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Apple And Taxes
Confused why AAPL is opting for the dividend recap route (as we predicted it would in January )? Simple: as the first chart below reminds us, as of December 31, nearly 70% of the company's total cash, which has grown to a record $145 billion in the current quarter, was held offshore. This means that if AAPL wanted to repatriate this $100 billion or so in cash, it would have to pay Federal tax on it, amounting to dozens of billions in remittances to Uncle Sam as this is cash which AAPL does not have full access to for US based operations. Hence: it has opted to raise cash by issuing debt instead of repatriating its cash.
Which brings up an interesting point. As we have shown in the past, perhaps the one thing Tim Cook's company has loathed more than anything in the past, is to pay taxes, which is why it has some of the most convoluted legal tax shelters imaginable. Indeed, in the current quarter, according to the company's cash flow statement, a tiny $2.4 billion was paid in cash taxes. Putting this number in perspective, the company had an operating profit of $12.4 billion.
Or, cumulatively, since December 2008, AAPL has generated a grand total of $149 billion in operating profit, while paying just $21 billion in total taxes.
Is it apparent now why some $100 billion in Apple cash is not fully recourse to the company? Unless, of course, AAPL decides to follow Gerard Depardieu's example, and run away into the tax-amnesty friendly steppes of Russia, where it will be free to do as it wishes with all of its cash...
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Taxes are for working middle class individuals and households only.
so is apples money exposed to the eu bail in function?
They are on the special low iTax program available to the super rich and Fortune 500 companies.
US corporations pay foreign corporate taxes on profits earned from foreign operations. However these tax rates are substantially lower than ours. Hence corporations will do everything legally possible - probably illegally possible - to book earnings in foreign locations rather than domestically. Thus, by having corporate tax rates that are higher than most other nations, we are essentially encouraging corporations to pay taxes to other nations instead of here - as well as to park cash and encourage the investment of cash overseas rather than in domestic activities.
This seems to me to be one of the stupidest public policy schemes anyone could come up with. We are encouraging our companies to pay taxes to foreign nations rather than here at home. Just plain stupid as stupid gets.
Slash the corporate rates to international levels, eliminate the crony tax breaks, allow companies to make investment decisions for reasons other than tax differentials and remove the incentive for companies to report their profits off shore.
But to do this would require individuals in Washington who actually understand fundamental economics. They would rather do nothing and then bitch about how evil corporations are. Dopamine-spiking opportunities perhaps, but really, really stupid if your real concern is the health and welfare of the domestic economy.
And to those who will "fast-brain" retort that US corporations actually pay a lower tax rate than other nations because of the various tax breaks, please think it through. Tax decisions to report profits here or overseas are oftentimes based on the incremental "last dollar" tax impact and not on the average combined tax effect of base rates and deductions. Ego, get rid of the breaks, lower the base rates and i will bet the ranch that the corporate tax proceeds to the federal government will rise substantially - as will the available capital to invest in domestic PP&E.
Great post. There would be a a huge upside. These new inflows, from american corporations, paying american taxes, in a legitimate system, means the corporations will have happier employees. The middle class suffers everytime tax code junkies gain critical mass in legislatures. The corps have deep pockets, but they also have revolving door attorneys. The poor have no money, so they dont need attorneys. The middle class always tastes "just right" to parasites.
They use every "trick" available to them including transfer pricing and the double irish with a dutch sandwich to avoid almost all but the most negligible of taxes. It's perfectly legal, but less to do with "paying taxes in low tax locales" and more to do with moving assets and IP licensing rights to countries that have special tax treaties and then plying their trade from these locales using a series of tiny overseas subsidiaries. Many big international firms do it including AAPL, MSFT, GOOG, GE, MRK, BAC, VZ, WFC, FB, PFE, ORCL and even ADBE. GOOG paid an effective tax rate of 2.4% using these techniques. Many of these companies get US government contracts, some of these companies got TARP money bailouts, a few get R&D tax credits, and one of these firms even received a $1.5B tax rebate from Uncle Sam! And this list is far from exhuastive.
I suspected the process was far more complex than my limited understanding of it.
Nah, your enlightenment is a mere google search away. Search what I wrote in bold and you'll understand how and why it works in 5 paragraphs.
No more than Jon Corzine's.
It doesn't have to be Russia, it could be Ireland, Switzerland, The Caymans etc. The US operation would then become just a subsidiary and pay US taxes only on US profits, which would be minmal as the profits would be transfer-priced out. It IS going to start happening.
Meanwhile, I can see no good reason why US Corporations get credits for overseas taxes paid irrespective of whether those same profits are repatriated or not?
U.S. Corporations are part of the kleptoligarchy, you and I are not.
Taxes are for working middle class people, not rich corporations, rich individuals, or the poor living on goobermint handouts.
It's not a credit, it is a DEDUCTION for taxes actually PAID, against income.
The alternative is double taxation and a very justified exodus of big business from the US.
Agreed. Russia has clearly not figured that out with their flat 15% income tax.
Besides, if AAPL moved to Russia, Putin would probably just corzine the cash and give it to his buddies that just lost millions in Cyprus.
Did Russian organized crime lose any money? I heard the ATMs were still open in Russia and London, just the Cypriot ATMs had the withdrawal limit!
