It was prompted to do so over claims that corporate decision making is being distorted by the way taxes on overseas income is levied.
While the overseas earnings of US-based companies are taxable at a rate of up to 35 percent, payment is deferred until the time the cash is brought back into the country, leading many American companies to keep much of their cash in overseas jurisdictions.
Use of cash in international deals by US buyers is at record levels, with cash-only deals accounting for 90 percent of international deal activity this year and last, according to banking management platform Dealogic.
A person familiar with the operations of US businesses in China, who asked not to be identified, told Asia Outbound that he suspected much of the cash being pursued by the SEC is held in offshore jurisdictions such as Guernsey. However, he added that the US tax rules were definitely a factor in decisions by US companies operating in China to reinvest their China earnings rather than repatriate them.
"The SEC's target in this move is the huge amounts of trapped money in Ireland and such places from overseas profits and revenues that haven't been repatriated," he said.
As for US-based Chinese companies, only US-derived income would be of interest to and under the purview of the SEC for tax purposes, the source said.
In a sample of 258 companies, JPMorgan estimated that more than 50 percent of cash balances were held abroad, with the industrials, materials, consumer and energy sectors all exhibiting above-average levels of overseas cash.
Some US lawmakers and large companies, including Apple and Pfizer, have been pushing the government to declare a repatriation tax holiday to allow companies to bring overseas cash home, according to a Reuters report.
However, the previously quoted source said such a window may not have a great effect on China-based cash holdings. "US companies in China tend to be assigning profits and revenues to their future expansion in the country, rather than repatriating them," he said.
Earlier this year, the SEC forced Microsoft to reveal for the first time that the bulk of its $50.2 billion cash holdings are held outside the US, according to a previous Financial Times report.
A number of major overseas mergers and acquisitions are being funded by the overseas cash holdings of US companies. Hewlett-Packard plans to use offshore funds in its $11 billion purchase of Autonomy, the UK software company, while Microsoft earlier this year said it would use offshore cash to buy Skype for $8.5 billion, the Financial Times reported. Mining company Joy Global announced its planned $585 million purchase of China's International Mining Machinery Holdings Ltd earlier this year.
