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Apple And Taxes

Tyler Durden's picture




 

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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Tue, 04/23/2013 - 17:57 | 3490402 ebworthen
ebworthen's picture

Taxes are for working middle class individuals and households only.

Tue, 04/23/2013 - 17:58 | 3490416 smlbizman
smlbizman's picture

so is apples money exposed to the eu bail in function?

Tue, 04/23/2013 - 18:10 | 3490449 WayBehind
WayBehind's picture

They are on the special low iTax program available to the super rich and Fortune 500 companies.

Tue, 04/23/2013 - 20:29 | 3490985 imapopulistnow
imapopulistnow's picture

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.

Tue, 04/23/2013 - 21:14 | 3491129 wisefool
wisefool's picture

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.

Tue, 04/23/2013 - 21:58 | 3491221 monkeyshine
monkeyshine's picture

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. 

Tue, 04/23/2013 - 21:59 | 3491256 imapopulistnow
imapopulistnow's picture

I suspected the process was far more complex than my limited understanding of it.

Tue, 04/23/2013 - 22:08 | 3491273 monkeyshine
monkeyshine's picture

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.

Tue, 04/23/2013 - 18:30 | 3490542 ebworthen
ebworthen's picture

No more than Jon Corzine's.

Tue, 04/23/2013 - 20:26 | 3490968 philipat
philipat's picture

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?

Wed, 04/24/2013 - 01:50 | 3491766 ebworthen
ebworthen's picture

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.

Wed, 04/24/2013 - 03:11 | 3491836 Urban Redneck
Urban Redneck's picture

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.

 

Tue, 04/23/2013 - 18:01 | 3490421 The Phu
The Phu's picture

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.

Tue, 04/23/2013 - 18:15 | 3490479 Herd Redirectio...
Herd Redirection Committee's picture

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!

Tue, 04/23/2013 - 18:49 | 3490630 dick cheneys ghost
dick cheneys ghost's picture

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...

Tue, 04/23/2013 - 17:57 | 3490403 redpill
redpill's picture

It wouldn't take $145 billion to make itunes less annoying

Tue, 04/23/2013 - 18:11 | 3490464 Jacque Itch
Jacque Itch's picture

Was +$24 AH and now -$2.  Ouch.

 

Tue, 04/23/2013 - 17:58 | 3490405 alien-IQ
alien-IQ's picture

That settles it, I'm putting my 145 billion in an offshore account lickity-fuckin-split.

Tue, 04/23/2013 - 17:57 | 3490408 falak pema
falak pema's picture

maybe apple will invest in Germany...Mutti will be pleased. 

Tue, 04/23/2013 - 17:59 | 3490411 Larry Dallas
Larry Dallas's picture

Good for AAPL.

 

Tue, 04/23/2013 - 18:03 | 3490427 SemperFord
SemperFord's picture

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

Wed, 04/24/2013 - 16:21 | 3494403 bluskyes
bluskyes's picture

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?

Tue, 04/23/2013 - 18:11 | 3490465 lolmao500
lolmao500's picture

Take the cash, close the company. Lulz your ass off.

Tue, 04/23/2013 - 18:12 | 3490466 Catullus
Catullus's picture

Why not dividend in shares instead of cash?

Tue, 04/23/2013 - 18:16 | 3490486 lolmao500
lolmao500's picture

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...

Wed, 04/24/2013 - 16:14 | 3494362 bluskyes
bluskyes's picture

I can see the headlines now: "India, the first country to use a catapult, to deliver a nuclear weapon."

Tue, 04/23/2013 - 18:23 | 3490515 hooligan2009
hooligan2009's picture

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.

 

Tue, 04/23/2013 - 18:26 | 3490523 Bam_Man
Bam_Man's picture

40% return on total capital - even with margins contracting - and the stock trades at 9x earnings.

It is DIRT cheap.

Tue, 04/23/2013 - 18:37 | 3490580 BurningFuld
BurningFuld's picture

Not dirt cheap yet, but soon.

Tue, 04/23/2013 - 18:52 | 3490650 lolmao500
lolmao500's picture

It's more expensive than your mother.

Tue, 04/23/2013 - 18:30 | 3490545 Common_Cents22
Common_Cents22's picture

What country is Apple cash in ?  How do they structure that to keep US sales offshore?

Tue, 04/23/2013 - 18:31 | 3490553 azengrcat
azengrcat's picture

So when is the Fair Share Czar going to come after the mighty AAPL?  

Tue, 04/23/2013 - 18:44 | 3490603 wisefool
wisefool's picture

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.

Tue, 04/23/2013 - 19:51 | 3490567 wisefool
wisefool's picture

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.

Tue, 04/23/2013 - 19:36 | 3490804 soopy
soopy's picture

he said rout, heheheh...hehehh...hehhh

Tue, 04/23/2013 - 19:44 | 3490828 hwwesq3
hwwesq3's picture

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.

Tue, 04/23/2013 - 20:21 | 3490937 darteaus
darteaus's picture

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.

Tue, 04/23/2013 - 21:59 | 3491248 venturen
venturen's picture

I smell a wonderfrul derivative tax dodge!

Wed, 04/24/2013 - 05:00 | 3491947 Mario55
Mario55's picture

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%?

Wed, 04/24/2013 - 07:57 | 3492088 ThisIsBob
ThisIsBob's picture

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.

 

 

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