Generally SEC comment letter issues are about disclosure that the SEC believes investors need to make informed decisions. Sometimes they transmogrify into bigger, almost political issues, and that is happening with international operations, particularly in the tax area, right now.

We have been talking in our large conferences and workshops over the last few years about the issues involved in having significant amounts of cash held in overseas subsidiaries. The SEC’s focus on disclosure about this issue has historically centered on the related tax effect if this cash were repatriated.

This issue became important during the recession when many US companies found themselves in the situation where much of the cash on their balance sheet was actually held in overseas subsidiaries and in essence was not available to fund US operations without a significant tax impact.

Many companies received SEC comments like this one:

1. We note your disclosure on page 66 that the majority of your cash, cash equivalents and short-term investments are held by your foreign subsidiaries. We also note that a significant portion of your foreign earnings are deemed to be indefinitely reinvested in foreign jurisdictions. To assist investors understand the availability of funds in domestic operations such as payment of debt, dividends, acquisitions and capital expenditures, please provide enhanced disclosures. Please provide and confirm that in future Exchange Act filings you will disclose the following:

(a) the amount of cash and cash equivalents that are currently held by your foreign subsidiaries;

(b)  quantify the amount of cash and short-term investments held by foreign subsidiaries where the funds are not readily convertible into other foreign currencies, including U.S. dollars;

(c)  if foreign earnings are repatriated, disclose that these amounts would be subject to income tax liabilities both in the US and in the various foreign countries;

(d)  explain any other implications or restrictions upon your liquidity that is impacted by the majority of your cash, cash equivalents and short term investments held by foreign subsidiaries.

Refer to Item 303(a)(1) of Regulation S-K and Section IV of SEC Release 33-8350.

Now the flavor of this issue is changing to raise the question of how much tax has been paid on international earnings. A really hot topic in the press right now is the “corporate inversion”, a transaction in which a US company acquires a company outside the US and changes its tax domicile to the country outside the US to save taxes.

There is even an entry on the White House web page about inversions, which uses the phrase “economic patriotism”.

http://www.whitehouse.gov/blog/2014/07/24/what-are-inversions-and-why-should-you-care

We won’t put more links here, but if you Google “corporate inversion”, it is startling how much shows up!

While this is not a clear GAAP or investor risk issue right now, we think it is one to think about!