Overseas cash restricts Apple's options for reallocating capital

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Comments

  • Reply 21 of 99

    Quote:

    Originally Posted by jragosta View Post



    One thing that the analyst has missed is that Apple has already reserved cash to cover taxes for much of the money stashed overseas. So bringing it back would not affect their P&L. It would, however, affect their balance sheet.



    Of course, the flip side of that is that if Apple uses the cash overseas and does not repatriate it, they will get a gain by reversing the reserves.


     


    Ahh.... the fallacy of non-accountants. Cash is not the same as income. Let's assume that Apple earns a $100 millions overseas, and if brought back to the US, it would be taxed at 35%. On their income statement, Apple reserves $35 millions for this tax, in the form of Taxes Payable. So their Net Income is $65 millions, which can be considered an understatement because it counts taxes they don't have to pay yet. However, they still have $100 millions on hand, and bringing those cash back to the state will coset them the $35 millions they recorded, but not paid at the time.

  • Reply 22 of 99
    jragostajragosta Posts: 10,473member
    zoffdino wrote: »
    Ahh.... the fallacy of non-accountants. Cash is not the same as income. Let's assume that Apple earns a $100 millions overseas, and if brought back to the US, it would be taxed at 35%. On their income statement, Apple reserves $35 millions for this tax, in the form of Taxes Payable. So their Net Income is $65 millions, which can be considered an understatement because it counts taxes they don't have to pay yet. However, they still have $100 millions on hand, and bringing those cash back to the state will coset them the $35 millions they recorded, but not paid at the time.

    I fully understand the difference between cash and income. Don't make stupid statements.

    The part you're ignoring is this:

    1. Apple brings $100 B back to the US. They have $35 B reserved to pay those taxes. Apple now has $65 B in US money to spend and the US government gets $35 B.

    2. Apple leaves the $100 B in a foreign country. They have $100 B to spend as they wish (the cash is there even if they've reserved it on their income statements) in that country. And if they DO spend it, they get to spend the full $100 B and reverse the tax reserve. The US government gets zero, Apple spends $100 B.

    It is CLEARLY advantageous to leave the money overseas rather than repatriating it - even if the taxes are reserved.
  • Reply 23 of 99
    robbyxrobbyx Posts: 479member
    While I'm not like the lefty trolls on these boards screaming for Apple to "pay their fair share" (a disgusting political soundbite that makes anyone that parrots it seem like they let others think for them), I am a liberal, and I do believe that Amazon was exploiting a hole in federal/state/local tax code as a business model for profit. They could undercut any B&M business and they did. I truly believe they had a hand in bringing down many physical businesses, at least indirectly. It's hard or near impossible to compete with a business that doesn't have to charge sales tax. Finally some states are filling that hole in their tax codes and I applaud them for it. It puts all businesses, online or otherwise, on a more level playing field.

    That said, did I purchase things on Amazon? Absolutely. It wasn't illegal and it's a human characteristic to take advantage of a situation when it presents itself. Amazon wasn't evil for exploiting the tax hole. I wasn't evil for exploiting the lower prices that tax hole created. And the governments aren't evil for filling that hole to make B&M businesses more competitive with online businesses. Will I end up paying more in taxes? Yes, but that's the price you pay for living in a relatively safe, stable, and equal society. And I will pay gladly.

    If Amazon can't make a profit after the law changes, their business wasn't very good in the first place.

    You miss the point. You are already required to declare these purchases and pay sales tax. Yes, the law will eventually change and businesses will be required to do the tax collecting for you. But make no mistake, all of us buying sales tax-free items online and not declaring and paying taxes are already in violation of the law. We're all tax dodgers.
  • Reply 24 of 99
    jragostajragosta Posts: 10,473member
    robbyx wrote: »
    You miss the point. You are already required to declare these purchases and pay sales tax. Yes, the law will eventually change and businesses will be required to do the tax collecting for you. But make no mistake, all of us buying sales tax-free items online and not declaring and paying taxes are already in violation of the law. We're all tax dodgers.

    True.

    There are two important factors to consider:
    1. While everyone is supposed to pay sales tax on items purchased out of state (where required by law), few people do so. If the law changes to require the seller to collect the money, it will add significantly to state tax revenues.

    2. People are choosing to go through the hassle of buying online at least partially to save on sales tax. If they have to pay the sales tax anyway, the savings for shopping online are decreased (particularly if you have to pay shipping). This should add to the competitive of brick and mortar stores. This will also harm Amazon significantly - their business model is partially based on being cheaper and if the cost advantage is decreased, it could hurt their business. And with net margins in the 1-2% range (at best), they can't afford to absorb the difference.
  • Reply 25 of 99
    smalmsmalm Posts: 677member

    Quote:

    Originally Posted by Don108 View Post



    By "costly" to Apple what you actually mean is "paying their fair share of taxes instead of hiding profits offshore."


