2016 11 1.ATF Release on Qualcomm Aquiring NXP FINAL .pdf

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November 2, 2016

Instead of Paying Its U.S. Taxes, Qualcomm Is Buying a
Foreign Company
The deferral tax loophole encourages U.S. corporations to invest offshore
instead of paying taxes owed for investments in America
WASHINGTON, D.C.— Qualcomm Technologies, Inc. could permanently avoid $10 billion in U.S.
taxes it owes on its offshore profits by using those profits to buy a Dutch semiconductor
company, thanks to a loophole allowing U.S. corporations to defer payment of taxes on
earnings held outside the country.
Qualcomm, the San Diego-based mobile technology company, Thursday announced it will
acquire NXP Semiconductor for approximately $47 billion.
In a news release announcing the deal, Qualcomm explained that the transaction will be
“efficiently financed with offshore cash and new debt. The transaction structure allows tax
efficient use of offshore cash flow and enables Qualcomm to reduce leverage rapidly.”
The tax efficiency comes from the fact that the U.S. taxes currently owed on its offshore profits
may be deferred indefinitely on the offshore cash Qualcomm uses to purchase NXP
Qualcomm holds nearly $29 billion in profits offshore, on which it has reported paying no
foreign taxes, according to a Citizens for Tax Justice analysis of the company’s Securities and
Exchange Commission filings. That means virtually all those profits are held in tax havens and
Qualcomm owes $10.2 billion in U.S. taxes on those profits.
“Using its $29 billion in untaxed offshore cash, it appears Qualcomm can cover more than 60%
of the costs of this acquisition and dodge more than $10 billion in U.S. taxes,” said Americans
for Tax Fairness Executive Director Frank Clemente. “Deferral of taxes on foreign profits creates
a huge financial incentive for American corporations to build businesses and create jobs
offshore instead of investing in the United States. That appears to be what Qualcomm is doing
“In addition to the private investment Qualcomm is pursuing outside of the United States, this
move also means less revenue will be available for public investments in the United States for
priorities like schools, roads or bridges,” Clemente added. “Corporate tax reform must close
this misguided deferral tax loophole and ensure that big corporations substantially increase the
share of federal revenue they generate.”

Despite being headquartered in California, less than 10% of Qualcomm’s cash and marketable
securities are held by U.S.-based entities. Tax Notes reported that Qualcomm’s Form 10-Q filed
with the SEC for the quarter ending June 26 read that “Most of our cash, cash equivalents, and
marketable securities held by foreign entities are indefinitely reinvested and would be subject
to material tax effects if repatriated.”
As explained in this Wall Street Journal article, claiming money is “permanently or indefinitely
reinvested” abroad allows corporations to avoid U.S. taxes on those funds.
Qualcomm’s press release about the purchase noted that: “The offer will be described in more
detail in a tender offer statement on Schedule to be filed by a subsidiary of Qualcomm and a
solicitation/recommendation statement on Schedule 14D-9 to be filed by NXP.”
It is likely that Qualcomm will use one of its existing foreign subsidiaries that hold some or all of
its foreign profits to make the purchase, or it could create a new foreign subsidiary to make the
purchase, which could later be liquidated leaving Qualcomm to hold NXP. As long as the
untaxed offshore profits are not repatriated to Qualcomm, the U.S. parent, the corporation can
avoid paying U.S. taxes on the profits. Using offshore funds for foreign acquisitions presumably
satisfies the permanently reinvested standard.
“Corporations are seeking a huge cut in the tax rate charged on these offshore profits when
they are repatriated, as part of corporate tax reform. There is no economic rationale for the
U.S. government to forgive the taxes Qualcomm owes on past profits. These profits were
earned with an expectation that the maximum U.S. tax rate would be 35%,” Clemente said.
“Congress intended for the taxes on these earnings to be temporarily deferred, not forgiven.”
U.S. multinational corporations now hold more than $2.5 trillion in earnings offshore, on which
they owe at least $700 billion in U.S. taxes. For a collection of data and charts on the offshore
profits held by U.S. multinational corporations, click here for the Corporate Tax Chartbook
produced by Americans for Tax Fairness and the Economic Policy Institute.
Americans for Tax Fairness is a diverse coalition of 425 national and state endorsing
organizations that collectively represent tens of millions of members. The organization was
formed on the belief that the country needs comprehensive, progressive tax reform that results
in greater revenue to meet our growing needs. ATF is playing a central role in Washington and
in the states on federal tax-reform issues.
Ron Eckstein, Communications Director, Americans for Tax Fairness
(202) 454-6198 (o)
(917) 921-1212 (m)

1825 K Street NW • Suite 400 • Washington, D.C. 20006 • (202) 587-1651
www.AmericansForTaxFairness.org • @4TaxFairness

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