San Diego-based Qualcomm Inc. could avoid more than $10 billion in U.S. taxes if it finalizes a planned $47 billion purchase of Dutch company NXP Semiconductors N.V., according to Americans for Tax Fairness.
The advocacy group said in a statement Wednesday that the ability of corporations to indefinitely defer the payment of taxes on foreign profits means Qualcomm can use offshore funds to purchase NXP. By spending the money rather than repatriating it, the semiconductor firm could avoid having to pay the $10.2 billion in federal taxes a Citizens for Tax Justice report estimates Qualcomm owes on approximately $29 billion in overseas profits.
“Deferral of taxes on foreign profits creates a huge financial incentive for American corporations to build businesses and create jobs offshore instead of investing in the United States,” Americans for Tax Fairness Executive Director Frank Clemente said in the statement. “That appears to be what Qualcomm is doing here.”
Qualcomm said on Oct. 27 that the NXP purchase “will be efficiently financed with offshore cash and new debt,” adding that the transaction’s structure will allow “efficient use of offshore cash flow and enable Qualcomm to reduce leverage rapidly.”
Americans for Tax Fairness said it’s likely Qualcomm will use one of its existing foreign subsidiaries to purchase NXP before liquidating that subsidiary, leaving Qualcomm in direct control. The group said that would presumably satisfy the U.S. tax code’s permanently reinvested standard, meaning Qualcomm would never have to pay taxes on those profits.
Qualcomm did not immediately respond to requests for comment.
The pending purchase, which would mark the biggest semiconductor deal in the industry’s history, is a clear example of why Congress should pass corporate tax reform, Clemente said.
“These profits were earned with an expectation that the maximum U.S. tax rate would be 35%,” he said. “Congress intended for the taxes on these earnings to be temporarily deferred, not forgiven.”