eBay Loses $3 Billion On U.S. Tax Victory

eBay Loses $3 Billion On U.S. Tax Victory


Image via Flickr/

Image via Flickr/ Jason Trommetter

The battle between cash-rich tech companies and the US government is set to continue for some years, but at least one firm waved something very much like  white flag on Tuesday afternoon. eBay Inc (NASDAQ:EBAY) says that it’s bringing a chunk of its overseas cash back to the United States. The company will have to give a huge lump of that money to the IRS for the privilege of crossing the border with it in tow.

eBay Looks To Grow

eBay Inc (NASDAQ:EBAY) is looking to return most of the cash it holds overseas back into the United States in order to fund its growth. The company is set to take a $3 billion tax charge for transferring around $9 billion in overseas tax.

In the earnings report the company revealed on Tuesday afternoon, eBay executives did not say what they were planning on using the newly American cash for. Analysts seem certain that the company will seek to stimulate growth in its own business with the money, either by buying up smaller firms or invest in its growing businesses, such as mobile payments.

Whether the company’s gambit will work can only be ascertained by time, but there is a clear message to shareholders. eBay is serious about spurring growth in its business and foreign cash was not working for the company. For some reason paying $3 billion was judged better than taking on debt.

The repatriation charge is something that American companies have been complaining about for a long time, and it is rare that any of them pay it on any substantial sum. That leaves much of their earnings in foreign bank accounts, close to unusable for many procedures. eBay is obviously no longer interested in that constraint.

US Tax Breaks Look Unlikely

Several companies, particularly the cash-rich leaders of the tech sector, have argued that the repatriation tax is a sure fire way of keeping foreign cash reserves out of the United States and encouraging investment in other countries.

eBay Inc (NASDAQ:EBAY) has been forced to bow to the power of the US government, and the company’s shareholders are pulling some of their holdings out of the company this morning as a result.

Apple Inc. (NASDAQ:AAPL) has been the most notable proponent of this stance. That company has argued that the repatriation tax hampers economic growth, and the company has looked for  changes to the tax law in order to make it easier to bring the $2 trillion or so home and encouraged its use within the borders of the United States.

The company has borrowed billions upon billions in order to pay dividend and buyback bills inside of the United States. That technique cost the company much less than straight payments from its overseas cash pile would have.

Changing international tax law appears to be a power that Apple doesn’t quite have. The US government quickly brought attention to the way the Cupertino company avoids paying taxes across the world using various European loopholes. The company’s credibility as a source of tax code advice has been quite hampered since the release of those details.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.

 
  • PhilipCohen

    eBay repatriates $9 billion from who knows where …
    Oh, dear me, Johnny Ho
    is going to have to pay $3 billion in U.S.
    taxes on the $9 billion he wants to repatriate from some dinky Caribbean island
    or, more probably, Ireland.
    The Ho will only have $6 billion left to waste on more non-profitable
    acquisitions …
    Undoubtedly, the only reason
    eBay is repatriating these funds is most likely because they need the money. Regardless,
    want to bet that the long-suffering eBay shareholders will still see none of these
    “profits”?
    Still, it’s about time
    eBay contributed to some of that enormous U.S.
    defence expenditure; although, no doubt, eBay’s narcissistic Johnny Ho would
    not be able to comprehend any reason why the U.S. middle class, and not eBay,
    should continue to shoulder that burden in toto …
    And what does the
    “smart money” on Wall Street think about eBay? Well, in August 2007, prior
    to the GFC, when the “Pain From Bain” was already effectively in
    control of eBay, the share prices of eBay and Amazon were both ~$40; with eBay recently
    ~$52 and Amazon ~$299, clearly, Wall Street still considers eBay to be a
    “dog”, and Johnny Ho to be a very poor dog handler …
    One has to wonder if Mr
    Omidyar has ever thought about just how much more fabulously wealthy he might
    now have been had he not ok’d the handing over of the control of eBay to the
    delusional, destructive, incompetent, unscrupulous, narcissistic, sociopathic
    Johnny Ho? Indeed, had he, in August 2007, traded in just the remaining ~108
    million eBay shares, that he still holds today, for shares in Amazon, instead
    of ~$6 billion, his worth would now have been ~$32 billion! Now that, surely,
    is something for all of eBay’s long-suffering “long” investors to
    think about, is it not? …
    eBay Inc, where the
    incompetent mingle with the malevolent and the criminal … http://bit.ly/11F2eas
    And what does the “smart
    money” on Wall Street
    now think of eBay’s Q1 2014 performance? $52.03 (falling) …

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