This is somewhat wonkish so I apologize in advance.
In plain english, AAPL stated they do not intent to repatriate the majority of their profits earned overseas. As a result, the tax provision does not include any additional income taxes for rate differentials.
However, in their 10-K filings, AAPL stated they do intend to return to the United States a small portion of this earned overseas profit sometime in the future. On a cumulative basis, over multiple years of profitability, the rate differential between foreign and US as of September 2013 would generate $18.4 billion in taxes for the United States. Presumably at the difference between the 35% US corporate rate and the appropriate foreign tax rate.
At the end of fiscal 2013, deferred taxes on AAPL's balance sheet related to overseas profits that AAPL intends to repatriate in the future, totaled $18.4 billion. The increase in this deferred tax liability from 2011 to 2013 was $10 billion. The pretax earnings for 2012 and 2013 was a cumulative $105.9 billion. If you assume this repatriation will never ever happen, the maximum posible change to the effective tax rate would be 9.8% in 2012 and 2013.
The research paper you referenced pointed out the limitations of income shifting due to eventual capital constraints. Said differently, AAPL cannot indefinitely borrow against U.S. assets and profitability since 100% of U.S operations, all dividends and all share repurchases need to be funded from U.S. generated cash flow and U.S. initiated borrowings.
AAPL recognizes some of the overseas cash will eventually be repatriated for future U.S. debt redemption or other capital needs. That is why they recorded a tax provision for this anticipated return of cash. So in all probability, the 9.8% of the tax rate is appropriately included in the tax provision.
Net Income - $55.7 Billion
Taxes paid - $9.12 Billion
Taxes due and paid within 12 months of report date - $1.20 Billion
total taxes paid = $10.32 Billion
Rate = 19%
Now lets repatriate some cash to pay for buyback and dividends
Didn't Apple take out loans for buybacks to avoid repatriating cash?
This is somewhat wonkish so I apologize in advance.
In plain english, AAPL stated they do not intent to repatriate the majority of their profits earned overseas. As a result, the tax provision does not include any additional income taxes for rate differentials.
However, in their 10-K filings, AAPL stated they do intend to return to the United States a small portion of this earned overseas profit sometime in the future. On a cumulative basis, over multiple years of profitability, the rate differential between foreign and US as of September 2013 would generate $18.4 billion in taxes for the United States. Presumably at the difference between the 35% US corporate rate and the appropriate foreign tax rate.
At the end of fiscal 2013, deferred taxes on AAPL's balance sheet related to overseas profits that AAPL intends to repatriate in the future, totaled $18.4 billion. <span style="line-height:1.4em;"> The increase in this deferred tax liability from 2011 to 2013 was $10 billion. The pretax earnings for 2012 and 2013 was a cumulative $105.9 billion. If you assume this repatriation will never ever happen, the maximum </span>
posible<span style="line-height:1.4em;"> change to the effective tax rate would be 9.8% in 2012 and 2013. </span>
<span style="line-height:1.4em;">The research paper you referenced pointed out the limitations of income shifting due to eventual capital constraints. Said differently, AAPL cannot indefinitely borrow against U.S. assets and profitability since 100% of U.S operations, all dividends and all share repurchases need to be funded from U.S. generated cash flow and U.S. initiated borrowings. </span>
AAPL recognizes some of the overseas cash will eventually be repatriated for future U.S. debt redemption or other capital needs. That is why they recorded a tax provision for this anticipated return of cash. So in all probability, the 9.8% of the tax rate is appropriately included in the tax provision.
Thank you for the polite and informative post. In essence Apple is not paying a 25% tax rate on worldwide income, but is making a tax allowance for future repatriation on some small portion of their foreign earnings should it become necessary and using current US tax rates to determine what those future taxes might be should they ever need to be paid. Did I get that correct this time?
By the way you appear to have some impressive knowledge on the subject. Do you work in the tax or financial field?
But they will bring the cash back some day. So they need to accrue for the tax expense in the period the revenue was made.
Even if there is a tax holiday (10-15% rate) they will still be paying an additional $3-$6B in taxes.
That extra amount moves the rate to 25%
Apple is deferring about $18B in taxes on its books.
