Silicon Valley companies that hold billions of dollars in profit overseas would have an incentive to bring some of that money back home under the tax plan announced by House Republicans this week.
But that doesn't necessarily mean such companies as Apple, Alphabet, Intel and Cisco Systems would be in a big rush to flood the area with the cash they hold outside of the country.
The Tax Cuts and Jobs Act includes a permanent slashing of the corporate tax rate to 20 percent, from the current 35 percent. It would also create a one-time tax rate of 12 percent on cash held overseas and 5 percent on illiquid holdings. That's known as a tax holiday, which is meant to encourage U.S. multinational companies to bring home the money they keep abroad.
In addition, earnings on companies' high-profit foreign subsidiaries would be taxed at 10 percent, while active overseas profit would not be taxed.
The Republicans say it would be "the largest reduction in the U.S. corporate tax rate in our nation's history."
The effect on the tech industry could be huge. For example, Apple had $231 billion of its $246 billion cash hoard parked outside the United States at the end of last year, according to a Moody's annual investor report, and it has long pushed for lower corporate taxes. Other giant tech companies that have cash held overseas include Alphabet, Microsoft, Cisco and Oracle.
U.S. companies held $1.3 trillion overseas at the end of 2016, according to the Moody's report.
However, Caroline Chen, a tax professor at San Jose State University, said that just because companies can repatriate their offshore cash at a lower tax rate doesn't mean they will jump at the chance to pay lower taxes on their money.
"It depends," Chen said. "If the company isn't in need of the cash to, say, build a new plant, I don't see them wanting to pay even 12 percent on their cash. Just because you lower the repatriation rate doesn't mean we'll see barges of cash from offshore coming into the Port of Oakland."
Repatriation of tax money held overseas is meant to boost the U.S. economy, and, as the name of the Republican tax plan indicates, stimulate job creation.
But according to a report by the nonpartisan Congressional Research Service, a tax holiday under President George W. Bush in 2004 did not lead to the expected domestic economic investment. Companies used their 5.25 percent tax holiday to enrich their shareholders. They even cut jobs instead of creating them, it said.
"A lot of those companies used the money from that tax holiday to buy back stock or pay executives," Chen said. "And the 20 percent (corporate) tax rate? It's going to be hard to figure out, or project, what companies may or may not do. If your overall tax rate was already less, you might just continue to do whatever you're doing. You might keep your money offshore like you've already done."
The House Republican tax plan also would introduce new limits on corporations. They include taking away companies' ability to deduct some executive compensation above $1 million, and a 30 percent cap on corporate interest deductions.
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(Rex Crum contributed to this report.)
