US paid Apple at least $600M on foreign cash held as bonds since 2012

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Although technically refusing to repatriate its international revenue to avoid taxes, Apple is actually keeping much of it in the U.S. in the form of bonds -- and generating interest in the process, a report pointed out on Wednesday.




The U.S. Treasury Department has paid Apple at least $600 million in interest during the past five years and possibly far more, according to regulatory filings seen by Bloomberg. The company is taking advantage of an exemption which lets corporations dodge or delay repatriation taxes by buying treasuries, in this case pulling in taxpayer money instead of paying liabilities.

The interest is taxable, however, and Apple would also owe money if it sold the bonds.

Apple is believed to be one of the biggest corporate recipients of interest from the U.S. Treasury. Cisco, for instance, has pulled in $430 million since 2012, but one of Apple's main rivals -- Google -- has taken in a comparatively small $150-160 million. Some companies, like Microsoft and Coca-Cola, don't provide enough detailed accounting to track these figures.

Over 90 percent of Apple's $238 billion in cash reserves has been classified as "overseas." The company holds $41.7 billion in U.S. bonds -- while much of the rest is officially attached to its Irish subsidiaries, in reality it's being held custodial accounts with U.S. banks like J.P. Morgan Chase and State Street, simply unable to be spent unless Apple is willing to pay the taxes owed.

During his election campaign, President-Elect Donald Trump promised a one-time tax holiday of 10 percent -- down from the nominal 35 percent -- as a way of encouraging U.S. multinationals to repatriate cash. It remains to be seen if Trump will follow through on that pledge, and critics have worried that businesses will simply direct the money to shareholders and executives, rather than spending on jobs and expansion -- as happened after a 2004 tax holiday created by President George W. Bush.

Comments

  • Reply 1 of 18
    Apple is a good corporate citizen of the United States. And a good corporate citizen to the planet as well.  Not by accident, their financial leaders are the cream of the crop when you consider how they leverage Apple.

    once again A+ management by Cook and Company.

    not perfect of course!
    Solibaconstangnetmagewatto_cobrajony0
  • Reply 2 of 18
    eightzeroeightzero Posts: 3,063member
    Apple is a good corporate citizen of the United States. And a good corporate citizen to the planet as well.  Not by accident, their financial leaders are the cream of the crop when you consider how they leverage Apple.

    once again A+ management by Cook and Company.

    not perfect of course!
    Sog to demur in 3...2...1...
    revenanttommikelenetmagewatto_cobra
  • Reply 3 of 18
    apple ][apple ][ Posts: 9,233member
    critics have worried that businesses will simply direct the money to shareholders and executives, rather than spending on jobs and expansion -- as happened after a 2004 tax holiday created by President George W. Bush.
    Screw those critics!

    Why shouldn't shareholders be rewarded? They are the ones investing their cash and taking all of the risks.

    I fully expect to be rewarded. There's no reason that multiple things couldn't occur, it's not a binary scenario.
    edited December 2016 stevehrandominternetpersonnetmage
  • Reply 4 of 18
    Anyone anywhere in the world can invest in our Treasury bonds. If China can, why can't Apple's cash held abroad?

    I don't understand why this remotely rises to the level of "news".

    Add: But it does point to the utter vacuity and hypocrisy of our tax laws. If, instead of investing in the governbment's bonds, Apple had tried to use those funds to invest in, say, building a factory in the US, it couldn't do so unless it paid corporate taxes on that cash at the usuriously higher US rate.
    edited December 2016 Solisteveh
  • Reply 5 of 18
    crowleycrowley Posts: 10,453member
    Unitary taxation.  End of.
  • Reply 6 of 18
    baconstangbaconstang Posts: 1,105member
    Anyone anywhere in the world can invest in our Treasury bonds. If China can, why can't Apple's cash held abroad?

    I don't understand why this remotely rises to the level of "news".

