Pressure mounts for Apple repatriate $40B in overseas cash

Posted:
in AAPL Investors edited January 2014
Apple is avoiding paying $13.8 billion in taxes on overseas earnings by doing what a growing number of large U.S corporations are doing with their foreign cash: keeping it away from U.S. shores.

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An analysis of 60 large U.S. corporations by The Wall Street Journal found that together they held $166 billion in earnings offshore in 2012. U.S. tax law typically allows companies to pay no taxes on profits earned in overseas operations, so long as that money is not brought back to the U.S. As a result, those companies shielded more than 40 percent of their annual profits from U.S. taxes.

Technology and healthcare companies are driving the trend. Collectively, those companies held $120 billion overseas in 2012, nearly three-quarters of the total held offshore by the companies that were examined.

Apple is among those companies, announcing that it held $40.4 billion in untaxed earnings outside of the United States as of September 29, 2012, one-third of the tech and healthcare total and just under a sixth of the analyzed group's total. Should Apple repatriate that cash, the company estimates it would owe $13.8 billion in taxes, just under the federal 35 percent tax rate.

Apple holds the cash in countries with a friendlier tax structure, and foreign income tax expenditures can be credited on U.S. taxes. Taking those factors into account, Apple, according to an expert consulted by the Journal, has paid less than five percent tax on its overseas earnings.

The question of what exactly Apple should do with its cash holdings has drawn a lot of attention of late, with one investor first leading then abandoning a push to get the company to disperse some of its massive earnings to shareholders by way of issuing preferred stock. Keeping so much of its earnings overseas, though, means that a good portion of Apple's cash cannot be given back to investors in the form of dividends or share buybacks.

Spokespersons for some of these large companies claim that the U.S. tax code is out of date, "penalizing" corporations for their "success" outside of the United States. They argue that Congress should encourage repatriation of foreign earnings by instituting a tax holiday, which would, they say, stimulate the U.S. economy. The last such tax holiday went into effect for a time in 2004, prompting the repatriation of some $312 billion in foreign earnings. Studies looking at the tax holiday, though, found no evidence of strong job creation. The companies, instead, used the money to repurchase shares and pay dividends.

The U.S. isn't the only country where Apple and other large companies are accused of ducking taxes. Last April, a report blasted Apple, Google, and Amazon for basing their operations out of Ireland and other countries for tax purposes, thereby avoiding paying about half the taxes they normally would in the United Kingdom.

In late February, another report from El Pa?s showed Apple declaring an operating loss in Spain, despite Spanish Apple Stores sales being up 86 percent. Apple accomplished this by routing 99 percent of its Spanish sales through its Irish subsidiary. El Pa?s' report estimates that Apple paid about 2.6 million euros in taxes. Spanish tax credits, though, due to the technical operating loss, are estimated to have left Apple with a balance with the Treasury of about four million euros.
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Comments

  • Reply 1 of 82
    solipsismxsolipsismx Posts: 19,566member
    1) "You're hoarding it wrong!"

    2) There is plenty Apple can invest in with that oversea's cash. I suspect there is a need for more data centers outside the US, especially in China right now and in India in years to come, not to mention centralized ones for S. America, Africa, Europe, and Asia Pacific.
  • Reply 2 of 82
    anonymouseanonymouse Posts: 6,860member


    So, where exactly in this article was the bit about "Pressure mounts"?


     


    I think I missed it.

  • Reply 3 of 82
    jakebjakeb Posts: 562member
    I'm not sure why it's fair to tax that money twice. If they paid the tax in the country the money was made in, why do they need to pay again to move it into the United States? Seems like it should be one or the other.
  • Reply 4 of 82
    Pressure from whom?
  • Reply 5 of 82
    SpamSandwichSpamSandwich Posts: 33,407member
    Money respects no borders. It will always go where it is most welcome. Clearly US tax laws are anti-business, otherwise companies and manufacturing would simply stay put.
  • Reply 6 of 82
    xyzzy01xyzzy01 Posts: 134member
    The main effect of a "tax holiday" would be to train US corporations into never repatriating cash into the US under normal circumstances... just pay for some lobbying, buy a couple of senators (Disney-style) and wait.

    The US tax code needs a lot of fixing (holes and exemptions removed, rates regulated), but a "tax holiday" would just create a bigger longer term problem by training companies into the undesirable behaviour.
  • Reply 7 of 82
    malaxmalax Posts: 1,598member
    I'm "hoarding" my money and avoiding taxes by not selling my AAPL shares. Perhaps I should be pressured to sell my shares and then repurchase them just so the IRA can get a piece of the action for my investment success (ok, would have been more successful if I had cashed out when it hit $700, but still).
  • Reply 8 of 82
    xyzzy01xyzzy01 Posts: 134member

    Quote:

    Originally Posted by jakeb View Post



    I'm not sure why it's fair to tax that money twice. If they paid the tax in the country the money was made in, why do they need to pay again to move it into the United States? Seems like it should be one or the other.




    One of the biggest problems in today's economic reality is that by carefully selecting jurisdictions, the biggest corporations can choose what taxes to pay - if any. This doesn't exactly create a level playing field for various businesses, and undermines the social contract of a society.