    They didn't pay taxes offshore in the first place. Was that fair?


     


    Why do people think Apple is sitting on a mountain of money like Scrooge McDuck?


     


     


    15.147  U.S. Treasury securities


    15.630  U.S. agency securities


      4.063  Non-U.S. government securities


    ?????????  0.763  Certificates of deposit and time deposits


      0.144  Commercial paper


    42.405  ?????????Corporate securities


      5.398  Municipal securities


    ?????????13.742  Mortgage- and asset-backed securities


     


    These are long term investments, in total more than 97 billion $.

  • Reply 26 of 99
    malaxmalax Posts: 1,598member

    Quote:

    Originally Posted by frankie View Post



    I love Apple but they need to pay their taxes like the rest of us, along with the other corporate welfare recipients!


    That's right.  If you aren't paying money to the federal government that you earned overseas then you are clearly "receiving" welfare.  If the IRS or other agency believes that Apple isn't "paying their taxes" I'm sure they have a way to let Apple know.  Apple isn't being very good at keeping this "tax evasion" secret after all.

  • Reply 27 of 99
    jd_in_sbjd_in_sb Posts: 1,600member

    Quote:

    Originally Posted by e1618978 View Post




    A French person buys an iPod made by a Chinese person, why does the US government deserve a cut of that?





    Well said!

  • Reply 28 of 99
    robbyxrobbyx Posts: 479member
    smalm wrote: »
    They didn't pay taxes offshore in the first place. Was that fair?

    That's not true. Apple complies with all local tax laws. Why should they be double taxed? The income was earned outside the us and taxes were paid where the income was earned. Instead of demanding more tax revenue from businesses (who employ Americans, half of whom pay income tax), why aren't we cutting all the waste? Our military budget is absurd. And for what? Instead of punishing success, why don't we get realistic about spending? I'm not talking about social programs, many of which I support. I'm talking about the black hole of defense spending. If we didn't have that anchor around our collective necks, we'd be the most prosperous country on earth. Where's the uproar over all that needless waste?
  • Reply 29 of 99
    aaarrrggghaaarrrgggh Posts: 1,609member
    don108 wrote: »
    If they can't use the money because they'd have to pay some of it in taxes, they have $137 billion doing nothing and going to waste. If they bring it back to the U.S. they'll have over $100 billion that can be used.

    They are getting return off the international holdings, and using it to add value to the company. The one thing they cannot use it for (without paying taxes on the profits) is paying a dividend or investing in US operations.

    It isn't like it is sitting in some cocaine dealer's attic being eaten by rats. It may not be optimally deployed, but it is being invested.
  • Reply 30 of 99
    bugsnwbugsnw Posts: 717member

    Quote:

    Originally Posted by frankie View Post


    All online purchase should be taxed and eventually they will.  Just wait, it's already started on Amazon in several states and it will eventually go nationwide.



     


    I don't think it's the actual sales tax that bothers Amazon but the difficulty in complying with 50 different states' labyrinth tax codes. Tax all online sales at 5% and remit to the appropriate state based on destination of goods. Simple. There, I just solved the problem. I'd say have the states match that rate for in-state business as well by simplifying the tax code and eliminating many deductions. I'd bet states would end up with more money.


     


    In WA state, we get the juicy benefit of paying a B&O tax based on gross sales, zero deductions. Yes, you read that right. The deductions take four pages. And I'm sure CA is worse.


     


    Simplify. Lower the rates for all. Make compliance easy and efficient and inexpensive. It's win-win.


     


    By the way, as we're discussing Amazon paying sales tax. One way or another, states attempt to get their revenue. If Amazon does not pay the sales tax, the customer is supposed to remit the tax to state. It's called a Use Tax and is equal to the sales tax.

  • Reply 31 of 99

    Quote:

    Originally Posted by Don108 View Post



    Which would you prefer, a bunch of money you can't touch, can't do anything with, and is doing nothing for you, or tons of money that can be used?


    Who says you "can't touch" it?


     


    My understanding is that it can be used to acquire or invest in assets abroad in a tax-efficient way. For example, Microsoft used its dollars stashed abroad to buy Skype for $8+ billion, a couple of years ago.

  • Reply 32 of 99

    Quote:

    Originally Posted by frankie View Post


    All online purchase should be taxed and eventually they will.  Just wait, it's already started on Amazon in several states and it will eventually go nationwide.



    All online purchases should be taxed? What about offline then?


     


    Obviously, you are a leftie (nothing wrong with that at all) and are concerned perhaps more with issues of equity as opposed to efficiency, but do you realize that it is the most regressive form of taxation?! I.e., the poor pay more as a share of their income than the rich?

