Under new tax laws, Cisco to bring back $67 bn to US

Cisco Systems has unveiled a plan to bring $67 billion that it holds overseas back to the United States this year, taking advantage of the recent rewrite of the tax code.

Chuck Robbins, chairman and CEO

The Silicon Valley firm, which makes gear for computer networks, said it will pass on a significant chunk of that cash to its shareholders over the next two years through share buybacks and increased dividends.

The repatriation is planned for the company's third fiscal quarter, Cisco said on Wednesday while reporting its second-quarter earnings.

In total, Cisco investors are set for a windfall of about $44 billion as it becomes the latest big US company to map out its plans to bring home cash that has been stashed overseas for years.

Other companies that have presented similar plans to repatriate foreign cash holdings include Apple, which in January announced plans to bring the vast majority of its $252 billion in cash held abroad back to the United States, paying a tax of $38 billion.

Multinational corporations had previously been reluctant to move their piles of offshore money into the US because of the heavy taxes they would have to pay on it. But the tax bill passed by Congress and signed into law by President Trump in December offers firms a one-off lower tax rate on funds being repatriated to the US.

The new rules also mean companies can no longer avoid paying taxes on past international profits by holding the cash outside the US. They must pay tax on the money whether they bring it back to the country or not.

Moody's estimated in November that US companies were holding about $1.4 trillion in cash offshore. Five large tech companies - Microsoft, Apple, Google, Oracle and Cisco - accounted for nearly $600 billion of that.

Supporters of the tax changes had argued that giving companies an incentive to bring the money home could boost the US economy by promoting hiring and investment. But critics said Main Street wouldn't feel the effect because many companies would opt to reward shareholders with dividends and stock buybacks.

That appears to be what Cisco is doing. And its announcement pleased investors: the company's stock was up almost 7 per cent in after-hours trading.

In its earnings statement, Cisco reported its first rise in quarterly revenue in more than two years and forecast that profit in the current quarter would exceed the estimate by analysts. It said its years-long efforts to transform from a network gear maker into a software-focused company were beginning to pay off.

''We are clearly seeing the results of the strategy we've articulated over the last 10 quarters,'' the company's chief executive, Chuck Robbins, told analysts on a call after the earnings were announced.

Cisco raised its buyback program by $25 billion, taking the total to about $31 billion. However, the new tax law led to an $11.1 billion charge, pushing the company to post a loss for the second quarter, which ended 27 January.