Could it be that someone was trying to send a message to the Russians during the Cyprus bail-ins?
Talk about Russian hot money.....this story hit a day after the Boston bombing...
http://www.thestandard.com.hk/breaking_news_detail.asp?id=34964&icid=4&d...
It wouldn't take $145 billion to make itunes less annoying
Was +$24 AH and now -$2. Ouch.
That settles it, I'm putting my 145 billion in an offshore account lickity-fuckin-split.
maybe apple will invest in Germany...Mutti will be pleased.
Good for AAPL.
While it sucks that they can play by other rules than we can I agree with your statement, The Gov would use any AAPL tax money and burn it on something stupid like a working penis for MillionDollahBonus
They could just send the cash to be burnt in a power plant for electricity. After all what better fits the definition of a "green" "renewable" source of fuel, than bricks of crisp new 100 dollar bills, fresh off of FED's presses?
Take the cash, close the company. Lulz your ass off.
Why not dividend in shares instead of cash?
Apple might have a problem soon if this doesn't calm down...
http://zeenews.india.com/news/nation/talks-with-china-fail-more-troops-m...
Talks with China fail, more troops may be sent to Ladakh
New Delhi: India and China on Tuesday failed to break the deadlock over the deep incursion by Chinese troops at Daulat Beg Oldi(DBO) sector in Ladakh at their second flag meeting and more Indian soldiers may be deployed in the area.
Sources here said the over three-hour-long meeting of Brigadier-level officers at Spanggur Gap in the Chusul sector did not produce any result as the Chinese troops refused to move out from the Indian territory. Brig BM Gupta and Senior Colonel Ayan Yanti led the respective sides.
The Chinese side maintained that the area where they have set up tented posts is part of their territory and denied any intrusion, they said.
At the meeting, the Chinese side raised objections to construction of bunkers by India at Phuktsey area and wanted the structures to be demolished.
Additional troops may be deployed in the area if the situation does not de-escalate and Chinese troops do not go back to their old position, sources said.
The Chicoms even sent spy gear and supplies to the troops there... so it's not a ``mistake``...
India's choice : accept the Chinese de-facto annexation... or go to war...
I can see the headlines now: "India, the first country to use a catapult, to deliver a nuclear weapon."
dont forget AAPL is investing that cash in (foreign?) banks that support competitors of companies operating in the US.
so AAPL lends to DBS Singapore or Nomura Tokyo or Deutsche Bank Frankfurt, for example, who in turn lend to plastics companies in Asia or Sony in Japan or BMW in Germany..or any number of permutations of lending to (insolvent) banks and governments, who in turn...etc etc...
so many issues/questions
how big a headline would it be if AAPL's profits fell because of the default/haircuts applied to collapsing banks..so that it could start booking tax losses in the US? how much of AAPL's sales are sourced offshore, how much technology is sourced offshore? where are its investors? are they foreign or domestic. is it even a US company? or is it a global company with some (most) sales in the US? aside from the cash, what "assets" does AAPL have? inventory, "goodwill" and people?
for me, it is a global company whose primary listing is in the US. as such, it owes its allegiance to the flag and should act accordingly. that means it should pay US tax rates on global earnings and should invest its cash in the US until it deploys it. again, for me, this would be in upskilling US workers so that whatever could be produced in the US was produced in the US.
that is what should happen...that is...if the Government wasn't such a blood sucking leech on employment, production and health. sigh..that means AAPL should probably continue to do what it is doing.
40% return on total capital - even with margins contracting - and the stock trades at 9x earnings.
It is DIRT cheap.
Not dirt cheap yet, but soon.
It's more expensive than your mother.
What country is Apple cash in ? How do they structure that to keep US sales offshore?
So when is the Fair Share Czar going to come after the mighty AAPL?
Right after the Pelosi's complete the last few insider trades, and she outlaws it for any future congress critters who think they could be as glorious as she was.
The irony is that AAPL became the largest market cap corp in the world by providing tools for the culture industry. Music, Art, CG, etc.
I preffer the old culture that gave them their subject matter. Elvis (the king of rock and roll) bragged about how much he paid in taxes.
he said rout, heheheh...hehehh...hehhh
Perhaps someone can answer this:
Why doesn't Apple take $60 billion of its offshore money and put it into a new foreign corporation, say "BuyCo," then have BuyCo purchase $60 billion of Apple stock?
The dividend/share could then be increased, just as if the stock had become shelf stock, because any dividends paid to BuyCo would remain within the company for corporate use.
It would eliminate the borrowing.
a share buyback transfers wealth to the current shareholders w/o tax by raising the price f the stok ttrough scarcity. Capital gains then for share owners.
I smell a wonderfrul derivative tax dodge!
To pay usd 2.4 billion on usd 12.4 billion operating profits is to pay 20% taxes. What's wrong about that? Is ZH arguing in favor of a french tax approach at 75%?
Good for Apple. Why would anybody want to pay taxes in the US? So those motherfuckers in Washington can feather their nests, help out their pals, make lists, and buy drones?
All the taxes I paid last year probably would not come close to covering the costs of an Obama entourage stepping out for hamburgers and a photo op.