    Add: But it does point to the utter vacuity and hypocrisy of our tax laws. If, instead of investing in the governbment's bonds, Apple had tried to use those funds to invest in, say, building a factory in the US, it couldn't do so unless it paid corporate taxes on that cash at the usuriously higher US rate.
    I may have this wrong, but I think the strategy is to buy bonds (no tax), collect interest (taxable), then borrow against bonds for business expansion, share buybacks and dividend payouts.  At the current low rates this works well.  If interest rates go high, it becomes less viable.
    edited December 2016
  • Reply 7 of 18
    tundraboytundraboy Posts: 1,885member
    ". . . critics have worried that businesses will simply direct the money to shareholders and executives, rather than spending on jobs and expansion -- as happened after a 2004 tax holiday created by President George W. Bush."

    Quite naive.  These are the Republicans we are speaking of.  The whole point of the GWBush tax holiday is to direct the money to shareholders and executives.  So from their point of view, the tax holiday was a resounding success.  And that's why we will see another tax holiday shortly.

    Now, lest I be accused of wholesale political bias, US corporate tax rates are higher than most other industrialized countries' rates and unlike other industrialized countries, the US taxes incomes from all geographic sources, not just domestic.  This is what's spurring US based corporations to convert to foreign-based status.
    edited December 2016
  • Reply 8 of 18
    Anyone anywhere in the world can invest in our Treasury bonds. If China can, why can't Apple's cash held abroad?

    I don't understand why this remotely rises to the level of "news".

    Add: But it does point to the utter vacuity and hypocrisy of our tax laws. If, instead of investing in the governbment's bonds, Apple had tried to use those funds to invest in, say, building a factory in the US, it couldn't do so unless it paid corporate taxes on that cash at the usuriously higher US rate.
    I may have this wrong, but I think the strategy is to buy bonds (no tax), collect interest (taxable), then borrow against bonds for business expansion, share buybacks and dividend payouts.  At the current low rates this works well.  If interest rates go high, it becomes less viable.
    That does not address the tax question. Investment in real assets also produces returns, on which you pay taxes, create assets against which you can borrow. Investments can also create a surplus which you can use to expand, buyback shares, pay dividends. And it has nothing to with current versus future interest rates, since that would impact both types of investment similarly (by impacting the cost of capital of the real asset).

    So, in principle, it seems entirely analogous. The only difference is, in one case you're investing in a paper asset (say stocks or bonds) and in the other, a physical asset (e.g., a factory or another company). In fact, once would think that the latter is, in some ways, more valuable to society.
  • Reply 9 of 18
    dewmedewme Posts: 5,361member
    Anyone anywhere in the world can invest in our Treasury bonds. If China can, why can't Apple's cash held abroad?

    I don't understand why this remotely rises to the level of "news".

    Add: But it does point to the utter vacuity and hypocrisy of our tax laws. If, instead of investing in the governbment's bonds, Apple had tried to use those funds to invest in, say, building a factory in the US, it couldn't do so unless it paid corporate taxes on that cash at the usuriously higher US rate.
    Apple, like most companies who make "things" has little desire to build and own new factories or permanently increase headcount unless they have to do so to get new or more revenue generating products out the door immediately or in the near future. Today, all resources whether people, capital, or manufacturing capacity is distilled down to acquisition costs (hiring people, training people, licensing, tooling, building factories, etc.) and through-life costs (like pensions and health care benefits) and build-vs-buy decisions. People and factories are only needed when they are pumping out product and once the demand for the product slows down or stops that last thing a company wants are idle people or idle factories. That's why companies like Apple don't build factories, they buy factory capacity and production capability. Heck, many companies today don't even own their office facilities, they sell them to leasing companies and rent the space. Same deal with hiring contractors versus permanent employees. Most companies treat hiring full time permanent staff as an action of last resort. They'd much rather hire a bunch of contractors who require no training and when the job/project is over the contractors are led to the door.

