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Trump’s Repatriation Tax: Which Sector is Winning?

With the 45th U.S. President Donald Trump taking office in January and immediately putting his campaign policies into effect, many are watching how the repatriation tax will affect American companies with significant foreign revenues. The pre-election economic plans included a special one-off tax holiday, allowing U.S. firms to repatriate funds held overseas with only a 10% payment, versus the current 35% rate. In this analysis, we look through the S&P 500 Index and identify which companies the tax may affect the most.

Top 10 S&P 500 Companies by Total Revenue

On average, the S&P 500 has around 33% foreign revenue, which actually dipped from 2010 highs of approximately 42%1. The Top 10 S&P 500 companies with the largest dollar amount of Total Revenue are shown in Table 1. Apple and ExxonMobil (both 65%) have the largest percentage of foreign revenue, with Chevron coming in third at 48%. The current 35% tax rate seems to discourage many companies from repatriating their overseas cash. Apple, for example, has been known to borrow money to pay dividends, instead of using its overseas cash. Although the incentive seems clear enough, if we look back to 2004, when then-President George Bush reduced the repatriation tax to 5.25%, we saw that cash was spent on share buybacks and dividends, with only a small percentage going toward domestic employment and capital expenditure. This raises concerns about the future benefits of a one-time repatriation tax reduction as a long-term solution to bolster up the U.S. economy and drive infrastructure spending.

To fully realize the potential gains for some of these sectors and companies, one should look at international cash holdings. Read the Implications of the U.S. Presidential Election on U.S. Corporate Foreign Cash Reserves to find out the leading cash holders by sector.

Top 10 S&P 500 Companies by Percentage of Foreign Revenue

Looking at which companies in the index have the largest percentage of foreign revenue, irrespective of size, shows a clear picture that the semiconductor industry is leading the way. Table 2 shows all companies generating over 83% foreign revenues. In fact, Philip Morris is one out of only two non-semiconductor companies in the Top 10 Foreign Revenue list. Interestingly enough, Philip Morris has entirely foreign revenue, after splitting from Altria Group in 2008. The other is Molson Coors Brewing, which has 97% of its revenue from abroad with brands like Carling in the U.K. and Molson in Canada. The company was created by the merger of two large North America's breweries: Molson of Canada, and Coors of the United States, in 2005.

With all the attention placed on how the information technology industry will benefit from repatriation tax, it is specifically the semiconductor sector that may benefit the most. The semiconductor sector has a global supply chain and is very capital intensive, investing heavily on research and development (R&D). President Trump’s plans to levy a 10% repatriation tax on the accumulated profits of US companies’ foreign subsidiaries would be payable over a period of ten years, and it may benefit companies such as Broadcom (LLTC) and NVIDIA (NVDA), which have significant amounts of offshore cash. The question is, will President Trump use this repatriation money to shore up R&D, or will there be a repetition of 2004, as stated earlier?

Honorable Mentions

Some S&P 500 companies that one may expect to be included in this list did not make the cut, either due to their revenue not being large enough for Table 1, or their percentage of foreign revenue being below 83% for Table 2. Nevertheless, the following companies that have significant foreign presence, both in terms of brands and revenue (foreign revenue percentage), are mentioned here: Mondelez (78%), PepsiCo (44%), The Priceline Group (80%), Expedia (44%), E. I. du Pont de Nemours (60%) and Yum!Brands (76%).