Apple Raises $7 Billion in Debt Ahead of Trump's Proposed Tax Holiday

[manu chao]

It's stated in the article. Profits earned outside the US are subject to the US tax. The US is about the only country that taxes profits from foreign sources. So if Apple brings those profits back, they're subject to a tax that can be as much as 35%. Borrowing money for Apple is cheap, about 2-3%. So it costs a lot less to borrow the money for use here, in the US, than bringing those profits back.

So no, they can't just spend the money no matter which bank it's in without paying the taxes. And most of their money isn't in cash in a bank, it's in short term, medium term and long term investments,

That calculation only works if this is a temporary situation. Bringing the money home adds a one-time charge of 35% (in reality even less, as Apple can deduct what it has paid in corporate income tax on that sum in the country the money is currently held, for Ireland the regular rate would be 12.5%, meaning if Apple had a $100 bn profit in Ireland, it already has paid a 12.5% tax on that and if Apple brings the remaining $87.5 bn home, it 'only' needs to pay the difference, ie, $35 bn - $12.5 bn = $22.5 bn).

But if Apple takes out a $87.5 bn loan in the U.S. at 2%, that creates an annual expenditure of $1.75 bn. Therefore, after 13 years, it will have paid more in interest than it would have paid in taxes. And thus, if in 13 years, Apple can repatriate the money tax-free, paying interest on the loan will have turned out to be the more expensive strategy. If the 'tax holiday' isn't a zero tax rate but merely a lower tax rate, eg, 10%, that time period gets even shorter.
[doublepost=1494000787][/doublepost]

There is no "double" taxation. When the money is repatriated, you subtract the amount already paid in taxes on foreign soil from what you owe the United States. In other words, you pay the difference. Apple just has the sweetheart deal in Ireland where they basically pay nada, so they would have to pay close to the full rate to repatriate.

Correction: They had a sweetheart deal, that deal is no more. Since 2015 or 2016, Apple is paying the full 12.5% rate in Ireland.

 

[TallManNY]

Couldn't Apple Inc. just take out a hefty loan from Apple Ireland, Inc. for some laughable interest rate like 0.01%?

No, not arms length and pretty obvious "scheme" to get around paying U.S. taxes. You can do tax advantaged strategies to avoid taxes (not illegal) but can't do "schemes" that are illegal. Yes, it takes a tax expert to figure out what is just smart strategy and what is an illegal scheme. And often it isn't clear. But IRS is reviewing everything Apple does every year (they are on "auto" audit, I'm sure).

 

[Chase R]

Trump's plan already contains a corporate tax rate of 15% whereas the personal income tax rate is more in the order of 30%.

Well, you have to understand that regardless of what the corporate tax rate is, it is IN ADDITION to individual rates, not a substitute. Earnings are taxed twice, once a the corporate tax rate and second at the prevailing individual dividend rate. Corporations are not people, and all people are required to pay taxes at individual tax rates.

 

[manu chao]

1. This would benefit shareholders more than someone like Tim Cook.

What benefits shareholders will also benefit Tim Cook because he owns a lot of Apple stock and because his pay is linked to company performance (if not the share price directly).

 

[phillipduran]

The tax holiday shouldn't give them a lower rate than regular Americans have to pay on overseas income.

Consider it an investment in US spending. Corporations like Apple are financially in a position to help the USA and the people here. In one tax holiday they can have a huge positive effect. We should do this.

Also, lower the average citizens rate too. The Government has a history of not spending money well.

 

[unobtainium]

I've always felt infrastructure is something that should be handled at the state level, along with many other functions of the federal government (education, health care especially). At the state level, you have less swamp between a taxpayer's dollar and the project itself.

I dunno, this would work in theory, but in practice local politics are often much murkier. State politics get less media coverage, citizens (for whatever reason) seem less interested in state politics, there are fewer big oversight organizations, people move in and out of state, etc. I think a lot of stuff just gets covered up in the shuffle. An example would be the Flint water crisis. No one knew about it or cared until it got national attention, then suddenly the state was scrambling to fix it.

 

[phillipduran]

Trump probably doesn't remember he ever said that. He has the memory of a goldfish. I wouldn't count on him making good on it.
[doublepost=1493992748][/doublepost]

HAHAHA! He's been touted as a president who finally delivers on campaign promises. You CAN count on him making good on it.

 

[manu chao]

Well, you have to understand that regardless of what the corporate tax rate is, it is IN ADDITION to individual rates, not a substitute. Earnings are taxed twice, once a the corporate tax rate and second at the prevailing individual dividend rate. Corporations are not people, and all people are required to pay taxes at individual tax rates.

