U.S. companies owe taxes up to a 35 percent rate on profits they earn around the world. They pay taxes in foreign countries and receive credits they can use to offset their payments to the Internal Revenue Service.

The U.S.-based companies don’t have to pay taxes on foreign income from active businesses until they bring the money home, which creates the incentive to reduce foreign taxes and leave profits offshore.

Bermuda, Ireland

Under U.S. accounting rules, companies don’t have to assume they will pay federal taxes on profits they have deemed indefinitely reinvested outside the U.S. They must disclose the total profits they haven’t taken into account for taxes.

Some companies disclose what they’d owe if they had to bring all the money home, providing insight into how little they’ve paid in foreign taxes. Microsoft, for example, would owe $24.4 billion if it brought its offshore profits home. That’s a 31.9 percent tax rate, suggesting that Microsoft has paid as little as 3.1 percent in foreign taxes.

Reinvested profits aren’t equal to offshore cash, because some companies have accounted for taxes on part of their offshore profits even if they haven’t actually paid yet.

Other companies, notably Corning Inc. and 3M Co., have invested in active businesses and hard assets such as factories. They’ve been lobbying Congress to consider proposals that don’t assume all the money could be brought home.

Bank Accounts

A significant share of the money is offshore only for tax purposes and is held in segregated U.S. bank accounts. A 2011 report from Democratic Senator Carl Levin of Michigan found that a sample of 27 companies were holding 46 percent of their offshore profits in U.S. banks or assets.

Only a few companies are repatriating money and absorbing the resulting taxes, in part because most large companies prefer to borrow at low interest rates rather than incur a much higher tax cost.

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