Apple has about $100B in cash in foreign countries.
A quick calculation shows that Apple is expecting to bring back about $50B of that cash eventually based on a 35% tax rate. In no way is that unreasonable.
"...Cook emphasized to POLITICO last week that Apple already pays roughly $6 billion just in U.S. income taxes — a point executives will make again on Tuesday.
"Anticipating that argument at the hearing, however, the report prepared by Levin and McCain’s staff casts doubt on Apple’s numbers. Instead, investigators noted Apple’s own calculations included deferred tax payments — money it’s not paid the Treasury, but must if it brings back its foreign dollars. While it’s a commonly accepted accounting practice, the Senate report said it still pegs Apple’s actual federal taxes at $2.4 billion last year."
But it is NOT. Its called Accrual Accounting. You are basing your calculations by CASH ACCOUNTING.
LOL. I actually understood this since my first job as a developer was for a company that wrote accounting software. I had to take a crash course in accounting principles when I started working for them.
I think the tax situation in Ireland is unacceptable. Companies like Microsoft, Apple and Google do not pay enough tax. The fact that Apple is sitting on $150 Billion which it does not know what to spend on says it all.
If you do the maths that the EU says apple owes tax on can you guess the figure it comes out to? Suprise surprise baring 6 billion exactly what apple has in the bank. Now that's magic. (Or just creative accounting). I'm sorry Europe this was no great secret it took you years to work out but was public knowledge for several years before now. Only when you are strapped for cash ( due to your own incompetence) do you come with the stock and begging bowel.ayve the Brussels burocrats should have done their jobs better in the first place. So I hope
1 you sack the finance people for being unable to get this right a long time ago.
2 you treat other companies that ARE doing this the same otherwise I would be looking at using your own anti competition laws against you!
Apple's Provision for Taxes (i.e., the amount of taxes that it thinks it owes, but hasn't sent a check yet, since different countries have different payment dates) for the first nine months is ~$10.9B or over 25%. Actual Cash Taxes Paid is ~$8.1B, or about 20% (nowhere near the 14% nonsense you claim). There will be some convergence of the two numbers by the end of the FY.
You really need to take a step back and ask yourself why you continue to be so relentlessly negative and pessimistic about Apple, constantly shading facts and data to suit some weird agenda. Especially for a guy whose tagline claims to be 'the supplier of truth'....
I don't think any of these cases are about anyone "paying their fair share" so much as the accusers not being able to access the taxes that are being paid.
The EU is shouting "no fair, the school across the street got pudding for lunch today and I want some, whaaaa!"
I am not saying that if there is something illegal going on that it should be allowed to happen - but I sure would like to see all of our elected officials finding ways to reduce the cost of government rather than complaining that their slice of the pie isn't big enough as a result of some perceived slight.
"Seamus Coffey, an economics lecturer at University College Cork, who has examined Apple’s Irish tax affairs, said: “[B]The EC can demand back payments for 10 years,[/B] which would take it back to 2004.”
Figures in the commission’s calculation show that the relevant Apple subsidiaries – Apple Operations Europe and Apple Sales Europe – had annual profits of between €60m and €80m between 2009 and 2012, and annual revenues of between €500m and €680m.
“You’re taxed on profits, not revenues, but even if the EC said that all that revenue was pure profit, then over 10 years it would owe the Irish tax rate of 12.5% on about €6.8bn – that’s about [B]€850m[/B],” said Coffey. However, Coffey said a more likely figure would be 12.5% on total profits over the 10 years of perhaps €800m, amounting to [B]€100m.[/B]".
One way or the other, less than what Samsung owes Apple at this point. Maybe Apple should just forward the bill to them.
The loopholes are not available to every company if the initial findings are correct. The facts determined so far indicate that Apple's favorable tax situation in Ireland was not the result of an arms' length use of transfer pricing arrangements. Instead it was set up in closed door negotiations using arbitrarily set formulas with no basis in fact for determining the profits to be reported each year. Most companies do not have access to those tax officials and the pull to pressure them for back-room dealing.
No some companies like Starbucks pay no tax at all using such loopholes. While we're on that maybe Europe should employ better tax advisers in the first place. I suspect notch is done though as the burocrats also have business if they are like UK politicians and so would make use of the same loopholes. Let's not even get into how Europe uses subsidies to farmers shall we!