    Of course smart companies build domain expertise, create monetizable intellectual property, and adapt to meet the needs of the market segments they serve. This can be difficult to do with contractors. But now more than ever companies are short term focused and focused on lean/agile production of everything from marketing, planning, software & hardware development, and building & testing. Again, having a lot of overhead and difficult to morph factories and facilities slows you down and makes it difficult to compete in an open global market. The only way lean/agile works is with high levels of automation - which translates into fewer people needed to do mundane and repetitive tasks but also a need for the remaining workforce to be highly flexible and adaptable and making sure the automation works and the human element is applied where it is most valuable. The whole notion of moving from high school into a "job for life" at the local mill just doesn't exist in today's economy. The new jobs that will be created in the new economies that are getting investment dollars today are characteristic of the lean/agile fast moving and short term ROI and time to value variety. Huge capital investments in facilities like factories is scary as hell for modern companies, especially when they can go offshore and simply buy as much production expertise and capacity as they will ever need. If Apple, who is buying manufacturing today decides to build their own manufacturing in the US they'd better be damn good at it because the only way they will survive is to get non-Apple products built in those same factories to keep them going and the workers employed in between runs of new Apple products. This isn't Apple's strength, but companies like FoxConn - that's another story.

    So maybe it's just semantics to say that Apple needs to build factories in the US when it is really other companies who are experts at manufacture-to-order need to build factories in the US. But again, they'd better be damn good and cost competitive because every other country in the world is going to be trying to win at the same game. China and emerging/recovering economies in Asia, Africa, South America, etc., aren't going to sit quietly on the sidelines or lay down and let the US lock them out of the global modern manufacturing economy.

    Manufacturing has forever changed and the countries who win going forward are the ones who are forward thinking and looking forward. Trying to recreate the past and bring back the types of manufacturing jobs that existed in the last century in the US is like trying to stimulate horse & buggy manufacturing after Henry Ford revolutionized manufacturing and the automobile manufacturing and consumption boom was already underway. The transition is not going to be easy for some people, just like harness and saddle makers, but it's unstoppable.
    baconstangapple jockeyplovellfotoformatroundaboutnowradster360gunner1954
  • Reply 10 of 18
    plovellplovell Posts: 824member
    dewme: many good points - thanks for the post. You're right - Apple isn't about to "do" manufacturing. If iPhones are going to be manufactured in the US it'll be by some company that has manufacturing as its expertise. Maybe Foxconn, maybe someone else. And because of the labor costs, it almost certainly will be highly automated - an up-rated version of the iPhone dis-assembler that Apple showed a while back. Some companies can do it in the US. People hate it when I quote the example but the largest exporter of cars from the US is neither Ford nor GM. Or anyone else you'd expect. It's BMW, and the majority of the exports go to China, I understand. In fact, BMW's plant in South Carolina is their biggest plant. If BMW can make it work with distributed production facilities and highly-automated assembly, then Apple's partners can too.
    baconstangwatto_cobra
  • Reply 11 of 18
    dewme said:
    Anyone anywhere in the world can invest in our Treasury bonds. If China can, why can't Apple's cash held abroad?

    I don't understand why this remotely rises to the level of "news".

    Add: But it does point to the utter vacuity and hypocrisy of our tax laws. If, instead of investing in the governbment's bonds, Apple had tried to use those funds to invest in, say, building a factory in the US, it couldn't do so unless it paid corporate taxes on that cash at the usuriously higher US rate.
    Apple, like most companies who make "things" has little desire to build and own new factories

    etc etc etc
    Sorry, but I honestly don't think my post, which was abut tax treatment of financial versus real assets, had anything to do with your response. 
  • Reply 12 of 18
    Bonds are necessary for the US Treasury.. Apple isn't getting a free ride with this. that 41 billion in bonds actually helps.. /shrug.. not exactly shocking or a bad thing.
    randominternetperson
  • Reply 13 of 18
    How is this any different than Saudi Arabia or China owning US debt? Isn't it good Apple owns US debt over some other type? 

