Apple could face huge tax bill as Obama calls for new taxes on offshore profits in FY2016 budget

Posted:
in General Discussion edited February 2015
President Obama on Monday put forward a new budget that includes a one-time 14 percent levy on earnings held by U.S. companies overseas --?funds which would be allocated to a $478 billion public works plan --?followed by an ongoing 19 percent tax on foreign profits, whether the money is repatriated or not.




Obama's new taxes would offer "no loopholes or opportunities for deferral," according to the White House's proposal. At the same time, corporate tax rates would be reduced from 35 percent to 28 percent, while companies which manufacture goods in the U.S. would benefit from a lower 25 percent rate.

The mandatory 14 percent tariff could cost Apple as much as $20 billion up front, given that the company's overseas cash pile had reached as high as $140 billion last year.

Apple has been among those lobbying for a temporary tax holiday that would allow the return of foreign earnings at a discount to the current 35 percent level. That idea has bipartisan support in congress, with a bill set to be introduced by Sens. Barbara Boxer and Rand Paul that would lower the repatriation rate to 6.5 percent for a limited time.

Obama opposes that idea, and instead pushed a recurring 19 percent tax on foreign earnings that would be levied even if the funds were left overseas. Companies could then repatriate that money without additional taxes, but it would still represent a steep tax increase, even when combined with the corporate rate cut.

The effect would be especially profound on companies like Apple, which make an increasingly-large proportion of their revenue from outside of the country. Some $44 billion of Apple's $75 billion in income during the just-completed holiday quarter was earned in Europe, Greater China, Japan, and the rest of Asia Pacific.

As expected, business groups have opposed Obama's plan, and it is unlikely to garner much support in the Republican-controlled congress.
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Comments

  • Reply 1 of 203
    analogjackanalogjack Posts: 1,068member
    As long as it's applied properly to all companies, it is an excellent idea for governments the world over to tax multi mega million companies at a rate of at least 35%. Provided that these funds go where they ought.
  • Reply 2 of 203

    I hope people realize that this represents a trend. A trend that will make it worse and worse for businesses and for people with any kind of savings to live in the US. Our government is broke and approaching $17 trillion (!) dollars in debt, including unfunded liabilities...there are a lot of unfunded liabilities!

     

    If these unfunded liabilities are not drastically reduced and the Federal government radically downsized, this generation and the next and the next after that will be stuck with bills that cannot possibly be paid.

  • Reply 3 of 203
    tcaseytcasey Posts: 199member
    Quote:

    Originally Posted by AnalogJack View Post



    As long as it's applied properly to all companies, it is an excellent idea for governments the world over to tax multi mega million companies at a rate of at least 35%. Provided that these funds go where they ought.

    Exactly as long as all companies are charged without the ability to wiggle out of it...esp company that are war profit companies.

  • Reply 4 of 203
    Quote:
    Originally Posted by AnalogJack View Post



    As long as it's applied properly to all companies, it is an excellent idea for governments the world over to tax multi mega million companies at a rate of at least 35%. Provided that these funds go where they ought.



    Do not kid yourself. Of course taxes do not go where they "ought"! They go to pay off existing short term obligations (robbing Peter to pay for... we don't really know!), and leaving the majority of unfunded liabilities to the next administration.

  • Reply 5 of 203
    Quote:

    Originally Posted by tcasey View Post

     

    Exactly as long as all companies are charged without the ability to wiggle out of it...esp company that are war profit companies.




    War profiteers are also our lawmakers. That's a problem.

  • Reply 6 of 203
    mr. hmr. h Posts: 4,728member
    This seems fair enough, as long as companies don't end up having to pay tax on that profit in the local jurisdiction as well. It seems to be what Apple having been lobying for (being able to repatriate foreign earnings at a rate significantly lower than 35%), although probably not as large a rate reduction as they were hoping for!
  • Reply 7 of 203
    The tax rate Apple has favored is 6.5% of funds repatriated. I would be satisfied with ten percent with minor requirements that the funds not be used in executive compensation. The other shoe that is about to drop is the European Union trying to claw back unpaid taxes. Between the two Apple could be looking at a $20-30 billion liability. I would be more upset about that if this was any other company. For Apple that could be less than :D2 quarters in earnings. :D
  • Reply 8 of 203

    Apple's Worldwide Corp is an Ireland based company. Could luck telling an Irish company to pay US taxes. Apple may be founded in the United States but that does not mean all the other country Apple Corps have to pay US taxes. Ridiculous.

