There is nothing illegal about leaving the money off shore. There is something illegal about driving 200 mph in I95 (not to mention, of course, that your 1982 Chevy Nova won't go that fast).
Apple is simply making a business decision that is entirely legal and legitimate. Comparing it to breaking the law is foolish.
That was my original view, but it's far too simplistic. There are a number of reasons why this might make sense:
1. Apple thinks that they might have a use for the money overseas and will never have to repatriate it (i.e., to fund growth in China). In that case, they do save billions of dollars.
2. Apple thinks that there might be a reduction in the tax rate at some time in the future (such as the tax holiday that has been bandied about).
3. If Apple ever has a losing year, they could bring back money tax free by using the losses to offset the repatriation.
4. Future value of money. Even if they have to bring the money back and pay $9.2 B in taxes in 5 or 10 years, there's still the time value of money - and it's probably worth a few hundred million dollars a year to put that off into the future.
When you get into tax matters like this, it gets very complicated. Global business is also very complicated. When you combine the two issues, it can really be a mess. My first thought was the same as yours, but after consideration, it doesn't appear to be a bad move.
This is dumb. Steve Jobs is rolling over in his grave. Unless they feel that they can repatriate that cash at a lower tax rate later, they have not only NOT save $9.4 bil but they've also just wasted hundreds of millions that they have to pay in servicing the debt.
For what? So they can please bottom feeding, scum sucking hedge funds? I wish Steve were alive to tell these bone heads where to stick their damn dividend. This cash is the lifeblood of the company and they're draining it. WTF is Cook thinking?
no, there is something called Oracle Financials where you can model stuff like this and the financial impact on the company before you sign on the dotted line
This is why the USA is in debt and the economy is in the toilet. The whole system is insane. This is the "self regulating" economy. Bunch of BS. Why exactly should I love my country for being obsessed with self-destructive, antisocial, sociopathic, greedy stupidity?
The USA is in debt because the government spends money like a drunken sailor,
As corporations become effective super-national, and start controlling their own micro economies, they will be taxed at lower and lower rates as they buy out government oversight and legislature/parlimentary members. You think the NRA has strong lobbyists... just you wait.
I think "Islands on the Net" basically foretells what's going to happen.
Nation States cease to exist, or are subordinate to corporate states. Information will be the new fungible asset, and information 'islands' (e.g. think thepiratebay instead of Grand Caymans Banks) will be the new laundering sites for 'e-coin'
Once Visa/Mastercard/Ebay-PayPal/Apple/Google/Amazon figure out how to make their own 'bitcoin' out of encrypted pieces of your data, then watch the the economic anarchy start. Apple will be able to move 'money' around like encrypted packets on the net, and will own their own NSA to protect-against/attack competitors. How do you tax information? Transaction tax? who owns the internet? corporations. corporations that start working with Apple et al to
Nations collapse, at best become total pawns (senators are like board members... elected by proxy by the corporation.... not to dissimilar to today), and the corporations buy out the assets (post office (gmail, UPS, FedeX), CIA (blackwater), Medicare (insurance companies), education (for profit schools... how long until Kaplan/UofPhoenix open up High School on the Net, first for at risk kids, then for a state like Montana/Alaska, or a country like Australia or Dubai). Defense? That will become corporatized, by corporations buying protection from existing countries, and safe havens will be established to 'fly the flag' , until corporations build up their own defense organizations/police departments/FBIs/NSAs)
Civil Rights? UN commisions maybe, but in the end, you will be a corporate asset, and protected as such, until you're.... expendable.
There is nothing illegal about leaving the money off shore. There is something illegal about driving 200 mph in I95 (not to mention, of course, that your 1982 Chevy Nova won't go that fast).
Apple is simply making a business decision that is entirely legal and legitimate. Comparing it to breaking the law is foolish.
That was my original view, but it's far too simplistic. There are a number of reasons why this might make sense:
1. Apple thinks that they might have a use for the money overseas and will never have to repatriate it (i.e., to fund growth in China). In that case, they do save billions of dollars.
2. Apple thinks that there might be a reduction in the tax rate at some time in the future (such as the tax holiday that has been bandied about).
3. If Apple ever has a losing year, they could bring back money tax free by using the losses to offset the repatriation.
4. Future value of money. Even if they have to bring the money back and pay $9.2 B in taxes in 5 or 10 years, there's still the time value of money - and it's probably worth a few hundred million dollars a year to put that off into the future.
