Apple Issues $1 Billion Green Bond Sale to Fund Renewable Energy

[Carnegie]

...

All that being said, Apple (as most corporations) pay an effective aggregate rate on earnings below (often well below) the rack rate. And again I point out that the U.S. is hardly the only country that taxes earnings made abroad. If any industrialized nation allows these earnings to be sheltered from domestic taxation, I'd be happy to know which one.

To return to this, as I didn't have time yesterday...

It looks like 28 of the 34 OECD nations (and 6 of the 7 G7 nations, with the U.S. being the only exception) have some (substantial) form of a territorial taxation system. The specifics of their tax policies differ somewhat of course. As I indicated in the previous post, some of them don't exempt all of the (active) earnings of foreign subsidiaries, just a very large portion of those earnings. France and Germany, e.g., exempt 95% of such foreign subsidiary earnings from domestic taxation. The U.K. and Australia, along with most of those nations, exempt 100% of such earnings.

Some nations also limit the nations from which foreign earnings are exempt. France, e.g., doesn't exempt earnings from certain black-listed nations. The U.K. and Germany exempt foreign earnings from all nations. Some nations exempt foreign earnings from nations which have tax systems similar to their own or which have a minimum corporate tax rate.

U.S. tax policy in this area is uncommon, and in some specific regards unique, among the advanced economies of the world.

Regarding the effective tax rate which Apple pays, it is indeed substantially below 35%. But that's mostly due to most of its earnings being foreign and it thus not paying domestic taxes on on a large portion of its earnings (which aren't repatriated). As I've suggested, if it were headquartered in most of the other nations of the world with advanced economies, it wouldn't be expected to pay domestic taxes on those earnings.

If we look at the domestic (income) taxes which it does pay, they're more than 40% of its domestic earnings. That's not taking into account the foreign taxes which it pays nor the deferred tax liability which it provides for in its financial reports. Over the last three fiscal years it's paid an amount of domestic taxes equal to about 43% of its domestic earnings. That number is so high because: (1) It pays U.S. taxes on earnings generated from sales in other parts of the Americas, for the most part those are treated as U.S. earnings for tax accounting purposes; (2) it pays U.S. taxes on a small portion of its other foreign earnings because it repatriates some of them; (3) U.S. state taxes increase it (on-net) by about 2-1/2 %; and (4) other deductions and credits (i.e., for domestic production and R&D) only decrease it by about 3%.

The point being, Apple actually pays a very large amount of U.S. incomes tax relative to its legitimate U.S. earnings. It doesn't pay much U.S. income tax, nor should it in my opinion, on its legitimate foreign earnings - at least, on its earnings from outside the Americas.
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I'll only get excited about this when they actually put some friggin' terms in the prospectus.

Apple Form FWP (6/14/17)

$1 Billion
3% Coupon
6/20/2027 Maturity
3.027% Yield, 0.82% above benchmark (10-Year Treasury) yield

 

[IJ Reilly]

To return to this, as I didn't have time yesterday...

It looks like 28 of the 34 OECD nations (and 6 of the 7 G7 nations, with the U.S. being the only exception) have some (substantial) form of a territorial taxation system. The specifics of their tax policies differ somewhat of course. As I indicated in the previous post, some of them don't exempt all of the (active) earnings of foreign subsidiaries, just a very large portion of those earnings. France and Germany, e.g., exempt 95% of such foreign subsidiary earnings from domestic taxation. The U.K. and Australia, along with most of those nations, exempt 100% of such earnings.

Some nations also limit the nations from which foreign earnings are exempt. France, e.g., doesn't exempt earnings from certain black-listed nations. The U.K. and Germany exempt foreign earnings from all nations. Some nations exempt foreign earnings from nations which have tax systems similar to their own or which have a minimum corporate tax rate.

U.S. tax policy in this area is uncommon, and in some specific regards unique, among the advanced economies of the world.