Sure, when an individual wants to spend money, it has to have shown up as income on his or her tax receipt first, in other words, an individual can only spend post-personal-income-tax money. But there are many ways this can be watered down. For example, all the corporate niceties that, eg, Tim Cook enjoys (his office, his probably first-class travel, his accommodation while travelling, his corporate lunches) are not payed for by post-personal-income-tax money. Or paying lower tax rates on interest earned by a corporation (compared to personal income tax rates on earned interest), means more money can be re-invested to generate more returns still.

 

[phillipduran]

Perhaps so, but the machinations used by Apple (and other large multinationals) to move and shelter their profits are not available to "any American". The IRS is going to great lengths to monitor and penalize individuals who try and evade taxes through offshore accounts.

This isn't tax evasion by Apple. This is money earned elsewhere staying elsewhere which is OK by law and not subject to any repatriation tax under those circumstances. Do the same as Apple and you'll be in the same situation as Apple.

 

[unobtainium]

Consider it an investment in US spending. Corporations like Apple are financially in a position to help the USA and the people here. In one tax holiday they can have a huge positive effect. We should do this.

Also, lower the average citizens rate too. The Government has a history of not spending money well.

Apple has more cash on hand than it knows what to do with. They won't "spend" much of the money here in the U.S., they'll continue sitting on it and investing it.

This is why tax cuts for the rich and for corporations are usually a bad idea. On the other hand, if you give tax cuts to the middle class or poorer people instead, they will actually spend a large portion of that money, boosting the economy in the process. The reality is the opposite of 'trickle-down economics'.

 

[phillipduran]

Yup, deficits only matter when a Democrat is POTUS.

So you're not up on current events and aren't aware that the deficit is going down? I'll remind you, it doubled under Obama so that was a very relevant thing that mattered. It's going down now and of course main stream media isn't clapping about that. More MAGA and more silence from the big news folks.

 

[manu chao]

This is what these kinds of articles always fail to mention: large corporations like Apple are basically being paid by the government to borrow money due to the current rock bottom interest rates. That's why it's so cynical for companies to complain about the repatriation taxes. They're already getting an unbelievable deal from the government in the form of bond rates vs. interest rates. Giveaways on top of giveaways...

Sure, but bond rates are an annual, recurring fee. Repatriation taxes are a one-off payment.

 

[unobtainium]

So you're not up on current events and aren't aware that the deficit is going down? I'll remind you, it doubled under Obama so that was a very relevant thing that mattered. It's going down now and of course main stream media isn't clapping about that. More MAGA and more silence from the big news folks.

Since none of Trump's tax changes, or the repeal of the Affordable Care Act, or any of Trump's changes have gone into effect yet, what is the basis for crediting Trump for the current economic success? It seems to be a continuation of the economic growth in Obama's second term..

 

[phillipduran]

What a term! "TAX HOLIDAY"!! Insane semantics... I really wish we were getting a "Federal Holiday" where we were cleaved from the unconstitutional tumor making the true government look like a demonic elephant man beating cash out of people to put into the hands of the politically wealthy. You know, the thing that tries to control everyone and everything and then propagandize and gently terrorize the population to divide and conquer, to get more control of everyone('s money) and destroy rights and responsibilities while instituting bloated, arbitrary law.

Apple--pay your "fair share" and stop acting like a victim.

I don't like democrat policies either but you shouldn't be that hard on them. Relax.
[doublepost=1494001987][/doublepost]

Since none of Trump's tax changes, or the repeal of the Affordable Care Act, or any of Trump's changes have gone into effect yet, what is the basis for crediting Trump for the current economic success? It seems to be a continuation of the economic growth in Obama's second term..

Knowing Trump is in office and all of the meetings he has had with manufacturing CEO's and businesses has inspired people to invest in America. Real hope and real change has this effect. The next 8 years are going to be great.

 

[CrystalQuest76]

Promises made, promises will be delivered. Tax cuts for everyone! MAGA!!

Tax cuts sound good, but when you are driving across the bridge when it collapses think about it as you crash into the bottom of the gorge (if only there had been money to maintain that bridge). Think about the wonderful taxes you did not have to pay when your child dies from food poisoning that could have been avoided if only the government could have afforded the food inspector at the cheaply run cattle stockyard.
[doublepost=1494002386][/doublepost]

Just wish Apple would would bring the money over, pay off as much of its debts as possible, and then reinvest some of it.

How about bring that money back. Pay the taxes they owe since they live and benefit from the many services that exist in this country. Safe food, public health, safe roads, safe utilities, protected resources (military and diplomats), protections for all their intellectual property provided by courts and diplomats, ect... And of course to pay the dividends to the investors, without borrowing money from others.

 

[Solomani]

Trump probably doesn't remember he ever said that. He has the memory of a goldfish. I wouldn't count on him making good on it.

Ouch! The goldfishes are deeply hurt by your comments.

 

[8281]

So you're not up on current events and aren't aware that the deficit is going down? I'll remind you, it doubled under Obama so that was a very relevant thing that mattered. It's going down now and of course main stream media isn't clapping about that. More MAGA and more silence from the big news folks.