When you get into tax matters like this, it gets very complicated. Global business is also very complicated. When you combine the two issues, it can really be a mess. My first thought was the same as yours, but after consideration, it doesn't appear to be a bad move.
1 Do you think sophomoric insults make your case stronger?
2. My point was (and remains) that a $9.4BN tax hit can only be described as punitive (as discussed elsewhere, speeding si not viewed as a crime, but an "infraction").
The other points are not in response to me, but I will address some of them:
There is ZERO chance that taxes are going down. On the other hand, the cost differential between what apple is getting for its money (1% a year, read the quarterly financials) and what they are paying for their loan (around 2%) is 1% a year. If they did this with $100BN (they will, the $17BN is just the first tranche), this is costing them $1BN a year. Plus underwriting fees. MINUS a tax deduction of around 30% of the 2%, which cuts down their actual cost to around $0.4BN a year, which we taxpayers are paying for. Note that the Einhorn scheme would have avoided ALL of these problems.
Time value of money: that is a valid point, and shows how fucked up the financial system is these days: the central banks are printing money in sufficient quantities to make borrowing costs NEGATIVE. This leads to horrible abuses, and massive transfer of wealth from the middle class to the top (the Apple deal is just another example, but neither the first, nor the worst).
Now that Apple has debt, it is apparently more valuable in enterprise value terms. Doesn't make any sense.
They are in debt to make their stock value more valuable short term... Between Day Traders and Buy and Hold, there are those that basically want to see a mid term (90-730 day) appreciation. Apple wants it stock to be valuable as they use it to attract/retain talent, as liquid stock would do. I figured if the Market Value of Apple got below 300B, (pay 100B, borrow 200B, and keep 40B in the bank for rainy day;-) they would have privatized, but that would have driven a lot of young talent out. This is the best of both worlds... They are buying at what they see is a low point (400-500/share), expect to go to 600-800/share, and then they can offer grants and options to new talent at a discount, and the current market with buybacks increasing value of their own stock, and the dividends now right at the inflation rate, make Apple a great hedge for a couple years. The debt is purely a lever to borrow against foreign assets to buy US stock. Smart Girl.
I assume all of you people complaining about how avoiding taxes is immoral declared all of your out-of-state internet purchases on your state tax returns last year so you paid the use tax due? No? Hmm.
Unlike dodging use tax, Apple's action is perfectly legal, moral, and good financial sense. It's like refinancing your house to use some of the equity to buy a car so the interest will be at a lower rate and tax-deductable. They're not avoiding taxes that should be due, they're avoiding incurring taxes in the first place.
What you have to ask yourself is why is America's tax system so business unfriendly that companies even WANT to keep their money overseas instead of here. Suppose we allowed companies to repatriate their cash for FREE. We'd make a TON of tax revenue off Apple's money anyway. Sure, we wouldn't get anything from the initial transaction, but they don't throw it in a vault and swim in it a la Scrooge McDuck. They invest it, they spend it, or they keep it in a bank and the bank invests it. Either way, it's flowing around in the economy and generating tax revenue as it does so. Contrast that to what we're from that money now: nothing.
the debt will be used to buy stock, which is an asset and pays a dividend. and the debt is tax deductible.
retailers use short term debt to buy inventory because its cheaper than using cash
You are not answering his question: Enterprise value is defined as the value of equity PLUS the value of debt, so by assuming debt and stock price not declining Apple's enterprise value has increased considerably.
There seems to be a lot of misunderstanding (or just misrepresentation) on this topic. Apple *has* paid tax on its overseas earnings, it pays tax in each of the jurisdictions in which it operates. What AAPL is wisely trying to avoid, is a double-taxation situation where it will have to pay *again* on revenues it returns to the US.
You may be of the opinion that AAPL should pay tax multiple times on its profits, but that will put APPL in an unfair position when competing in the global market.
With regard to the comment about AAPL having to eventually repatriate the money in order to service the debt, the issue is much more complex and nuanced that you seem to suggest. In fact, AAPL is significantly wiser adopting this method, as a) there may be tax-free repatriation window in the future; b) the value of debt reduces with time; and c) AAPL is still earning more money than it needs to spend on servicing its business.
In the same way as it is allowed for me to go 200mph on I95, if I am willing to pay a massive fine.
It's not the same at all. When you speed, you break the law. The fine is because of that.
Apple's strategy is not breaking current law, but it is breaking the spirit of the purpose of the tax code and the economy.
Almost no Fortune 500 companies pay Federal taxes most years. This is why the country is broke. Our Congress, especially Republicans, are like Leona Helmsly. She said, "pay taxes? Only the little people pay taxes," but she went to jail for it (for not paying taxes, not for the statement).
