I'm confused why "Pay the US tax" is not being seriously considered. I guess no one would even hope that a corporation would do the sensible and legal thing when there are loopholes to be abused.
Is it really that surprising? Let's make a highly simplified analogy with easy numbers.
You have two bank accounts, only in this example they're different currencies. One in Pesos, one in Francs. Let's make things easy and pretend that 1 Peso is worth 1 Franc.
Your customers pay in the currency they have. Lots of people pay in you Pesos, but some pay you in Francs. So after a while you have 100 P but only 20 F.
Now most of your bills have to be paid in F. You have some you can pay in P but the money comes in fast enough that will never run dry. Unfortunately the F account may not be so steady between paychecks and you may overdraft. If that happens people with pitchforks will come after you. You need to do something to make sure that you always have enough in the F account.
So there are two obvious options. You can move some of your Pesos over to Francs, but there is a BIG FEE for transferring to that account. You'd like to move 80 Pesos over, but after the fee you only get 40 P in your account. So instead of 100 P and 20 F (for 120 units, since it's a 1:1 exchange) you have 20 P and 60 F (for only 80 units). You can still pay all your bills, but you just lost 1/3 of your money and now your spouse is mad at you.
Or you could do something else. You could take out a loan in Francs when your balance gets low so you can pay your bills until more F come in. Banks are happy to lend you F because you have a nice house and plenty of P and they have a lot of money to lend right now. You have to pay interest, but that's like 5 F so it's not a big deal. Do things this way and in the end you have 100 P + 15 F (a total of 115 units of value) so you've only lost about 4% of your total net worth and you were still able to pay your bills on time.
Did that help? After reading it back over I get the feeling I just spent 10+ minutes but it's not going to clear things up for people.
> You could take out a loan in Francs when your balance gets low so you can pay your bills until more F come in.
Sorry if this is obvious but just want to clarify this for myself: Do you plan to pay back the entirety of the loan, with interest with the account in French Francs? If not, aren't you just delaying the inevitable? If yes, is there any reason to keep the peso account locked up (for lack of a better term) in liquid assets? Perhaps you'd be better served by taking risks with that money?
>Do you plan to pay back the entirety of the loan, with interest with the account in French Francs?
Of course. You earn more than enough Francs to cover your expenses; it's just cheaper to borrow money right now than to convert from Pesos.
> If yes, is there any reason to keep the peso account locked up (for lack of a better term) in liquid assets? Perhaps you'd be better served by taking risks with that money?
The problem is precisely that: there's no good place to put that much money. Apple literally can't think of enough things to put all that money to use. Interest inflation rates are pretty low, so keeping it in TBills or whatever isn't really hurting them.
Issuing debt in the form of bonds means having to pay interest, but interest rates have been low for some time now.
It's not delaying "the inevitable". It's delaying until there is tax reform, hopefully with better conditions e.g. lower tax rates. Laws are made by humans, after all.
It does clear up a lot. I never really understood the whole economic thing while as undergraduate. A lot of companies have this issue, so they would hire offshore workers not only because offshore tend to be cheaper but also because they just don't want to move the money back to US due to taxation.
Here is a maybe a stupid idea, what if they just keep investing in a new company in the US with their offshore money, and then Apple buy the company for $1? what about buying lands? Can they keep more foreign money with lower tax rate that way?
So they pay interest to the banks, so they can buy the government, instead of paying tax to the government, so they can buy jobs and bridges and health care.
The assets have already been taxed by the foreign governments. And largely generated through operations abroad. The US has a tenuous claim to those assets, only because the corporations primary offices are in the US.
If they wanted to bring $100B back, they would pay up to $35B (the use repatriation fee - minus the foreign taxes). So they really only managed to bring back ~$65B, that was created largely overseas, just for moving an asset across international borders. That is a sensible thing, to just toss away the valuation of Uber, to bring money into the US?
There's very little reason to. unless they were just desperate to use the cash why pay more taxes than they need to? The money wasn't made in America, they don't have a great claim to it (many countries don't have this tax we are talking about).
In the past, we've had tax holidays were they made it a bit cheaper, seems sensible to wait and hope it happens again.
Alternately, they could buy companies overseas. It's obviously going to be hard to invest that much money, but if they can find interesting options it'd be a much better use of the money than paying a really high tax.
So do YOU pay taxes you don't have to? Most people with a mortgage can deduct interest payments from their income. You don't have to do it, but why wouldn't you?