  • Reply 9 of 203
    Quote:

    Originally Posted by AnalogJack View Post



    As long as it's applied properly to all companies, it is an excellent idea for governments the world over to tax multi mega million companies at a rate of at least 35%. Provided that these funds go where they ought.

     

    No other country taxes its corporations (or citizens) on income earned outside that country. So the deferred 35% US tax on overseas income is nothing more than a strong incentive for US companies to avoid investment in the US. Which is terrible. Obama's "solution" is to remove the ability to defer the tax, while reducing the rate to teen digits. The currently competing bill reduces this to around 6%, essentially reversing the incentive to encourage US companies that are profitable overseas to reinvest their profits in US investment. 

     

    However, keep in mind that South Korea only charges Samsung an effective tax rate of <5%. When Samsung sells a Note 4 in the US, those profits are essentially not taxed by South Korea. When Apple sells an iPhone 6 in Korea, it pays Korean income tax (higher than Samsung's) and then is expected to pay the difference up to 35% to the US. 

     

    Quote:

    Originally Posted by SpamSandwich View Post

     

    War profiteers are also our lawmakers. That's a problem.


     

    A huge windfall of corporate holdings tax would certainly make it more attractive to start a new war, if 2016 ushered in a war-hawk president.

     

    Quote:

    Originally Posted by Mr. H View Post



    This seems fair enough, as long as companies don%u2019t end up having to pay tax on that profit in the local jurisdiction as well. It seems to be what Apple having been lobying for (being able to repatriate foreign earnings at a rate significantly lower than 35%), although probably not as large a rate reduction as they were hoping for!

     

    Also noteworthy that Apple has set aside most the money to pay (apparently) the full 35% taxes on its cash, so if that % were reduced in half  it wouldn't even need to restate how much cash it has, because it has already accounted for payment. 

     

    What Tim Cook actually asked for was a comprehensive simplification of the US tax code to make it fair, even if it would result in higher taxes for Apple. What's being proposed by Congress and the President is a short term bandaid to supply some money for the highway fund before it RUNS OUT this summer. 

     

    Meanwhile, China is rapidly building infrastructure that will enable growth and prosperity, while the US is inventing new controversy about whether bridges should be allowed to fall down and whether vaccines should be required in public schools. Another ten years of Fox News and the USA will be a dust bowl with a flammable water table ringed by coastal cities that generate all the remaining economic activity.

  • Reply 10 of 203
    Obama's plan sounds great. All that money sitting offshore is not working for anyone. A public works plan would bring employment to hundreds of thousands of workers and improve the quality of life for everyone. The increasing wealth divide in Western countries is not only bad for the poor, it's bad for the rich too. The wealth and power of corporations is totally out of hand.
  • Reply 11 of 203
    tcaseytcasey Posts: 199member
    Quote:

    Originally Posted by SpamSandwich View Post

     



    War profiteers are also our lawmakers. That's a problem.


    So whats the solution ?

  • Reply 12 of 203
    axualaxual Posts: 244member
    35% is a a ridiculous number. Reduce it to 15% and watch all these companies bring the money back to the US and spend it on new stuff ... with the result of more jobs filled by people who ... guess what, pay taxes to the federal government.

    Our politicians are idiots. The corporate tax rate is too high ... way, too high.

    @anlogjack : "As long as it's applied properly to all companies, it is an excellent idea for governments the world over to tax multi mega million companies at a rate of at least 35%. Provided that these funds go where they ought."

    Provide the funds go where they ought? That's laughable. Politicians will just keep spending and borrowing us into oblivion. It's pornographic that this country is in debt $19 trillion dollars. Insane.
  • Reply 13 of 203
    DOA
  • Reply 14 of 203
    boltsfan17boltsfan17 Posts: 2,161member

    This is a terrible idea by Obama. His master plan of ruining businesses continues. 