  • Reply 33 of 99

    Quote:

    Originally Posted by Frood View Post

    'Lowering the corporate tax rate' is a common buzz phrase, but it is really just an excuse to lower the taxes on wealthy individuals. 


    Here's a question for you: who do you think actually pays the corporate tax?

  • Reply 34 of 99

    Quote:

    Originally Posted by smalM View Post


    They didn't pay taxes offshore in the first place. Was that fair?


     


    Why do people think Apple is sitting on a mountain of money like Scrooge McDuck?


     


     


    15.147  U.S. Treasury securities


    15.630  U.S. agency securities


      4.063  Non-U.S. government securities


    ?????????  0.763  Certificates of deposit and time deposits


      0.144  Commercial paper


    42.405  ?????????Corporate securities


      5.398  Municipal securities


    ?????????13.742  Mortgage- and asset-backed securities


     


    These are long term investments, in total more than 97 billion $.



    Do you have any evidence that Apple doesn't/didn't pay the required taxes offshore? If so, please post it or provide a link/cite. Otherwise, stop making dumb statements.


     


    Regarding the $97B, what the heck makes you think it belongs to anyone other than shareholders -- or to Apple's management decisions to invest so as to create future cash flows for shareholders -- anyway? You do realize that it's after-tax money, right?

  • Reply 35 of 99
    jragosta wrote: »
    I fully understand the difference between cash and income. Don't make stupid statements.

    The part you're ignoring is this:

    1. Apple brings $100 B back to the US. They have $35 B reserved to pay those taxes. Apple now has $65 B in US money to spend and the US government gets $35 B.

    2. Apple leaves the $100 B in a foreign country. They have $100 B to spend as they wish (the cash is there even if they've reserved it on their income statements) in that country. And if they DO spend it, they get to spend the full $100 B and reverse the tax reserve. The US government gets zero, Apple spends $100 B.

    It is CLEARLY advantageous to leave the money overseas rather than repatriating it - even if the taxes are reserved.

    To make these things even more complicated, and where most journalists FAIL.

    We'll use the nice round numbers you two were using, and this is a grossly simplified example.

    Say Apple makes $125 million in country abc, then they pay 20% tax on the $125 million to the government of country abc, so they now have $100 million sitting in country abc.

    What most bloggers and even Reuters journalists don't even understand is that the US government gives US based global companies "credit" for paying the other country's taxes. In this example, since Apple already paid 20% tax, the US government wants 15% tax, but on the $125 million.

    In this hypothetical and grossly simplied example, if Apple wants to bring the $100 million back to the US, they will pay $18.75 million (15% x $125 million), not $35 million.

    I don't feel like there is any need for Apple to bring the money back to the US right now. It's the Hedge funds and other short-term investors who want the money to come back so they can make more money buying and selling the stock.

    Apple sees no "need" to bring the money back if they haven't figured out where or what they will do with it.
  • Reply 36 of 99

    Quote:

    Originally Posted by Spacepower View Post



    I don't feel like there is any need for Apple to bring the money back to the US right now. It's the Hedge funds and other short-term investors who want the money to come back so they can make more money buying and selling the stock.


    I agree that there is no need at all for Apple to bring its money back.


     


    In all fairness, however, the hedge fund proposal -- which I happen to think is dumb for other reasons -- makes clear that it will involve only Apple's funds in the US: http://blogs.wsj.com/deals/2013/02/07/einhorns-letter-dear-fellow-apple-shareholder/?KEYWORDS=text+of+einhorn+letter

  • Reply 37 of 99

    Quote:

    Originally Posted by jragosta View Post

    ...

    2. Apple leaves the $100 B in a foreign country. They have $100 B to spend as they wish (the cash is there even if they've reserved it on their income statements) in that country. And if they DO spend it, they get to spend the full $100 B and reverse the tax reserve. The US government gets zero, Apple spends $100 B.



    It is CLEARLY advantageous to leave the money overseas rather than repatriating it - even if the taxes are reserved.


    Yes, that's what I'd do if I ran Apple, why not?  And Apple has already stated increased CAPEX to be spent in places like China (remember that rumored future R&D facility in China which was later revised to be a manuf-related facility?).  I predict there will be more spending overseas.


     


    Would be good if U.S. revised the repatriation of cash... to qualify reduced taxation based on a rigorous and specific spending/investment plan of those dollars.  For example, Apple would submit an investment plan including information such as: corporate/operational requirements & SoW , options to fulfill those requirements (including overseas options as well), and benefit/disadvantages of those options.  The investment options would describe everything from location of site, equip, matls, and labor.


     


    In fact, I can't see how this would be any different from states luring out-of-state/international investments in their state by clarifying and revising state/local administrative laws.

