Qualcomm Corporation, headquartered in San Diego, has been lobbying Congress for a “tax holiday” that would allow it to “repatriate” millions of dollars held offshore in tax free jurisdictions like the Cayman Islands and Bermuda.
According to a recent article in the Wall Street Journal, New York State Comptroller Thomas DiNapoli, who oversees the New York State Common Retirement Fund, has sued Qualcomm over disclosure of use of stockholder funds for political purposes.
Although the general public doesn’t have a right to know because of the Supreme Court’s Citizens United decision, stockholders do have a right to know because theoretically it is their money being used. Despite the New York Comptroller’s having to resort to a lawsuit to find out, we already know that one of Qualcomm’s most intense lobbying efforts relates to getting the government to declare a tax holiday which would allow it to bring profits back home to the US at a reduced or zero tax rate, a process euphemistically called repatriation.
With reference to OpenSecrets.org, it is easy to find out what Qualcomm’s lobbying interests are. That website lists the following:
1) Tax policy regarding rate at which foreign assets can be brought back into the United States, including H.R. 1036 – Job Creation and Innovation Investment Act and related legislation.
2) Need for corporate tax reform and repatriation.
3) H.R. 1834 – Need for corporate tax reform and repatriation.
4) Tax policy regarding rate at which foreign assets can be brought back into the United States, including H.R. 1036 – Job Creation and Innovation Investment Act, S.Res. 25 – A resolution expressing the sense of the Senate that comprehensive tax reform legislation should include incentives for companies to repatriate foreign earnings for the purpose of creating new jobs; The Joint Select Committee on Deficit Reduction (repatriation) and related legislation. H.R. 3765 (Public Law 112-78) – Temporary Payroll Tax Cut Continuation Act of 2011, and related legislation (repatriation).
According to OpenSecrets.org, Qualcomm spent $4,740,000 in 2012 and $6,620,000 in 2011 on lobbying. Qualcomm’s lobbying efforts have increased from a relatively modest $415,000 in 2000 to the neighborhood of $6 million a year (with the exception of 2012) starting in 2007. Not long after the government did enact a tax holiday in 2004, Qualcomm upped its lobbying efforts for another one so it could bring even more foreign profits stashed in offshore tax havens back home.
The tax holiday of 2004 was called the American Jobs Creation Act. It created very few jobs and in retrospect turned out to be a total scam. Various companies did bring $362 billion back into the US under the pretense that this money would be used to create jobs. But the majority of it did not go to building factories nor did it go to research. What it did go to was the enrichment of investors through stock buybacks and dividend payments. It was actually responsible for destroying jobs.
Here’s how the scam works. Corporations like Qualcomm set up subsidiaries in offshore jurisdictions with zero tax rates like Bermuda and the Cayman Islands. Then they transfer assets to those corporations. In Qualcomm’s case those assets are mainly “intellectual property” like patents. These are the kinds of assets that are very easy to transfer. They typically sell these assets to their subsidiary for a very low price. They can legitimately do this if profits have not started to really kick in like in the case of a new patent that hasn’t become a goldmine yet.
As profits from that patent start to come in, the parent US based corporation has to pay huge royalties to the offshore subsidiary for the use of its patents. Profits pile up offshore where they aren’t taxed while losses pile up onshore where they qualify for a tax deduction. Hence the need for a tax holiday to get those offshore profits back into the US without paying the 35% corporate income tax rate. David Cay Johnston writes in “The Fine Print”:
“Buried in the fine print of the Jobs Creation Act is a hard truth: companies were not obliged to spend one dollar on new hiring or expanding research. If that sounds to you like an action with all the significance of moving a dollar from your left pocket to your right, your assumption is correct. The way lobbyists wrote the bill, companies could use their tax savings for virtually anything company executives said contributed to a firm’s ability to retain workers and create jobs. In other words, creating jobs was not a requirement of the American Jobs Creation Act, while destroying jobs was an authorized purpose.” As Johnston states: “Perhaps the law should have been called the 2004 Destroy American Jobs Act.”
And destroy jobs they did. Hewlett-Packard brought $14.5 billion of untaxed overseas profits back to the US and immediately fired 14,000 employees. Other companies did the same. Altogether about 100,000 jobs were destroyed although the companies waited for the American Jobs Creation Act to be signed before sending out the pink slips. Also while the bill talked about creating jobs, it said nothing about creating them in the United States. Therefore, creating non-American jobs was an authorized use of tax savings under the American Jobs Creation Act.
By manipulating the stock market with stock buybacks, corporate executives at Qualcomm and other corporations kept their stock price high. Since the value of executive stock options depends on the stock price, their main goal was to get that stock price up there so they could cash in their options at the highest possible rates.
Writing in Time, Rana Foroohar states in “The Trillion-Dollar Homecoming”:
“In any case, the ‘we would invest in the US if only we had the money’ argument doesn’t hold water. Given how low interest rates are right now, it’s just as easy to borrow to fund capital spending as it would be to pay a [proposed] 5% tax. As Warren Buffett has said frequently in the past few months, a lack of cash is not hindering job creation. In fact, banks are in need of major corporations to lend to.
“But we should not allow companies to bring money in from abroad tax free – or we’ll be setting the stage for yet another stimulus measure that benefits those who need it the least.”
As of 2012 Qualcomm has about $16.5 billion stashed in overseas bank accounts. The company’s profits jumped from $1.6 billion in 2009 to $4.3 billion in 2011, an increase of nearly 300 percent. During that same period, they increased the number of properties owned or leased outside the United States from 70 to 99, according to documents filed with the Securities and Exchange Commission. Meanwhile, Qualcomm pared down its U.S. property holdings from 76 to 73.
Qualcomm is one of the nation’s premier outsourcers and pioneered the practice of shipping work overseas.
As I wrote in the OB Rag in 2011 in an article entitled “Qualcomm will build factory in U.S. if it doesn’t have to pay taxes”:
“This just goes to show how screwed up the tax laws are in general. The way to encourage corporations to invest in factories here instead of overseas is not to give them tax breaks to repatriate profits. The way to do it is to not let them sell into the US market from abroad without paying the piper at the border. Last year more than 50% of the profits of US corporations were made from their investments abroad. The US market is becoming one of diminishing returns.
The main reason Qualcomm wants to repatriate the money is not to build factories here but to line the pockets of CEO Paul Jacobs and other US based investors. You can’t blame them for that. These corporations are out to make a buck, and one of the main ways they do that is to not pay taxes. And this has resulted in huge deficits for the US government.”
But I guess since Qualcomm didn’t get its way, it announced in 2011 that it planned to invest $1 billion to build a massive manufacturing facility in Taiwan. So much for job creation in the US.