  • Reply 15 of 203
    Quote:

    Originally Posted by AnalogJack View Post



    As long as it's applied properly to all companies, it is an excellent idea for governments the world over to tax multi mega million companies at a rate of at least 35%. Provided that these funds go where they ought.

    LOL, as long as it's applied to anyone but you, right?

     

    Guess what?! Corporate taxes apply to you whether you believe it or not. Have a retirement plan? Corporate taxes affect you. Buy stuff? Corporate taxes affect you. Even if you're completely dependent on the government, higher corporate taxes are bad. The US has the highest corporate tax rate in the world. That's one area we should be ashamed of "being number 1!" in.

     

    Quote:

    Originally Posted by SpamSandwich View Post

     

    I hope people realize that this represents a trend. A trend that will make it worse and worse for businesses and for people with any kind of savings to live in the US. Our government is broke and approaching $17 trillion (!) dollars in debt, including unfunded liabilities...there are a lot of unfunded liabilities!

     

    If these unfunded liabilities are not drastically reduced and the Federal government radically downsized, this generation and the next and the next after that will be stuck with bills that cannot possibly be paid.


     

    Not to mention when the time comes for a "haircut".

     

    The government has 19 trillion in official debt, but more than 100 trillion in unfunded liabilities. In the mean time, let's keep spending like it's 1999!

    Quote:

    Originally Posted by GadgetCanadaV2 View Post

     

    Apple's Worldwide Corp is an Ireland based company. Could luck telling an Irish company to pay US taxes. Apple may be founded in the United States but that does not mean all the other country Apple Corps have to pay US taxes. Ridiculous.


    Apple needs to build an aircraft carrier and establish their world headquarters there. Keep it out in the ocean, let's see the governments fight over who taxes that.

     

    Or build something in space. Or on the moon (they have the money).

     

    Quote:

    Originally Posted by axual View Post



    35% is a a ridiculous number. Reduce it to 15% and watch all these companies bring the money back to the US and spend it on new stuff ... with the result of more jobs filled by people who ... guess what, pay taxes to the federal government.



    Our politicians are idiots. The corporate tax rate is too high ... way, too high.



    @anlogjack : "As long as it's applied properly to all companies, it is an excellent idea for governments the world over to tax multi mega million companies at a rate of at least 35%. Provided that these funds go where they ought."



    Provide the funds go where they ought? That's laughable. Politicians will just keep spending and borrowing us into oblivion. It's pornographic that this country is in debt $19 trillion dollars. Insane.

     

    The funny thing is that the government wants us to believe that falling oil prices are hurting gas tax revenue. That's a load of bunk. The gas tax is a flat amount, not a percentage. It's not affected by the price of a gallon of gasoline, and lower prices means people are buying more gas, which means more revenue.

  • Reply 16 of 203
    rogifanrogifan Posts: 10,669member
    So people want to pay more for products and services? Because these business taxes just get passed on to consumers in the end.
  • Reply 17 of 203
    Quote:
    Originally Posted by Corrections View Post

     

    A huge windfall of corporate holdings tax would certainly make it more attractive to start a new war, if 2016 ushered in a war-hawk president.


    LOL, the current one isn't a warhawk? Because he's started a lot more than the last ones did.

    Quote:
    Originally Posted by Corrections View Post

     

     Another ten years of Fox News and the USA will be a dust bowl with a flammable water table ringed by coastal cities that generate all the remaining economic activity


     

    You believe that crap about fracking?

  • Reply 18 of 203

    Apple already has a huge tax bill.  Nothing new.

  • Reply 19 of 203
    Originally Posted by AppleInsider View Post

    President Obama on Monday put forward a new budget that includes a one-time 14 percent levy on earnings held by U.S. companies overseas --?funds which would be allocated to a $478 billion public works plan --?followed by an ongoing 19 percent tax on foreign profits, whether the money is repatriated or not.



    I fail to see how the US can tax corporations that aren’t US corporations.

  • Reply 20 of 203
    boltsfan17boltsfan17 Posts: 2,161member
    Quote:

    Originally Posted by Dick Applebaum View Post



    DOA



    I agree. No way this passes the Republican controlled Congress. Just say this did pass hypothetically, these taxes would face countless lawsuits. 

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