  • Reply 9 of 82
    Give companies a waiver on repatriation taxes for monies they bring back to the USA and spend on wages of employees paid under $100k/year. Not existing payroll, but new payroll. So if Apple was to create 50,000 new jobs, at an average wage of $80,000 each, they could repatriate the entire $40B tax-free over the course of ten years. But only the new jobs would be eligible....
  • Reply 10 of 82
    The US policy on taxes is all wrong to begin with. If people or companies earn money, they are allowed to do whatever they desire with that money as long as they are within the confines of the law. Apple made money overseas? GREAT, hopefully it keeps the prices of things they make lower. The Tax code is full of major holes, plug them or better yet redo the entire system. a universal sales/use tax on everything in all directions with a 50k automatic deduction for anyone before it kicks in.... level playing field.

    Where were these people screaming that Microsoft made too much money in the 1990's? Apple has been smart with their money and broken no laws in the process... do what you want Apple!!
  • Reply 11 of 82

    Quote:

    Originally Posted by xyzzy01 View Post




    One of the biggest problems in today's economic reality is that by carefully selecting jurisdictions, the biggest corporations can choose what taxes to pay - if any. This doesn't exactly create a level playing field for various businesses, and undermines the social contract of a society.



    It's called playing by the rules.  As long as Apple pays taxes on the sales and operations in America, I don't see the issue.  It's like spoiled kids wanting more candy.  I am guessing that the social contract you mention is really just anything you think is fair at the moment.

  • Reply 12 of 82
    jr_bjr_b Posts: 64member


    People wanting Apple to distribute it's cash should be investigated.

  • Reply 13 of 82
    melgrossmelgross Posts: 33,510member
    I have no sympathy for countries who complain about companies not paying enough taxes. It's their own fault. As long as it is legal, it's fine. If they don't want companies to register in Ireland, then they should rework their EU system so that can't be done. In the US, companies pay the same federal taxes wherever they may be, but even here, being in one State or another changes some of the rules.

    It seems strange to me that a company like Apple would have to pay the difference between the official 35% corporate rate here, and whatever they pay elsewhere. The average corporation in the US pays about 25% actual federal taxes, not the rate of 35%. This cuts both ways. Companies shouldn't complain about the official rate when almost none pay it. They want 25%, but most are paying that now. When the administration said that it would be willing to move the rate to 25%, but wanted to close loopholes, companies whined about that, so nothing was done.

    With foreign earnings, companies should pay the difference, but it should be on their effective tax rate, not the official one that almost no one pays anyway. I do think that there should be a minimum of perhaps 5% for those companies that have managed to pay ridiculously low rates here, even though they've made a profit.
  • Reply 14 of 82
    melgrossmelgross Posts: 33,510member
    jr_b wrote: »
    People wanting Apple to distribute it's cash should be investigated.

    Well, no.
  • Reply 15 of 82
    rogifanrogifan Posts: 10,669member

    Quote:

    Originally Posted by anonymouse View Post


    So, where exactly in this article was the bit about "Pressure mounts"?


     


    I think I missed it.



    I was just going to post the same thing.  Who is this mounting pressure coming from?

  • Reply 16 of 82
    melgrossmelgross Posts: 33,510member
    xyzzy01 wrote: »

    One of the biggest problems in today's economic reality is that by carefully selecting jurisdictions, the biggest corporations can choose what taxes to pay - if any. This doesn't exactly create a level playing field for various businesses, and undermines the social contract of a society.

    The law is the law, as they say. Don't tell me that you never cheated on your taxes, because no one will believe you. But if it's legal, then that is the final word. It's up to the governments in question to close loopholes. If they refuse to do so, then screw them. I have no sympathy.
  • Reply 17 of 82
    melgrossmelgross Posts: 33,510member
    rogifan wrote: »
    I was just going to post the same thing.  Who is this mounting pressure coming from?

    Various governments around the world, particularly those in the EU. Specifically, those countries there that are missing out on the taxes. And here as well.
  • Reply 18 of 82
    ngrlvrngrlvr Posts: 24member


    I'm not sure what's more silly: that politicians should scare away so much capital by threatening to rob businesses; that politicians feel a hat and a document entitles them to other people's property; or that people feel governments, with their appalling history of destroying capital, can do better with billions of dollars than a staggeringly successful business.

  • Reply 19 of 82
    apple ][apple ][ Posts: 9,233member


    Apple should take advantage of all possible loopholes and pay as little in taxes as possible. That's fully legal and nobody can blame somebody else for doing what's legal. If the laws are bad or poor, then change the laws, don't blame people who follow the laws.


     


    Who actually pays more than they should when doing their income taxes?


     


    I recently filed my taxes, and I obviously tried to pay as little as possible. I don't wish to pay a single penny more than I am required to.

  • Reply 20 of 82
    frankiefrankie Posts: 381member


    Then they need to leave for good.  You get to use the US, the military, and the infrastructure to make it where you are, then F'ing pay your taxes like the rest of us.  


     


    Corporate profits are at an all time high, stock marklet all time high, wages lowest ever.  Lobbying, Citizen's United, companies buying our government-  F that.  Period.

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