Let us also not forget that Congress, in addition to not wanting corporations to pay lower taxes when they brought cash back to the US, did not want the repatriated money going to shareholder dividends or stock buyback. I guess Congress won't get its desires on that one also.
Comments
I think you covered everything there very well.
Quote:
Originally Posted by JCC
This is dumb. Steve Jobs is rolling over in his grave. Unless they feel that they can repatriate that cash at a lower tax rate later, they have not only NOT save $9.4 bil but they've also just wasted hundreds of millions that they have to pay in servicing the debt.
For what? So they can please bottom feeding, scum sucking hedge funds? I wish Steve were alive to tell these bone heads where to stick their damn dividend. This cash is the lifeblood of the company and they're draining it. WTF is Cook thinking?
no, there is something called Oracle Financials where you can model stuff like this and the financial impact on the company before you sign on the dotted line
where are they supposed to put the cash? cyprus?
The USA is in debt because the government spends money like a drunken sailor,
As corporations become effective super-national, and start controlling their own micro economies, they will be taxed at lower and lower rates as they buy out government oversight and legislature/parlimentary members. You think the NRA has strong lobbyists... just you wait.
I think "Islands on the Net" basically foretells what's going to happen.
Nation States cease to exist, or are subordinate to corporate states. Information will be the new fungible asset, and information 'islands' (e.g. think thepiratebay instead of Grand Caymans Banks) will be the new laundering sites for 'e-coin'
Once Visa/Mastercard/Ebay-PayPal/Apple/Google/Amazon figure out how to make their own 'bitcoin' out of encrypted pieces of your data, then watch the the economic anarchy start. Apple will be able to move 'money' around like encrypted packets on the net, and will own their own NSA to protect-against/attack competitors. How do you tax information? Transaction tax? who owns the internet? corporations. corporations that start working with Apple et al to
Nations collapse, at best become total pawns (senators are like board members... elected by proxy by the corporation.... not to dissimilar to today), and the corporations buy out the assets (post office (gmail, UPS, FedeX), CIA (blackwater), Medicare (insurance companies), education (for profit schools... how long until Kaplan/UofPhoenix open up High School on the Net, first for at risk kids, then for a state like Montana/Alaska, or a country like Australia or Dubai). Defense? That will become corporatized, by corporations buying protection from existing countries, and safe havens will be established to 'fly the flag' , until corporations build up their own defense organizations/police departments/FBIs/NSAs)
Civil Rights? UN commisions maybe, but in the end, you will be a corporate asset, and protected as such, until you're.... expendable.
Think about it.
Quote:
Originally Posted by jragosta
That's a pretty stupid comment - even for you.
There is nothing illegal about leaving the money off shore. There is something illegal about driving 200 mph in I95 (not to mention, of course, that your 1982 Chevy Nova won't go that fast).
Apple is simply making a business decision that is entirely legal and legitimate. Comparing it to breaking the law is foolish.
That was my original view, but it's far too simplistic. There are a number of reasons why this might make sense:
1. Apple thinks that they might have a use for the money overseas and will never have to repatriate it (i.e., to fund growth in China). In that case, they do save billions of dollars.
2. Apple thinks that there might be a reduction in the tax rate at some time in the future (such as the tax holiday that has been bandied about).
3. If Apple ever has a losing year, they could bring back money tax free by using the losses to offset the repatriation.
4. Future value of money. Even if they have to bring the money back and pay $9.2 B in taxes in 5 or 10 years, there's still the time value of money - and it's probably worth a few hundred million dollars a year to put that off into the future.
When you get into tax matters like this, it gets very complicated. Global business is also very complicated. When you combine the two issues, it can really be a mess. My first thought was the same as yours, but after consideration, it doesn't appear to be a bad move.
1 Do you think sophomoric insults make your case stronger?
2. My point was (and remains) that a $9.4BN tax hit can only be described as punitive (as discussed elsewhere, speeding si not viewed as a crime, but an "infraction").
The other points are not in response to me, but I will address some of them:
There is ZERO chance that taxes are going down. On the other hand, the cost differential between what apple is getting for its money (1% a year, read the quarterly financials) and what they are paying for their loan (around 2%) is 1% a year. If they did this with $100BN (they will, the $17BN is just the first tranche), this is costing them $1BN a year. Plus underwriting fees. MINUS a tax deduction of around 30% of the 2%, which cuts down their actual cost to around $0.4BN a year, which we taxpayers are paying for. Note that the Einhorn scheme would have avoided ALL of these problems.