    The money from a tax holiday will go to shareholders, mostly Americans, who will buy something - fostering consumer spending, a new stock or a startup. It's the same as quantitative easing which targeted consumer spending, but it isn't debt used to buy debt. Instead it goes right into shareholders hand to do with what they want, but ultimately stimulates the economy ... for free - cause you're not bloating the federal debt. In fact, the 10% tax is then just icing on the cake that can be spent on roads or govt spending.

    This money was made by selling items that were not made in the US to people that don't live in the US. I think 10% tax on that is generous. 
    edited December 2016
  • Reply 14 of 18
    plovell said:
    dewme: many good points - thanks for the post. You're right - Apple isn't about to "do" manufacturing. If iPhones are going to be manufactured in the US it'll be by some company that has manufacturing as its expertise. Maybe Foxconn, maybe someone else. And because of the labor costs, it almost certainly will be highly automated - an up-rated version of the iPhone dis-assembler that Apple showed a while back. Some companies can do it in the US. People hate it when I quote the example but the largest exporter of cars from the US is neither Ford nor GM. Or anyone else you'd expect. It's BMW, and the majority of the exports go to China, I understand. In fact, BMW's plant in South Carolina is their biggest plant. If BMW can make it work with distributed production facilities and highly-automated assembly, then Apple's partners can too.
    Foxconn has already announced that they will be increasing manufacturing capacity in the US. However, they didn't mention where. With minimum wages in major cities rising to $15/hour by 2020 (and pushing to make $15/hr a national minimum wage) you can be certain the whatever factory Foxconn builds will be heavily automated with the newest robotic technologies. Thus, fewer hires for manual labor (that will be contracted for janitorial, security, etc) and greater hires for people with robotic technology experience; meaning a college degree or specialized schooling/experience will be a must. 

    Foxconn plans to have the new plant up and running by 2020, if not delayed by protests, regulations, gov't interference, etcetera.
  • Reply 15 of 18
    dewmedewme Posts: 5,361member
    dewme said:
    Anyone anywhere in the world can invest in our Treasury bonds. If China can, why can't Apple's cash held abroad?

    I don't understand why this remotely rises to the level of "news".

    Add: But it does point to the utter vacuity and hypocrisy of our tax laws. If, instead of investing in the governbment's bonds, Apple had tried to use those funds to invest in, say, building a factory in the US, it couldn't do so unless it paid corporate taxes on that cash at the usuriously higher US rate.
    Apple, like most companies who make "things" has little desire to build and own new factories

    etc etc etc
    Sorry, but I honestly don't think my post, which was abut tax treatment of financial versus real assets, had anything to do with your response. 
    You're right, I'm not disputing or countering your point by quoting your post, just adding more details to the italicized part of the quote with regard to manufacturing and building factories. My apologies.  
  • Reply 16 of 18
    MacProMacPro Posts: 19,727member
    apple ][ said:
    critics have worried that businesses will simply direct the money to shareholders and executives, rather than spending on jobs and expansion -- as happened after a 2004 tax holiday created by President George W. Bush.
    Screw those critics!

    Why shouldn't shareholders be rewarded? They are the ones investing their cash and taking all of the risks.

    I fully expect to be rewarded. There's no reason that multiple things couldn't occur, it's not a binary scenario.
    Agreed.
    edited December 2016
  • Reply 17 of 18
    MacProMacPro Posts: 19,727member

    eightzero said:
    Apple is a good corporate citizen of the United States. And a good corporate citizen to the planet as well.  Not by accident, their financial leaders are the cream of the crop when you consider how they leverage Apple.

    once again A+ management by Cook and Company.

    not perfect of course!
    Sog to demur in 3...2...1...
    I wish he'd just sog off!  ;)
    watto_cobra
  • Reply 18 of 18
    Seems Tim Cook is much better at ducking taxes and making money out of money, than either releasing exciting new products or being able to provide a good supply of the products that Apple already produce. I hope next year will bring some real explosions rather than this years rather damp farts.
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