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EMC’s overseas cash draws questions from SEC

A man walked through the EMC campus in Hopkinton.Steve Senne/Associated Press/File

Like many technology companies that do business overseas, EMC Corp. has billions of dollars parked in offshore subsidiaries, money that cannot be taxed by the Internal Revenue Service.

But as EMC is being bought by Dell Inc., federal regulators want to know whether some of that cash is coming home — and whether the company is going to pay taxes on it.

EMC has an answer — but wants it to be a secret.

During a review of its annual report, the Securities and Exchange Commission recently asked EMC if it planned to use any of the money it has stashed from its overseas sales to finance the deal. If so, the SEC said, EMC should disclose any tax liability to its investors.


EMC eventually supplied a tax estimate to the SEC. But in regulatory filings, the Hopkinton company also asked the government to keep those figures confidential, suggesting the amount be listed as “$[***] million” in disclosures to investors and the general public.

Robert Willens, a former Wall Street analyst who specializes in tax and accounting issues, said EMC’s request for confidentiality was “highly unusual” and amounted to a request for “special treatment.”

“That would be something that strikes me as unfair, if they were allowed to conceal that amount,” Willens said.

A company spokesman said, “In light of the pending merger with Dell, EMC declines to comment at this time.”

The SEC appears to have consented to EMC’s request, which was made under an agency rule that allows companies to ask that information receive confidential treatment. The SEC ended its correspondence with EMC on June 3 by noting that it had “completed our review of your filing.”

SEC officials declined to comment.

The back-and-forth between EMC and federal officials comes amid a political tug-of-war over the growing amount of money that US companies keep offshore.


Presidential candidates Bernie Sanders and Donald Trump each have called for forcing companies to pay taxes on overseas income as the money is made, rather than allowing them to stash the money in foreign investments.

American companies, excluding those in the financial sector, stockpiled some $1.2 trillion outside the country last year, nearly double the $700 billion estimated in 2007, according to research from Moody’s Investors Service. Much of that was held by technology companies, Moody’s said, about $630 billion in 2015. Apple Inc. was by far the leader, with about $200 billion held outside the country.

In addition to the US Treasury, critics said the money kept overseas for tax purposes is not plowed back into the economy in the form of wages, business purchases such as new equipment and services, or additional dividends to shareholders.

Edward Kleinbard, a business law professor at USC, said the overseas money essentially becomes “stateless income” because it is “divorced from where the real factors of production are located, and arbitrarily booked in the most convenient tax haven.”

He and others contend that US tax policy encourages the practice by letting companies avoid taxes on foreign income as long as it’s held indefinitely in investment accounts outside the country. Companies are not required to pay taxes on those earnings, or even account for the tax liability in regulatory filings, until the money flows back into US accounts.

President Obama has tried to change the law to tax some of that overseas money. Trump has proposed giving companies a one-time holiday, taxing 10 percent of their amassed foreign cash, while lowering the top corporate rate to 15 percent.


During his campaign, Sanders called for ending the deferred taxation of foreign earnings and limiting the use of tax credits for that overseas revenue, spending the proceeds on infrastructure improvements.

Dell’s proposed acquisition is scheduled for a vote by EMC shareholders in late July. At the time it was announced last fall, the deal was valued at $67 billion. The companies said part of it would be financed with $4.75 billion in cash from EMC.

In letters to the SEC, EMC asserted that it didn’t have firm plans to use any of its overseas money for the deal. But the agency questioned that, pointing out that EMC didn’t list $4.75 billion in US cash in its annual report.

“It’s a legitimate question to say, ‘Are you going to bring back some of those foreign profits in order to do this deal?’ ” said Robert Pozen, a senior lecturer at MIT’s Sloan School of Management. “And if that’s likely, you then have to book a deferred tax liability on your balance sheet.”

Although several experts said EMC’s reluctance to disclose its possible tax bill was highly unusual, the company also could have good reasons for trying to shield the estimate from public view, said Omri Marian, a law professor at UC Irvine.

In a letter to the SEC, for example, EMC said it had “no final plans” for where the $4.75 billion for the merger payment will come from, “although numerous alternatives are under consideration.”


“This is a legitimate reason not to disclose,” Marian said. “I’m pretty sure EMC has excellent tax folks and they know what they are doing. I’m sure that if they have to repatriate cash, they’ll find a way to do it with [a] minimal tax bill. I’m just not sure how.”

Curt Woodward can be reached at curt.woodward@globe.com. Follow him on Twitter @curtwoodward.