Senate committee investigates global tax break for companies

— -- A Senate committee is investigating whether multinational companies abused a tax break in 2004 that gave them an 85% discount on profits made overseas and brought back to the U.S.

The Senate Permanent Subcommittee on Investigations is circulating a 17-question survey asking companies to explain whether they used the cash to create U.S. jobs as promised or whether they bought back stock or increased executive pay in violation of Treasury Department rules.

"Proponents claim that repatriation tax holidays encourage businesses to bring foreign earnings back into the United States," said Sen. Carl Levin, D-Mich., who is chairman of the subcommittee. "But it may do the exact opposite by encouraging companies to move operations offshore or shift profits to tax havens in anticipation of a future tax holiday and by alleviating any worry that the funds might get stuck offshore."

The probe comes as many companies, including Oracle, Dell, Hewlett-Packard and Eli Lilly, as well as the U.S. Chamber of Commerce, are urging lawmakers to include an identical tax break in a Senate fiscal stimulus bill being debated this week. The tax break was offered for the first time in 2004.

Tax law generally allows companies to defer bringing foreign profits into the U.S. as long as they desire, creating an incentive for companies that base operations in low-tax countries such as Ireland or Singapore to accumulate profits there.

The top U.S. corporate tax rate is 35%. The 2004 repatriation tax holiday allowed companies that stockpiled trillions of dollars overseas, never taxed by the U.S., to bring the money into this country at an effective rate of 5.25%.

Critics say rules requiring the companies to create jobs with the imported cash are unenforceable.

"Money is fungible," Robert McIntyre, director of Citizens for Tax Justice, a Washington-based research group that is often critical of corporate tax practices, said in 2004. "You take it from one pot, you put it in another. Congress says you can't use repatriated profits for a prohibited purpose, but of course you can free up some other money and use that for the prohibited purpose."