"Seamus Coffey, an economics lecturer at University College Cork, who has examined Apple’s Irish tax affairs, said: “The EC can demand back payments for 10 years, which would take it back to 2004.”
Figures in the commission’s calculation show that the relevant Apple subsidiaries – Apple Operations Europe and Apple Sales Europe – had annual profits of between €60m and €80m between 2009 and 2012, and annual revenues of between €500m and €680m.
“You’re taxed on profits, not revenues, but even if the EC said that all that revenue was pure profit, then over 10 years it would owe the Irish tax rate of 12.5% on about €6.8bn – that’s about €850m,” said Coffey. However, Coffey said a more likely figure would be 12.5% on total profits over the 10 years of perhaps €800m, amounting to €100m.".
One way or the other, less than what Samsung owes Apple at this point. Maybe Apple should just forward the bill to them.
Yup, The largest of the three companies, Apple Sales International, isn't mentioned They don't have tax residency in Ireland, nor any country for that matter, so perhaps there's no taxes to recover. But because they are Irish registered they made an agreement to pay Ireland a little something for making the whole thing possible. How little?
Apple Sales International's revenue was nearly $64 Billion in fiscal 2012. According to the EU letter to the Irish government ASI said they had taxable income of no more than €50 million for 2012, and paying something under €10 million to the Irish on that supposed income.
How could that be so, not even 1%? That was the tax figure derived from an arbitrary formula suggested by Apple to determine income, and negotiated by them in one of those special meetings with the Irish.
Of course it's not just Apple that makes these sweetheart deals to avoid taxation and hike those profits. Google has a similar Irish residency but physical presence in Bermuda to avoid taxes. So why pick Apple as the tech target for the tax investigation? Starbucks and Fiat get to stand in for other markets. IMO probably because Google ran a "paltry" €15.23 billion thru it's Irish subsidiary in 2012. So smarter to take down the biggest dog of all and the rest then fall.
Comments
GatorGuy,
This is somewhat wonkish so I apologize in advance.
In plain english, AAPL stated they do not intent to repatriate the majority of their profits earned overseas. As a result, the tax provision does not include any additional income taxes for rate differentials.
However, in their 10-K filings, AAPL stated they do intend to return to the United States a small portion of this earned overseas profit sometime in the future. On a cumulative basis, over multiple years of profitability, the rate differential between foreign and US as of September 2013 would generate $18.4 billion in taxes for the United States. Presumably at the difference between the 35% US corporate rate and the appropriate foreign tax rate.
At the end of fiscal 2013, deferred taxes on AAPL's balance sheet related to overseas profits that AAPL intends to repatriate in the future, totaled $18.4 billion. The increase in this deferred tax liability from 2011 to 2013 was $10 billion. The pretax earnings for 2012 and 2013 was a cumulative $105.9 billion. If you assume this repatriation will never ever happen, the maximum posible change to the effective tax rate would be 9.8% in 2012 and 2013.
The research paper you referenced pointed out the limitations of income shifting due to eventual capital constraints. Said differently, AAPL cannot indefinitely borrow against U.S. assets and profitability since 100% of U.S operations, all dividends and all share repurchases need to be funded from U.S. generated cash flow and U.S. initiated borrowings.
AAPL recognizes some of the overseas cash will eventually be repatriated for future U.S. debt redemption or other capital needs. That is why they recorded a tax provision for this anticipated return of cash. So in all probability, the 9.8% of the tax rate is appropriately included in the tax provision.
Didn't Apple take out loans for buybacks to avoid repatriating cash?
Thank you for the polite and informative post. In essence Apple is not paying a 25% tax rate on worldwide income, but is making a tax allowance for future repatriation on some small portion of their foreign earnings should it become necessary and using current US tax rates to determine what those future taxes might be should they ever need to be paid. Did I get that correct this time?
By the way you appear to have some impressive knowledge on the subject. Do you work in the tax or financial field?
"...Cook emphasized to POLITICO last week that Apple already pays roughly $6 billion just in U.S. income taxes — a point executives will make again on Tuesday.