Yeah, nope: https://www.bloomberg.com/news/articles/2017-05-04/the-impossible-math-behind-trump-s-tax-cut

Yes, it always increases during a recession because of increases in non-discretionary funding like Medicaid, etc. Tax cuts have never and will never create enough growth to "pay for themselves" as supply siders often say. Usually they recoup about a third of lost revenue. We've done this so many times now...

 

[WarHeadz]

HAHAHA! He's been touted as a president who finally delivers on campaign promises. You CAN count on him making good on it.

Poor deluded soul.

 

[8281]

Tax holidays don't accomplish much unless they are part of a broader tax policy. The last tax holiday in 2004 didn't really accomplish much. The companies that most benefited from it cut jobs.

https://www.treasury.gov/connect/bl...-The-Costs-of-a-Repatriation-Tax-Holiday.aspx

 

[unobtainium]

Tax cuts sound good, but when you are driving across the bridge when it collapses think about it

Haven't you heard? Trump is going to make HYUUUGE investments in infrastructure, AND cut taxes at the same time! Oh, and he's also going to increase defense spending and build a border wall costing billions (or trillions) WHILE actually cutting the deficit!

You might wonder how he's going to perform these seemingly illogical, contradictory feats, but the answer is that he's a magical wizard.. A "grand wizard", if you will!

 

[Carnegie]

That calculation only works if this is a temporary situation. Bringing the money home adds a one-time charge of 35% (in reality even less, as Apple can deduct what it has paid in corporate income tax on that sum in the country the money is currently held, for Ireland the regular rate would be 12.5%, meaning if Apple had a $100 bn profit in Ireland, it already has paid a 12.5% tax on that and if Apple brings the remaining $87.5 bn home, it 'only' needs to pay the difference, ie, $35 bn - $12.5 bn = $22.5 bn).

But if Apple takes out a $87.5 bn loan in the U.S. at 2%, that creates an annual expenditure of $1.75 bn. Therefore, after 13 years, it will have paid more in interest than it would have paid in taxes. And thus, if in 13 years, Apple can repatriate the money tax-free, paying interest on the loan will have turned out to be the more expensive strategy. If the 'tax holiday' isn't a zero tax rate but merely a lower tax rate, eg, 10%, that time period gets even shorter.
[doublepost=1494000787][/doublepost]
Correction: They had a sweetheart deal, that deal is no more. Since 2015 or 2016, Apple is paying the full 12.5% rate in Ireland.

For that comparison, what Apple pays in borrowing costs isn't what matters. What matters is the difference between what Apple pays in borrowing costs and what it earns from the savings that it thusly retains (because it finances certain things through borrowing rather than spending those savings). That difference is pretty small at this point.

Also, when it comes to Apple's undistributed foreign earnings, the aggregate rate of foreign income taxes that has already been paid on it is likely lower than 12.5%. We can't really pin that number down, but we can get an idea of it from parsing Apple's financial reports. I think it's somewhere between 5 and 10%.

Apple does repatriate some of its foreign earnings. Best I can tell, and what I would guess anyway, is that it repatriates portions that it's already had to pay a higher foreign income tax rate on. So what gets left as undistributed foreign earnings is that which it has paid little foreign income taxes on.

 

[adamjackson]

For all of Tim's Trump bashing, he really should have Apple pay the 35% rate and bring the money in.

That may not get him fired but Shareholders would be pissed. They see it as throwing money away. Their interests are to pay the taxes Apple legally owes not a cent more and if Apple can leverage their overseas cash for low-interest borrowing today, why not?

Tim is protecting shareholder money and using these to give out dividends. in their eyes, everyone wins.

 

[miniyou64]

Tax cuts sound good, but when you are driving across the bridge when it collapses think about it as you crash into the bottom of the gorge (if only there had been money to maintain that bridge). Think about the wonderful taxes you did not have to pay when your child dies from food poisoning that could have been avoided if only the government could have afforded the food inspector at the cheaply run cattle stockyard.

Yes what would humans do without the big benevolent government stealing our money and redistributing it wherever they see fit without any of our control?! Just trust them, they know what they're doing! They care! Please take more of my money!!!!

 

[Rocketman]

Perhaps so, but the machinations used by Apple (and other large multinationals) to move and shelter their profits are not available to "any American". The IRS is going to great lengths to monitor and penalize individuals who try and evade taxes through offshore accounts.

They are available to any American with business operations in more than one country and owns intangible assets such as patents, trademarks, copyrights, which can reside in the most favourable country possible.

To the tax and spend advocates, you are free to pay any sums you like to:
Unites States Treasury
PO Box 7704
San Fransisco, CA 94120
USA

It is not limited to either US citizens or payers in US$ either. Anyone can help out.

JJ

 

[69650]

The current international tax system for multinationals like Apple is absolutely crazy. We need to remove the corrupt political class who allow it to continue.