Best of the Week
Most Popular
1.UK House Prices Momentum Crash Threatens Mini Bear Market 2017 - Nadeem_Walayat
2.Perfect Storm - This Fourth Turning has Over a Decade of Continuous Storms to Come - James_Quinn
3.UK House Prices Momentum Crash Warns of 2017 Bear Market - Video - Nadeem_Walayat
4.Billionaire Investors Backing A Marijuana Boom In 2017 - OilPrice_Com
5.Emerging Markets & Basic Materials Stocks Breaking Out Together - Rambus_Chartology
6.Global Currency Reserve At Risk - Jim_Willie_CB
7.Gold and Silver: Your Stomach Is Probably Wrenching Right Now - The_Gold_Report
8.Warning: The Fed Is Preparing to Crash the Financial System Again - Graham_Summers
9.Basic Materials and Commodities Analysis and Trend Forecasts - Rambus_Chartology
10.Discover Why A Major American Revolution Is Brewing - Harry_Dent
Last 7 days
3 Psychological Ingredients behind Great Web Content - 17th Aug 17
The War on Cash - Rogoff, Orwell and Kafka - 17th Aug 17
The Stock Market Guns of August, Trade Set-Up & Removing your Rose Tinted Glasses - 16th Aug 17
Stocks, Bonds, Interest Rates, and Serbia, Camp Kotok 2017 - 16th Aug 17
U.S. Stock Market: Sunrise ... Sunset - 16th Aug 17
The Next Tech Crash Could Delay Your Retirement by a Decade - 15th Aug 17
Gold and Silver Precious Metals Nearing Breakout - 15th Aug 17
North Korea Showdown: Pivotal Market Turning Point - 15th Aug 17
Tech Stocks DOT COM Bubble Do-Over? - 14th Aug 17
Deep State Conspiracy or Chaos - 14th Aug 17
From the Trans-Atlantic Axis and the Trans-Asian Axis - 14th Aug 17
Stock Market Intermediate Correction Underway - 14th Aug 17
The Islamic State Jihadi Pivot to Asia - 13th Aug 17
Potential Pivots Upcoming for Stocks and Gold - 13th Aug 17
North Korean Chinese Proxy vs US Military Empire Trending Towards Nuclear War! - 12th Aug 17
Gold Stocks Coiled Spring - 12th Aug 17
Neil Howe: The Amazon-Walmart Rivalry Will Determine the Future of Retail - 12th Aug 17
How to Alton Towers Half Price Discount Entry 2017 and 2018, Any Time, No Pre-Booking! - 12th Aug 17
Top 3 Technical Trading Tools Part 2: Relative Strength Index (RSI) - 11th Aug 17
What Makes Women Better Investors - 11th Aug 17
Crude Oil Price Precious Metals Link in August - 11th Aug 17
Influencer Marketing Predictions All Businesses Should Take Into Account - 11th Aug 17
Really Bad Ideas - Government Debt Isn’t Actually Debt - 10th Aug 17
Gold Sees Safe Haven Gains On Trump “Fire and Fury” Threat - 9th Aug 17
Why Is The Stock Market Not Trading On Fundamentals Lately? - 9th Aug 17
USD/CAD - Can We Trust This Breakout? - 9th Aug 17
New Monthly Rebate to Help Reduce Your Trading Costs - 9th Aug 17
Stock Market Divergences Are Now Appearing! - 9th Aug 17
Is Inflation an issue or did the Fed Mess Up? - 8th Aug 17
Top 3 Technical Trading Tools Part 1: Japanese Candlesticks - 8th Aug 17
Researchers Find $10 Billion Hidden Treasure In A Dead Volcano - 8th Aug 17
What Happened to Thousands of Sheffield's Street Trees 2017 - Fellings Documentary - 8th Aug 17
Solar, Bubble, Banks, War, and Legal Tender: Five Reasons Why You Should Buy Silver Now - 7th Aug 17
CRASH - If Some People Do It, Nothing Bad Happens, But If Everyone Does It, All Hell Breaks Loose - 7th Aug 17
Gold and Silver : The Battle for Control - 7th Aug 17
Precious Metals Sector is on Major Buy Signal - 7th Aug 17
Stock Market - Has Time Run Out? - 7th Aug 17
Get Ready for an Historic Upside Gold and Silver Run - 7th Aug 17
BOOM! Bitcoin Rockets To New All-Time High As Cryptocurrencies Surge Higher! - 7th Aug 17
U.S. Dollar: This Crash Signals the End - 6th Aug 17
Predicting The Price Of Gold Is A Fool’s Game - 6th Aug 17
Asda Sales Collapse and Profits Crash! UK Retailer Sector Crisis 2017 - 6th Aug 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Apple's Devious New Way to Dodge U.S. Taxes

Companies / Taxes May 02, 2013 - 12:46 PM GMT

By: Money_Morning

Companies

David Zeiler writes: The record $17 billion Apple bond offering this week will do more than just placate shareholders eager to get some benefit from the company's $144.7 billion in cash.