"Anticipating that argument at the hearing, however, the report prepared by Levin and McCain’s staff casts doubt on Apple’s numbers. Instead, investigators noted Apple’s own calculations included deferred tax payments — money it’s not paid the Treasury, but must if it brings back its foreign dollars. While it’s a commonly accepted accounting practice, the Senate report said it still pegs Apple’s actual federal taxes at $2.4 billion last year."
But it is NOT. Its called Accrual Accounting. You are basing your calculations by CASH ACCOUNTING.
LOL. I actually understood this since my first job as a developer was for a company that wrote accounting software. I had to take a crash course in accounting principles when I started working for them.
If you do the maths that the EU says apple owes tax on can you guess the figure it comes out to? Suprise surprise baring 6 billion exactly what apple has in the bank. Now that's magic. (Or just creative accounting). I'm sorry Europe this was no great secret it took you years to work out but was public knowledge for several years before now. Only when you are strapped for cash ( due to your own incompetence) do you come with the stock and begging bowel.ayve the Brussels burocrats should have done their jobs better in the first place. So I hope
1 you sack the finance people for being unable to get this right a long time ago.
2 you treat other companies that ARE doing this the same otherwise I would be looking at using your own anti competition laws against you!
Oh an well done I am now totally anti European!
I think he just misspelled "fornicator".
I don't think any of these cases are about anyone "paying their fair share" so much as the accusers not being able to access the taxes that are being paid.
The EU is shouting "no fair, the school across the street got pudding for lunch today and I want some, whaaaa!"
I am not saying that if there is something illegal going on that it should be allowed to happen - but I sure would like to see all of our elected officials finding ways to reduce the cost of government rather than complaining that their slice of the pie isn't big enough as a result of some perceived slight.
"Seamus Coffey, an economics lecturer at University College Cork, who has examined Apple’s Irish tax affairs, said: “[B]The EC can demand back payments for 10 years,[/B] which would take it back to 2004.”
Figures in the commission’s calculation show that the relevant Apple subsidiaries – Apple Operations Europe and Apple Sales Europe – had annual profits of between €60m and €80m between 2009 and 2012, and annual revenues of between €500m and €680m.
“You’re taxed on profits, not revenues, but even if the EC said that all that revenue was pure profit, then over 10 years it would owe the Irish tax rate of 12.5% on about €6.8bn – that’s about [B]€850m[/B],” said Coffey. However, Coffey said a more likely figure would be 12.5% on total profits over the 10 years of perhaps €800m, amounting to [B]€100m.[/B]".
One way or the other, less than what Samsung owes Apple at this point. Maybe Apple should just forward the bill to them.
No some companies like Starbucks pay no tax at all using such loopholes. While we're on that maybe Europe should employ better tax advisers in the first place. I suspect notch is done though as the burocrats also have business if they are like UK politicians and so would make use of the same loopholes. Let's not even get into how Europe uses subsidies to farmers shall we!
Yup, The largest of the three companies, Apple Sales International, isn't mentioned They don't have tax residency in Ireland, nor any country for that matter, so perhaps there's no taxes to recover. But because they are Irish registered they made an agreement to pay Ireland a little something for making the whole thing possible. How little?
Apple Sales International's revenue was nearly $64 Billion in fiscal 2012. According to the EU letter to the Irish government ASI said they had taxable income of no more than €50 million for 2012, and paying something under €10 million to the Irish on that supposed income.
How could that be so, not even 1%? That was the tax figure derived from an arbitrary formula suggested by Apple to determine income, and negotiated by them in one of those special meetings with the Irish.
Of course it's not just Apple that makes these sweetheart deals to avoid taxation and hike those profits. Google has a similar Irish residency but physical presence in Bermuda to avoid taxes. So why pick Apple as the tech target for the tax investigation? Starbucks and Fiat get to stand in for other markets. IMO probably because Google ran a "paltry" €15.23 billion thru it's Irish subsidiary in 2012. So smarter to take down the biggest dog of all and the rest then fall.
Apple says they didn't do it.
Ireland says they didn't do it.
So who is saying they did do it, and unless they were present in the room, how did they find out?
Apple said they didn't do what?