Regarding the effective tax rate which Apple pays, it is indeed substantially below 35%. But that's mostly due to most of its earnings being foreign and it thus not paying domestic taxes on on a large portion of its earnings (which aren't repatriated). As I've suggested, if it were headquartered in most of the other nations of the world with advanced economies, it wouldn't be expected to pay domestic taxes on those earnings.

If we look at the domestic (income) taxes which it does pay, they're more than 40% of its domestic earnings. That's not taking into account the foreign taxes which it pays nor the deferred tax liability which it provides for in its financial reports. Over the last three fiscal years it's paid an amount of domestic taxes equal to about 43% of its domestic earnings. That number is so high because: (1) It pays U.S. taxes on earnings generated from sales in other parts of the Americas, for the most part those are treated as U.S. earnings for tax accounting purposes; (2) it pays U.S. taxes on a small portion of its other foreign earnings because it repatriates some of them; (3) U.S. state taxes increase it (on-net) by about 2-1/2 %; and (4) other deductions and credits (i.e., for domestic production and R&D) only decrease it by about 3%.

The point being, Apple actually pays a very large amount of U.S. incomes tax relative to its legitimate U.S. earnings. It doesn't pay much U.S. income tax, nor should it in my opinion, on its legitimate foreign earnings - at least, on its earnings from outside the Americas.

Thanks for your research.

One thing that confuses right off the bat is the term "territorial taxation" is generally used to describe taxing systems that do not levy taxes on foreign earnings. So to clarify, you are saying that 28 of the 34 nations do not tax foreign earnings at all, or only partially?

Either way, the important taxation number is the effective rate, not the rack rate, or even whether foreign earnings are taxed. Researching this I find that nearly 20% of profitable U.S. corporations paid no corporate tax between 2006 and 2012, and the average effective tax rate for large corporations during that same period was a shade under 26%.

 

[Carnegie]

Thanks for your research.

One thing that confuses right off the bat is the term "territorial taxation" is generally used to describe taxing systems that do not levy taxes on foreign earnings. So to clarify, you are saying that 28 of the 34 nations do not tax foreign earnings at all, or only partially?

Yes, that's correct. The specifics of their tax policies differ a great deal. But by territorial taxation system I mean that, to a significant extent, they don't tax the active foreign earnings (i.e. the earnings of foreign subsidiaries) of domestic companies. Sometimes that means they don't tax those earnings at all. Sometimes it means that they only tax a small portion of them or that they only tax them if they were earned in certain nations.

To be clear though, I'm talking about what's often referred to as active income. That would, e.g., be profits made through some kind of business operations - e.g., selling iPhones or cars. What's often referred to as passive foreign income - e.g., interest on cash holdings - is more commonly still taxed domestically. If it wasn't, it would be too easy (i.e. even easier) to game the system so to speak. Apple has to pay U.S. income taxes on the interest it makes from its cash holdings even if that cash is still held by foreign subsidiaries and even if that interest income continues to be held by them. Taxes on that kind of income are not deferred until it is remitted to the parent U.S. company. Similarly, nations that don't tax active foreign earnings may still tax passive foreign earnings.

I'm also talking about earnings of foreign corporations which are owned by domestic companies, not necessarily earnings made directly by domestic companies in foreign nations. With many larger companies, that's how they are structured - they own foreign corporations which operate in other nations. Some of the nations with territorial taxation systems also exempt foreign earnings which are made by domestic companies through foreign branches - i.e., there isn't a foreign corporation in the equation. But those exemptions are less common than exemptions for earnings made by actual foreign (but domestically owned) companies. I hope that makes sense.

Either way, the important taxation number is the effective rate, not the rack rate, or even whether foreign earnings are taxed. Researching this I find that nearly 20% of profitable U.S. corporations paid no corporate tax between 2006 and 2012, and the average effective tax rate for large corporations during that same period was a shade under 26%.

There's a wide range of tax circumstances, even just looking at U.S. companies. Some of them pay a very low effective rate, even just looking at domestic earnings. Some are able to take advantage of considerable deductions or credits. Some of them use accounting practices which effectively shift what are legitimately domestic earnings offshore for taxing purposes. But there are also some - like Apple - which pay fairly high effective tax rates, at least when looking only at their domestic earnings. They don't take advantage of a lot of deductions or credits and don't shift legitimately domestic earnings offshore. Apple's foreign tax situation is, of course, quite different though.