Why? If Apple did this strictly, there would be a shareholder lawsuit definitely, but also Apple's non-US competitors would have a HUGE advantage since they aren't burdened by US-centric US tax laws...to the point that Apple couldn't really compete.
If everyone plays by the same rules, great! But that isn't the case, because not every company is American.
If Samsung (a Korean company) can sell devices in other countries while shifting profits (already taxed in those countries, BTW) between them freely, not having to pay additional tax to take the money back to Korea first (which they wouldn't, but that is another story), isn't that a huge advantage for them?
Why do you want Apple to play by rules that are different from Samsung? Why should Apple pay more tax than Samsung on profits for a phone sold in...China (barring reasonable taxes on value added by R&D where the R&D was done, which almost every country has).
Samsung is a direct competitor and its headquarters is in South Korea, which does not have a similar tax regime (handicap?) compared to Apple which is based in the US. So it is relevant.
While it's an option, it's just not anywhere close to being a smart option for any CFO. The margins between interest rates on the debt they can issue and the tax rate on repatriating cash earned overseas is huge.
Realize that Apple could theoretically spin these foreign cash-holding subsidiaries off into independent entities that will never pay any taxes to the United States. Apple has no moral or legal obligation to bring the money home other than the duty to shareholders to realize returns - and that same duty is the one that has them avoiding paying more tax than necessary.
Also, consider that in the case of a tax holiday, Apple will pay an optimum amount of tax (i.e. the maximum amount Congress believes it can charge while still bringing foreign cash home), and then repurchase programs will increase share prices, which will lead to sales of stock which will incur capital gains taxes from domestic shareholders. So, the United States treasury will be receiving more than just the repatriation tax. If Apple repatriated cash at a higher tax rate, they would repurchase fewer shares, leading to a lower price and fewer domestic sales of stock.
Well, it is a publicly traded company that has to do what's best for its bottom line so I can't fault a company too much for working the system to their advantage. They sell far more product (or maybe it's just iPhones? not sure) foreign so it makes sense they would have a ton of foreign money.
But yeah I was surprised it wasn't all in the United States. Perhaps I'm just naive.
Well, it is a publicly traded company that has
to do what's best for its bottom line
Meanwhile, here's Tim Cook on the subject:
“When we work on making our devices accessible
by the blind, I don’t consider the bloody ROI,”
Cook said, adding that the same sentiment
applied to environmental and health and safety
issues.
They can spend money on features that have a shitty ROI (like color blindness features) and still not want to waste money on taxes that don't need to get paid (movement of money across borders leading to taxes).
I'll hate on Apple all day, every day... but it would be stupid not to use the loopholes in the system - if selling something overseas and keeping the money overseas is a "Loophole" because selling a phone in China doesn't give the US taxes on that sale...
I'm also all about USA and holding my stars and stripes with pride... but it is down right stupid that a company can't make money over seas and then bring the money back without a massive hit - and 35% is a massive hit on money not made in the USA.
You have two bank accounts, only in this example they're different currencies. One in Pesos, one in Francs. Let's make things easy and pretend that 1 Peso is worth 1 Franc.
Your customers pay in the currency they have. Lots of people pay in you Pesos, but some pay you in Francs. So after a while you have 100 P but only 20 F.
Now most of your bills have to be paid in F. You have some you can pay in P but the money comes in fast enough that will never run dry. Unfortunately the F account may not be so steady between paychecks and you may overdraft. If that happens people with pitchforks will come after you. You need to do something to make sure that you always have enough in the F account.
So there are two obvious options. You can move some of your Pesos over to Francs, but there is a BIG FEE for transferring to that account. You'd like to move 80 Pesos over, but after the fee you only get 40 P in your account. So instead of 100 P and 20 F (for 120 units, since it's a 1:1 exchange) you have 20 P and 60 F (for only 80 units). You can still pay all your bills, but you just lost 1/3 of your money and now your spouse is mad at you.
Or you could do something else. You could take out a loan in Francs when your balance gets low so you can pay your bills until more F come in. Banks are happy to lend you F because you have a nice house and plenty of P and they have a lot of money to lend right now. You have to pay interest, but that's like 5 F so it's not a big deal. Do things this way and in the end you have 100 P + 15 F (a total of 115 units of value) so you've only lost about 4% of your total net worth and you were still able to pay your bills on time.
Did that help? After reading it back over I get the feeling I just spent 10+ minutes but it's not going to clear things up for people.