The $13.3 Billion Question

By Charlie Lunan

The European Union’s aggressive move to claw back $14.5 billion in tax breaks Ireland granted Apple Inc. over a decade raises some big questions for the U.S. sporting goods industry. Should Nike Inc. and other U.S. sporting goods companies finally begin repatriating some of the billions of dollars in foreign profits sitting offshore?

According to an SGB Executive review of securities filings, a dozen publicly traded U.S. sporting goods companies had $13.3 billion in foreign earnings parked offshore at the end of their most recent fiscal year period.

While Nike Inc. accounted for $10.7 billion of the sum, seven of the remaining 11 companies were holding more than half of their cash and cash equivalent assets overseas. Most companies have delayed repatriating the profits in hopes Congress will make U.S. corporate tax rates more competitive globally.

The EU’s dispute with Ireland and Apple marks the latest aggressive move by overseas tax authorities to tax hundreds of billions of dollars in U.S. foreign earnings.

In February 2015, the EU opened a “state-aid” investigation into a ruling by Belgian tax authorities that lowered VF Corporation’s effective income tax rate. The ruling resulted in $25.3 million in tax savings in 2013 and 2014, according to company filings. The EU declared the ruling illegal in January of this year and has ordered Belgium to take back taxes from any companies that benefited from such rulings, which it argues amount to illegal state subsidies.

“In an effort to deal with budget deficits, governments around the world are focusing on increasing tax revenues through increased audits and, potentially, increased tax rates for corporations,” VF Corp. observed in its latest 10K report.

As of the end of 2015, VF Corp. had $3.66 billion of undistributed earnings parked offshore. The company derived 36 percent of its revenue from overseas last year.

Like the other 11 companies reviewed for this article, VF Corp. opted to designate those profits as indefinitely reinvested in its overseas businesses. Global companies make such decisions routinely depending on a variety of factors, such as changes and anticipated changes to tax laws and their own cash requirements.

In 2015, for instance, the board of directors at Crocs Inc. approved a “foreign cash repatriation strategy” to raise cash for a stock buyback program and the company’s U.S. operations. Crocs repatriated $127.3 million in 2015 and has provisioned $24.6 million to pay U.S. income taxes on the $128 million remaining overseas as of December 31, 2015. Whether and how much of those earnings it ends up repatriating could change.

Below are findings from the 11 companies reviewed by SGB: