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Case study microsoft and its foreign cash holdings

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MICROSOFT
Case Study
Q1: Why does Microsoft continue to hold so much cash overseas, rather than
returning it to the United States?
ANS: Microsoft was able to buy Skype in 2011 by using the cash it held outside United
States in countries with low corporate tax rates. Microsoft did so by buying firms in lower
tax nations such as Ireland, Singapore, and Bermuda. US corporate tax is at 35% which
is the highest in the world.
A corporate tax is also known as corporation tax. It is a direct tax which is enforced
upon income. (Corporate tax, 2013) The benefit of having a low corporate tax is that it
will lead to a lower sales tax which will able the consumers to buy a product for low
price. (benefits-lowering-taxes, 2019)
According to the US law, Microsoft or any other such company, does not pay taxes on
earnings outside US unless they are brought back. The company used the untaxed
profit money residing outside US to buy skype which means that the money held
outside the country in subsidiaries can be used to spend extravagantly.
Q2: What do you think are the opportunity costs of holding tens of billions of
dollars in cash in foreign locations?
ANS: Microsoft holds more than $100 billion cash outside US in foreign countries. This
amount represents more than 90% of all the holdings of cash of the company. If the
cash is returned to US, it will be subject to tax effects which would result in the tax cost
of $9.2 billion based upon the effective tax rate of 31%.
Companies are still holding $1.94 trillion in cash domestically. Trillions in money are left
for a fallow time period around the country yielding zero money markets holding $2.66
trillion in investor cash, and banks are storing $2.15 trillion in excess reserves at the
Fed.
(us-companies-are-hoarding-2-and-a-half-trillion-dollars-in-cash-overseas, 2016)
Q3: What potential benefits might accrue to Microsoft shareholders if it returned
some of that cash to the United States?
ANS: The companies can use that money into technology development, equipment and
hiring, but, according to the CFRA analyst Scott Kessler, tech companies would buy
back their own stock and reward shareholders with dividends by using the money
returned back to US.

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Instead of expanding operations or hire, corporations repurchase shares of their own
stock by the repatriated money that unfairly gives advantage to wealthy investors, who
are less likely to spend additional income. (12-companies-overseas-cash-dont,
2017) Shareholders would get higher return on their investments in terms of dividends,
payback and shares. Secondly, shareholders could invest that money in other
companies to earn profits and to boost the economy.

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MICROSOFT Case Study Q1: Why does Microsoft continue to hold so much cash overseas, rather than returning it to the United States? ANS: Microsoft was able to buy Skype in 2011 by using the cash it held outside United States in countries with low corporate tax rates. Microsoft did so by buying firms in lower tax nations such as Ireland, Singapore, and Bermuda. US corporate tax is at 35% which is the highest in the world. A corporate tax is also known as corporation tax. It is a direct tax which is enforced upon income. (Corporate tax, 2013) The benefit of having a low corporate tax is that it will lead to a lower sales tax which will able the consumers to buy a product for low price. (benefits-lowering-taxes, 2019) According to the US law, Microsoft or any other such company, does not pay taxes on earnings outside US unless they are brought back. The company used the untaxed profit money ...
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