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Undistributed Foreign Earnings on the Rise

A report Tuesday from accounting analysts at JP Morgan seems to put a reliable number on the amount of cash that U.S. corporations hold in their foreign subsidiaries, and it’s a doozy.

Of the 880 companies that JP Morgan reviewed (using thousands of 10(k)s from the past eight years) it found 519 companies have a collective $1.375 trillion in undistributed foreign earnings.

That number now seems destined to find its way into the ongoing debate about whether a “tax holiday” should be declared for those corporations that choose to bring some of the cash back to our shores and use it to create jobs.

The JP Morgan researchers weigh in on the subject of repatriation and conclude that even in the unlikely event such a tax holiday is created—it’s opposed by the Obama administration— while there is a House bill on the matter, there is no companion legislation in the Senate—it would not result in a flood of repatriation. This is largely because much of the over $1 trillion worth of undistributed earnings overseas will likely be reinvested across the pond.

For example, General Electric, a part owner of CNBC, only repatriated $1.2 billion of an estimated $37 billion it held overseas the last time such a tax advantaged repatriation was available, in 2005.

Now, GE finds itself with $94 billion overseas, the largest single sum for a U.S. corporation, and the report’s authors assume that given the low percentage of past repatriation, most of that money would remain overseas.

Correction: An earlier version of this story stated that undistributed foreign earnings were a reliable indicator of the amount of cash U.S. corporations hold in their foreign subsidiaries. However, the JPMorgan report points out that some investors use undistributed foreign earnings balances as a proxy for foreign cash. Furthermore, there is a weak relationship between foreign earnings and foreign cash balances.

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