congress to move forward on this proposal.”

Over the past three years, an average of nearly 24 percent of respondents to the annual AFP Liquidity Survey reported their non-U.S. cash balances had increased. More recently, 40 percent of respondents to the AFP Short-Term Credit Access Survey reported they had less access to credit than just one month prior. As a result, 62 percent of organizations had taken one or more defensive actions, including reducing capital spending, freezing or reducing hiring, considering staff reductions or layoffs and tightening credit standards for their trading partners. By the time AFP released its 2009 Business Outlook Survey in December, 92 percent of organizations had taken at least one defensive action in response to the credit market turmoil.

When Congress passed the American Jobs Creation Act (AJCA) of 2004, it included the “Incentives to Reinvest Foreign Earnings in United States” provision. This provision allowed a significant one-time tax break to U.S. corporations to repatriate their overseas balances back into the U.S. economy.

Enacting a similar reduction in 2009 taxes would allow U.S. corporations to transfer earnings from their foreign operations back to the U.S. and invest that cash domestically. Investments could include new hiring, job retention, job training, capital spending, and research & development, all of which would aid in the recovery of the nation’s struggling economy.

As a response to the global financial crisis and in recognition of the relief that cash trapped overseas can provide, the Internal Revenue Service in October permitted U.S. companies to borrow from their foreign operations for a total of 60 days up to three times per year without incurring any taxes . Given the severity of the cash crunch being faced by American businesses, a tax-effective solution for repatriating these foreign earnings is needed.

“Enactment of a tax incentive for repatriating foreign earnings would provide much needed liquidity and capital for domestic projects and investments,” said Kaitz. “Without such an incentive, many companies will either continue to build defensive cash balances outside of the U.S. or invest their cash in the foreign country where it was earned, providing no benefit to the U.S. economy.”

About AFP®
The Association for Financial Professionals (AFP) serves a network of more than 16,000 treasury and finance professionals. Headquartered in Bethesda, MD, AFP provides members with breaking news, economic research and data on the evolving world of treasury and finance, as well as world-class treasury certification programs, networking events, financial analytical tools, training, and public policy representation to legislators and regulators. AFP is the daily resource for treasury and finance professionals.

AFP’s global reach extends to over 150,000 treasury and financial professionals worldwide, including AFP of Canada; AFP’s gtnews, an on-line resource for the treasury and finance community; and the London-based bobsguide, a financial IT solutions network.