I would add that the reported effective tax rates that you see often overstate what companies are actually paying in taxes. Those rates often take into account deferred tax liability - e.g., the company would have to pay X amount in taxes if it repatriated its foreign earnings, but it hasn't paid that amount because it hasn't repatriated those earnings. In its financial filings the amount is included as a tax expense, a subtraction from net earnings; but the money remains on its balance sheet along with (offsetting) tax liabilities.

 

[DaveN]

Good question. I can see an argument for no, after all the truck has survived past its expected life of 6 +- 4 years. I mean, if it's a pickup truck then definitely not. If it is I could see them offer the value of the truck or as much as $2000 in rebates towards a new one if you push hard enough.

I'm not sure how that is related to my point. Mechanics fix cars and manufactures sell them. They have different agendas because they have different object objectives. Your hypothetical $70,000 Apple truck has people who learned to fix it. That's totally fair, but apple isn't expected to train them and supply parts.

But the truck had only 100,000 miles on it and from what I've seen in my research is that the problem seems to pop-up at around 130,000 miles on average. As my truck is a diesel pickup, it isn't unusual that you should be able to get several hundred thousand miles on it. The average age of a car on the road in the USA keeps getting longer as they get more reliable. In 2015 the average age of a car on the road was 11.5 years (July 29, 2015 USA Today article).

That said, it is a design defect that the manufacturer knew about but didn't notify owners. Actually, I'm not really upset as I figure there is a known workaround I should be able to reproduce though it will cost me. The truck is very good condition and has many years of useful life. My point is that people shouldn't hold Apple to an exceptional standard when it comes to supporting older products. Unlike most competing mobile devices, iOS devices get OS upgrades for years.

 

[4jasontv]

But the truck had only 100,000 miles on it and from what I've seen in my research is that the problem seems to pop-up at around 130,000 miles on average. As my truck is a diesel pickup, it isn't unusual that you should be able to get several hundred thousand miles on it. The average age of a car on the road in the USA keeps getting longer as they get more reliable. In 2015 the average age of a car on the road was 11.5 years (July 29, 2015 USA Today article).

That said, it is a design defect that the manufacturer knew about but didn't notify owners. Actually, I'm not really upset as I figure there is a known workaround I should be able to reproduce though it will cost me. The truck is very good condition and has many years of useful life. My point is that people shouldn't hold Apple to an exceptional standard when it comes to supporting older products. Unlike most competing mobile devices, iOS devices get OS upgrades for years.

Sounds like the truck is most likely out of warranty. So if the issue pops up after the warrenty expires it isn't a manufacturing defect. It's just broken. Just because many people get hundreds of thousands of miles on it doesn't mean yours will. The truck needs to make it to warranty. Anything after that is frosting.

I have a hard time with people that ask for out of warranty defects because no one will be happy. When repairs are more than the truck is worth they shouldn't have to fix it, but they also don't owe a new truck. Meanwhile the owner wants working truck without spending any money. That's why I said they would likely give you what its worth or more to get you into a newer truck.

I'm also have a chip on my shoulder. I hate trucks because the people who drive them where I live think they are entitled to park in car spots. If your truck doesn't fit inside the painted square you need to find another spot. You shouldn't extend into the sidewalk, or out into the street. ARH! Now that that is off my chest...

I also get that trucks, especially diesals are expected to work hard. They should laster longer because in most cases you are paying more for the engine and frame then the electronics and body. What the average person pays $70,000 for in an American truck I would expect to see in a $15,000 Korean car (minus the stability and power)*. In that regard there is an expectation that they not have a defect that could *begin* to break down before the warrenty ends. It's a fine line, I realize, but it's enlarged by expected use cases.

*I realize their are lavish trucks too, but those are either in another price catagory entirely or just an oversized Audi that traded torque for tunes.