  • Reply 38 of 99

    Quote:

    Originally Posted by jd_in_sb View Post




    Quote:

    Originally Posted by e1618978 View Post




    A French person buys an iPod made by a Chinese person, why does the US government deserve a cut of that?





    Well said!



     


    A French person buys an iPod made by a Chinese person, why does Apple deserve to profit from that? Do you see the hyperbole now?


     


    Quote:

    Originally Posted by bugsnw View Post




    Quote:

    Originally Posted by frankie View Post


    All online purchase should be taxed and eventually they will.  Just wait, it's already started on Amazon in several states and it will eventually go nationwide.



     


    I don't think it's the actual sales tax that bothers Amazon but the difficulty in complying with 50 different states' labyrinth tax codes. Tax all online sales at 5% and remit to the appropriate state based on destination of goods. Simple. There, I just solved the problem. I'd say have the states match that rate for in-state business as well by simplifying the tax code and eliminating many deductions. I'd bet states would end up with more money.


     


    In WA state, we get the juicy benefit of paying a B&O tax based on gross sales, zero deductions. Yes, you read that right. The deductions take four pages. And I'm sure CA is worse.


     


    Simplify. Lower the rates for all. Make compliance easy and efficient and inexpensive. It's win-win.


     


    By the way, as we're discussing Amazon paying sales tax. One way or another, states attempt to get their revenue. If Amazon does not pay the sales tax, the customer is supposed to remit the tax to state. It's called a Use Tax and is equal to the sales tax.



     


    If B&M stores can navigate 50 different states' sales tax systems, online stores should be just as nimble.


     


    Quote:

    Originally Posted by anantksundaram View Post




    Quote:

    Originally Posted by frankie View Post


    All online purchase should be taxed and eventually they will.  Just wait, it's already started on Amazon in several states and it will eventually go nationwide.



    All online purchases should be taxed? What about offline then?


     


    Obviously, you are a leftie (nothing wrong with that at all) and are concerned perhaps more with issues of equity as opposed to efficiency, but do you realize that it is the most regressive form of taxation?! I.e., the poor pay more as a share of their income than the rich?



     


    I agree with anatksundaram, but only because other businesses are forced to collect sales tax. Online stores should also have to collect it, or otherwise allow B&M businesses to stop.


     


    Yes, sales tax is arguably the most regressive (read: flat) tax our country has, but that's why we have a broad range of taxation instead of only one. It's near impossible to legally dodge or deduct your way out of all of them.

  • Reply 39 of 99
    jragostajragosta Posts: 10,473member
    All online purchases should be taxed? What about offline then?

    Obviously, you are a leftie (nothing wrong with that at all) and are concerned perhaps more with issues of equity as opposed to efficiency, but do you realize that it is the most regressive form of taxation?! I.e., the poor pay more as a share of their income than the rich?

    While that's true, I think there's a simple matter of justice.

    Since you have sales taxes in most of the states, it's not fair for the B&M stores to collect it and the online places not to. It basically subsidizes the online retailers. The effect? Amazon has put thousands of local book shops out of business. Those are lost jobs for local stores (Amazon's jobs don't make up for all the losses) and lost revenue for states and cities. To get around that, they end up raising tax rates and therefore charge more to the people who ARE paying it.
  • Reply 40 of 99
    hmmhmm Posts: 3,405member

    Quote:

    Originally Posted by e1618978 View Post




    A French person buys an iPod made by a Chinese person, why does the US government deserve a cut of that?



     


     


    At least this is an honest question. I get kind of tired of those who haven't read up on prior tax holidays. The answer is it works both ways. Many of the foreign investments and expenses of a proclaimed US company can be written off. The Chinese workers are largely considered immaterial, as Apple isn't considered a Chinese entity. Even China taxes them as imports when purchased by Chinese citizens. This means that taking away one would largely stifle expansion of smaller companies. The current system is largely rigged against smaller companies, as many of these accounting methods are not feasible for them. I hope that adds something to the discussion. I'm going to avoid the idiots and their political commentary today. They already know who they are.


     


    Quote:

    Originally Posted by jragosta View Post





    While that's true, I think there's a simple matter of justice.



    Since you have sales taxes in most of the states, it's not fair for the B&M stores to collect it and the online places not to. It basically subsidizes the online retailers. The effect? Amazon has put thousands of local book shops out of business. Those are lost jobs for local stores (Amazon's jobs don't make up for all the losses) and lost revenue for states and cities. To get around that, they end up raising tax rates and therefore charge more to the people who ARE paying it.


    Thanks for diligently repeating this one. I'm amazed that sales tax on online purchases hasn't become the norm. In other countries it's often a part of the marked price. If something says $199.99, the final receipt or invoice will have a breakdown of actual price and tax totaling up to amount.

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