A Hanesbrands Inc. official has suggested that the corporation’s “ability to remain U.S.-headquartered” — and other companies’ abilities as well — may depend on getting clarity and potential relief from the U.S. Treasury on a federal corporate-tax program.
The program primarily affects U.S. companies with significant international operations, particularly as the tax relates to intellectual property.
The company has about 2,300 employees in Forsyth County, representing 28.8% of its 8,000 domestic workforce and 3.4% of its global workforce of 68,000, both as of Dec. 31, 2018.
Hanesbrands’ concern was expressed in a letter submitted Sept. 3 by Bryant Purvis, its vice president of global tax, to Treasury Secretary Steven Mnuchin. Hanesbrands could not be reached for immediate comment on the letter.
Although the Hanesbrands request was made nearly four months ago, it surfaced publicly in a lengthy New York Times article posted Monday.
The article discusses how hundreds of corporations continue to lobby the Trump administration for additional tax cuts on top of those they received in the controversial December 2017 legislation that dropped the tax rate for most companies from 35% to 21%.
Congress approved new taxes, such as the one cited by Hanesbrands, that are designed to help offset the revenue loss. The Times reported that corporations began lobbying Treasury for “high-tax” exemptions shortly after that law went into effect.
Although the Trump administration, particularly Mnuchin, has touted the corporate tax-rate cut as “jet fuel for the U.S. economy,” some economists have said the cuts and exemptions to tax increases are leading to the Internal Revenue Service collecting hundreds of billions of dollars less than previously projected through 2028.
For example, The Washington Post reported Dec. 16 that 91 corporations in the Fortune 500, many worth billions of dollars, paid no federal taxes in 2018. The Post also reported that about 400 of America’s largest corporations paid an average federal tax rate of 11.3% on their profits.
“The budget deficit has jumped more than 50% since Mr. Trump took office and is expected to top $1 trillion in 2020, partly as a result of the tax law,” the Times reported.
The Times article ends with the Hanesbrands anecdote focused on a tax program known by the acronym GILTI, or global intangible low-taxed income.
According to the article, congressional Republicans said GILTI was meant to prevent companies from avoiding American taxes by moving their intellectual property overseas.
Hanesbrands has expanded aggressively internationally since its September 2006 spin-off from Sara Lee Corp., spending $3.09 billion on 11 purchases.
Those deals include foreign companies and affiliates Bras N Things, Maidenform, Pacific Brands Ltd., DBApparel, Champion Europe, Champion Japan and TNF Apparel. Those acquisitions include the intellectual properties of those companies.
Purvis warned that the “GILTI (tax) regime will become an impediment to U.S. companies and their ability to not only compete globally as a general manner, but also their ability to remain U.S.-headquartered if they are to maintain the overall fiscal health of their business, as this advice is already being given to U.S. companies.”
VF Corp., the apparel marketer formerly of Greensboro and now based in Denver, has cited the GILTI tax’s impact on its overall finances.
Mark Mazur, a tax analyst with The Urban Institute, said Monday that Hanesbrands is among dozens of corporations, as well as the U.S. Chamber of Commerce, that sent similar letters to Treasury about GILTI.
The Times said that list includes Credit Suisse, United Technologies Corp. (which has 1,500 employees in Winston-Salem with its Collins Aerospace division), News Corp., Liberty Mutual, Anheuser-Busch, Comcast and Proctor & Gamble.
The Times reported some corporations “had sold the rights to their patents to subsidiaries in offshore tax havens. The companies then imposed steep licensing fees on their American units.”
“The sleight-of-hand transactions reduced profits in the United States and left them in places like Bermuda and the British Virgin Islands.”
To reduce the benefit companies reaped by claiming their profits were earned in tax havens, the law imposed an additional tax of up to 10.5% on some offshore earnings, The Times reported.
“In the pharmaceutical and tech industries in particular, profits are often tied to patents,” the newspaper reported.
“But after the law was enacted, large multinationals in industries, like consumer products, discovered that the GILTI tax applied to them, too. That threatened to cut into their windfalls from the corporate tax rate.”
Purvis wrote to Mnuchin that “the United States is the only nation that has enacted a GILTI-type (tax) regime, and it is critical that it be used to level the playing field globally, which has been a point at issue hindering U.S-based business relative to their foreign counterparts.”
The planned GILTI rate was 13.125%, but Purvis said it could rise as high as 18.9%.
“In that same vein, we strongly urge caution that this regime not be allowed to create a system in which American companies are faced with even higher rates of taxation on their foreign profits (in many cases higher than the foreign tax rates to which they are subject) than their foreign competitors.”
Purvis said the current high-tax exception “fails to take into account the very real and common scenarios where corporate taxpayers experience these dramatic fluctuations in foreign income from year to year.”
As such, Purvis said Hanesbrands wants Treasury to expand what is eligible for a high-tax exemption so to be more favorable to the company.
Purvis said Hanesbrands “stands ready to support Treasury in this regulatory process in any way that may prove constructive to producing final regulations in this space that both reflect the stated legislative intent, as well as offer protections to U.S.-based businesses operating in the global marketplace.”
Example of bluster?
Mazur, a Treasury official in the Obama administration, said he fielded similar corporate letters on tax issues.
He said most were viewed as lobbying efforts, and those with Hanesbrands’ type of warning as an example of bluster to be skeptical of.
“When corporations submit these types of letters concerning tax policy, they tend to make their situation appear dire,” Mazur said.
The Times cited as another example that Chris Trunck, vice president for tax at Owens Corning, asked Treasury “to tinker with the GILTI rules in a way that would preserve hundreds of millions of dollars of tax benefits that Owens Corning had accumulated from settling claims that it poisoned employees and others with asbestos.”
However, Mazur said the Trump administration’s Treasury has leaned more on the side of the taxpayer when considering exemptions to tax law.
“You could look at the Hanesbrands letter as ‘interpret our request in our favor, or we’ll leave,’ “ Mazur said. “It is true that some U.S. companies will move their headquarters offshore, so you have to put some weight on their message.”
Mazur said part of the issue is that the new tax laws “were put together somewhat hastily and were not well drafted.”
“My thought is that Hanesbrands is seeking clarity on the tax law, that the issue can be resolved in the regulatory process, and that the resolution benefits it.”
A legitimate threat
Bowman Gray IV, an independent local stockbroker, said the Hanesbrands warning “is a legitimate threat, though not immediate, if the tax law is not at the very least clarified.”
Gray said the concern expressed by Hanesbrands and other corporations “serves to point out how poorly (the tax) was constructed in the first place.”
“While the argument regarding the overall tax rate will always be a tug of war, as long as companies can know with some certainty what the rules are, then they can figure out how to work within those rules.
“However, when there is the potential for an unquantifiable tax liability, as there is with the GILTI, that causes concern and, in this case, contingency planning that may involve relocation.”
Gray said he expects Treasury to “tighten up” the language in the law to address this issue, “mitigating any significant moves by companies like Hanesbrands.”
“One caveat is that I would not place it outside the realm of possibility that if the same people who wrote the tax reform bill initially are allowed to rewrite it, they could muddy the waters even more.”