Time value of money: that is a valid point, and shows how fucked up the financial system is these days: the central banks are printing money in sufficient quantities to make borrowing costs NEGATIVE. This leads to horrible abuses, and massive transfer of wealth from the middle class to the top (the Apple deal is just another example, but neither the first, nor the worst).
Quote:
Originally Posted by jungmark
Now that Apple has debt, it is apparently more valuable in enterprise value terms. Doesn't make any sense.
They are in debt to make their stock value more valuable short term... Between Day Traders and Buy and Hold, there are those that basically want to see a mid term (90-730 day) appreciation. Apple wants it stock to be valuable as they use it to attract/retain talent, as liquid stock would do. I figured if the Market Value of Apple got below 300B, (pay 100B, borrow 200B, and keep 40B in the bank for rainy day;-) they would have privatized, but that would have driven a lot of young talent out. This is the best of both worlds... They are buying at what they see is a low point (400-500/share), expect to go to 600-800/share, and then they can offer grants and options to new talent at a discount, and the current market with buybacks increasing value of their own stock, and the dividends now right at the inflation rate, make Apple a great hedge for a couple years. The debt is purely a lever to borrow against foreign assets to buy US stock. Smart Girl.
Unlike dodging use tax, Apple's action is perfectly legal, moral, and good financial sense. It's like refinancing your house to use some of the equity to buy a car so the interest will be at a lower rate and tax-deductable. They're not avoiding taxes that should be due, they're avoiding incurring taxes in the first place.
What you have to ask yourself is why is America's tax system so business unfriendly that companies even WANT to keep their money overseas instead of here. Suppose we allowed companies to repatriate their cash for FREE. We'd make a TON of tax revenue off Apple's money anyway. Sure, we wouldn't get anything from the initial transaction, but they don't throw it in a vault and swim in it a la Scrooge McDuck. They invest it, they spend it, or they keep it in a bank and the bank invests it. Either way, it's flowing around in the economy and generating tax revenue as it does so. Contrast that to what we're from that money now: nothing.
Quote:
Originally Posted by jungmark
Now that Apple has debt, it is apparently more valuable in enterprise value terms. Doesn't make any sense.
the debt will be used to buy stock, which is an asset and pays a dividend. and the debt is tax deductible.
retailers use short term debt to buy inventory because its cheaper than using cash
Quote:
Originally Posted by al_bundy
the debt will be used to buy stock, which is an asset and pays a dividend. and the debt is tax deductible.
retailers use short term debt to buy inventory because its cheaper than using cash
You are not answering his question: Enterprise value is defined as the value of equity PLUS the value of debt, so by assuming debt and stock price not declining Apple's enterprise value has increased considerably.
Originally Posted by red_kola
Tax avoidance reported as "a good thing". No wonder your deficits will never be reduced...
I want to see you paying 99% of your income in taxes, otherwise you're a hypocrite.
Quote:
Originally Posted by MacHarry de
@igriv: You have to stay here in GERMANY to speed up your sports car as you can. We don't have any speed limit at many highways. You are welcome ;-)
Yes, I know, I was in Berlin a year ago, and the drive from Berlin to Zurich is quite refreshing
You may be of the opinion that AAPL should pay tax multiple times on its profits, but that will put APPL in an unfair position when competing in the global market.
With regard to the comment about AAPL having to eventually repatriate the money in order to service the debt, the issue is much more complex and nuanced that you seem to suggest. In fact, AAPL is significantly wiser adopting this method, as a) there may be tax-free repatriation window in the future; b) the value of debt reduces with time; and c) AAPL is still earning more money than it needs to spend on servicing its business.
Quote:
Originally Posted by igriv
Yes, I know, I was in Berlin a year ago, and the drive from Berlin to Zurich is quite refreshing
'If everything seems under control, you're not going fast enough.',- Mario Andretti
It's not the same at all. When you speed, you break the law. The fine is because of that.
Apple's strategy is not breaking current law, but it is breaking the spirit of the purpose of the tax code and the economy.
Almost no Fortune 500 companies pay Federal taxes most years. This is why the country is broke. Our Congress, especially Republicans, are like Leona Helmsly. She said, "pay taxes? Only the little people pay taxes," but she went to jail for it (for not paying taxes, not for the statement).
Let us also not forget that Congress, in addition to not wanting corporations to pay lower taxes when they brought cash back to the US, did not want the repatriated money going to shareholder dividends or stock buyback. I guess Congress won't get its desires on that one also.