It will help Apple Inc. (Nasdaq: AAPL) avoid paying taxes, a feat that the Cupertino, CA tech giant has elevated to a high art.


The company has kept the bulk of its cash - some $102 billion - in overseas accounts to avoid paying the 35% corporate tax rate here in the United States.

Borrowing money to fund its plans for dividend increases and stock buybacks allows Apple to reward its shareholders without repatriating those foreign profits and paying U.S. taxes.

Better yet, the interest Apple will pay out in its bonds is tax deductible, which will reduce the company's tax bill even more.

It's all so elegantly devious - and perfectly legal.

This Week's Apple Bond Offering Just the Beginning
The company plans to return about $100 billion to shareholders by 2015 in the form of repurchased shares and dividend hikes.

That means this week's $17 billion Apple bond offering was merely the first of many for a company that before Tuesday had zero debt on its balance sheet.

But going tens of billions of dollars into debt when you don't have to makes sense when you realize the staggering tax advantages of this strategy.

Apple sets aside money every quarter to pay the U.S. taxes it would owe should it ever bring its foreign profits home.

As of September, Apple's accountants had designated a staggering $13.8 billion as potential U.S. tax payments, a 34% tax rate (slightly lower that the official 35% rate because companies can take credits for taxes paid to foreign governments).

Now compare that with the interest rates Apple is paying on its bonds.

The Apple bond offering this week included $5.5 billion of 10-year notes with a yield of 2.415%, $4 billion of 5-year notes at 1.076%, $3 billion of 30-year notes at 3.883%, $1.5 billion of 3-year notes at 0.511%, and $3 billion of 3- and 5-year floating rate notes at 0.05% and 0.25% above the LIBOR.

All of those rates are much, much lower than the 34% Apple would have to pay the Internal Revenue Service (IRS) on its overseas profits if it repatriated any of that cash.

The truth is, Apple would be crazy not to take on the debt.

"Companies that have very little to no debt can be opportunistic when rates hit new lows, and Apple is doing exactly that," Jason Graybill, who oversees $1.2 billion of investment-grade bonds at Carret Asset Management LLC, told The Wall Street Journal.

Apple Pays Even Less to Foreign Governments
In addition to holding most of its profits overseas to duck U.S. taxes, Apple has numerous strategies to avoid paying taxes to foreign governments.

Perhaps the most famous is dubbed the "Double Irish with a Dutch Sandwich," which routes European profits through Irish and Dutch subsidiaries - where corporate taxes are low - and then on to the Caribbean.

"They're not selling a lot of iPads in some of these tax-haven countries where the median income is a few hundred dollars a year, but they're playing accounting games to book the profits there," Rebecca Wilkins, senior counsel for federal tax policy at the non-profit Citizens for Tax Justice, told The Fiscal Times.

Such strategies are so successful that experts estimate Apple pays just 5% in taxes on its foreign profits.

So while Apple pays an effective tax rate of 26% on the profits it earns in the United States, the company's bag of tax-avoiding tricks translate to a global rate of just 13% - low even by the standards of other U.S. multinationals.

Meanwhile, the middle 20% of U.S. wage earners forked over an average of 16% of their income to the IRS.

Of course, Apple isn't the only multinational doing everything it can to dodge taxes - almost all do it to some degree. What this really shows is just how ineffective U.S. corporate tax law has become.

"We have a huge problem with our international tax system," Wilkins told the Fiscal Times. "The fact that corporations are allowed to defer paying the money until they bring the money home causes all kinds of economic distortions and a whole lot of game-playing."

For more on Apple's latest moves that affect investors, check out this post-earnings Apple update.

Source :http://moneymorning.com/2013/05/01/apple-bond-offering-is-proof-itll-do-anything-to-avoid-taxes/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife