Editor's views on US profit repatriation, re-importation

Several leading US pharmaceutical companies have reported plans to repatriate overseas profits in 2005, including Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson and Schering-Plough, and more are expected to do so under the country's American Job Creation Act tax amnesty provisions.

This has meant millions of dollars being set aside to pay taxes on the monies that will be brought back into the USA, and resulting in a hefty dent in fourth quarter earnings for the companies. These four drugmakers alone plan to bring back around $37.4 billion. Under the Act, companies are permitted to repatriate foreign earnings at a tax rate of just 5.25% rather than the more usual level of 20%-25%.

Something like $700.0 billion is thought to have been accrued in offshore bank accounts and investments and, according to a report in the UK's Financial Times, analysts believe nearly half of this will be repatriated and this will result in a tax take for the US government of some $100.0 billion. And, as Greg Anderson of ABN Amro pointed out to the FT, "all else being equal, $100 billion is equivalent to a 5% rise in the dollar's trade-weighted average." Also, with the US trade deficit expected to hit $600.0 billion in 2005, "this flow will be financing a sixth of the deficit all by itself," he noted.