Insights and Market Perspectives

Could a Repatriation Tax be Good for the Markets?

Author: Portfolio Specialist Group

June 15, 2017

Could a Repatriation Tax be Good for the Markets?

The Trump administration has faced opposition in implementing nearly every initiative thus far, with tax reform being one of the most recent examples. However, one aspect proposed that most politicians involved seem to agree on is that some version of a repatriation tax will likely pass at some point – whether in the form of inclusion into an infrastructure package, part of tax reform itself or even used as a ploy to collect votes for raising the debt ceiling.

A tax placed on unremitted foreign earnings would raise an estimated US$150 billion over 10 years, which could in turn be used to fund new infrastructure or lower the corporate tax rate. Currently, Trump favours a one-time “deemed” (i.e. mandatory) repatriation of corporate profits held overseas at 10%, while the House GOP leadership has proposed that accumulated foreign earnings be taxed at 8.75% for cash and 3.5% for more illiquid funds.

There is certainly no shortage of cash offshore – a recent UBS report estimates that there is over US$2.4 trillion of unremitted foreign earnings and more than US$1 trillion of cash held offshore. Currently, Technology and Health Care companies are the largest beneficiaries.

Unrepatriated profits (USD, billions) 

Unrepatriated profits (USD, billions) : Information Technology shows 765, Health care shows 541, Consumer staples shows 247. Followed by Industrials, Financials, Energy, Consumer Discretionary, Materials, Utilities, Real Estate and Telecommunications Services.

Source: Company 10-K documents. Of the S&P 500 constituents, 317 disclosed profits held offshore.

2016 cash held by foreign subsidiaries (USD, billions)2016 cash held by foreign subsidiaries (USD, billions): Information technology shows 630, Health Care shows 179 followed by Consumer Staples, Industrials, Consumer Discretionary, Materials, Financials, Energy, Real Estate, Telecommunications Services and Utilities.

Source: Company 10-K documents. Of the S&P 500 constituents, 230 disclosed cash held offshore. Cash represents cash and short-term marketable securities. A few instances exist in which a company includes long-term investments.

Under the assumption that this cash is used for share repurchases when eventually brought back to the U.S., a number of strategists attribute a repatriation tax boosting S&P 500 earnings per share (EPS) by an upwards of $2.50, and this doesn’t include a corporate tax reduction that such a tax could fund.

With regards to individual companies, Microsoft and Apple have the most unrepatriated profits as seen in the table below.

2016 unrepatriated profits – top 20 companies

Top 5 companies: Microsoft, Apple, Pfizer, General Electric, IBM
2016 unrepatriated profits – top 20 companies
Source: Company 10-K documents

Does this create an investment opportunity? In solitude, the simple answer is no. Potential from share buybacks via repatriated cash is not a strong enough case on its own for us to buy a stock. However, considering the effect of such a unique scenario can certainly be additive to the overall investment thesis.


Commentaries contained herein are provided as a general source of information based on information available as of June 12, 2017 and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Investors are expected to obtain professional investment advice.  

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

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Written by

Portfolio Specialist Group

AGF Investments Inc.

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