Best of the Week
Most Popular
1.UK General Election Exit Polls Forecast Accuracy - Nadeem_Walayat
2.What's Next for the Gold Price? - Axel_Merk
3.UK House Prices Correctly Forecast / Predicted Conservative Election Win 2015 - Nadeem_Walayat
4.15 Hours to Save England from SNP Scottish Nationalist Dictatorship - Election 2015 - Nadeem_Walayat
5.Exit Poll Forecasts Conservative UK Election 2015 Win - Nadeem_Walayat
6.Gold And Silver China’s Pivotal Role: More Questions Than Answers. Not So For Charts - Michael_Noonan
7.Conservative Win 2015 UK General Election, BBC Forecast of 329 Seats - Nadeem_Walayat
8.Investing and the Lollapalooza Effect - Niels C. Jensen
9.Gold Price Target - Rambus_Chartology
10.Gold Price Nearing An Important Pivot Point - GoldSilverWorlds
Last 5 days
One Investment Could Save Two Generations' Retirements - 22nd May 15
Investing is About Identifying Gifted and Talented Camps - 22nd May 15
One of Europe's Latest Debt Nightmares - 22nd May 15
UK Immigration Crisis Could Prompt BREXIT, Propelling Britain Out of EU Despite German Factor - 22nd May 15
America Superpower 2016 - 21st May 15
Stock Market Secular Versus Cyclical Investing - 21st May 15
Banking Stocks Break Out with Higher Bond Yields - 21st May 15
The Tech Portfolio Built to Beat the Market - 21st May 15
Gold “Less Sexy” Than Bitcoin … For Now - GoldCore on CNBC - 21st May 15
The Russia-West Rivalry in the Balkans - 21st May 15
The US Dollar and the Precious Metals Complex - 21st May 15
Gold GLD ETF Drawdown Continues Unabated - 21st May 15
Who’s Killing the Stock Market? - 21st May 15
Your Best Way to Profit from the Narrowest Market in 20 Years - 21st May 15
Government Regulation and Economic Stagnation - 20th May 15
It’s Time to Hold More Cash and Buy Gold - 20th May 15
Choppy Asian Stock Markets - 20th May 15
Countdown to Global Financial Collapse - 20th May 15
Will Interest Rates Ever Rise? - 20th May 15
How to Cash in on Amazon Stock’s Amazing Cloud Success - 20th May 15
Three Hidden Forces Pushing Crude Oil Price Back Up - 20th May 15
U.S. Housing Market Strong Numbers in Perspective - 20th May 15
Greece Debt Crisis - Obama Has A Big Fat Greek Finger - 20th May 15
Now Is the Time to Own the Oil & Gas Leaders - 20th May 15
UK Deflation Warning - Bank of England Economic Propaganda to Print and Inflate Debt - 20th May 15
Trading Gold and Silver along with the Pros - 19th May 15
Gold Ticks Higher as London Housing Market Crash Looms? - 19th May 15
Global Stock Market, Commodities Group Analysis - 19th May 15
How Stock Investors Could Profit from the Dark Net Pattern That Few Others See - 19th May 15
The Patriot Act is now USA Freedom Act - 19th May 15
Investing in Europe? 5 Critical Insights to Boost Your Portfolio Now - 19th May 15
Gold Price Trend Forecast - 19th May 15
Stock Market Continues Defying Gravity, Dow New All Time High - 19th May 15
Are Gold and Interest Rates About To Take Off Higher? - 18th May 15
Nikkei Japanese Stock Index Set To Get Smashed - 18th May 15
Silver Price Projections For 2020 - 18th May 15
The IMF Leaks Greece, Institutions Forcing a Debt Default - 18th May 15
Europe's Stocks Bull Market Continues After Correction - 18th May 15
European Banks Vulnerable Today As 2008 Financial Crisis - 18th May 15
Payments, Currencies, and Broken Money - 18th May 15
Learning to Trade Markets - Dealing with Losing Trades - 18th May 15
Stock Market Sell in May and Go Away - Last Hurrah - Take2 - 18th May 15
The No. 1 Reason Stocks Will Climb Higher - 17th May 15
Gold, Silver Distorted Markets, Financial Sophistry, and Moral Hazard - 17th May 15
Stock Market CAC40 Trend Forecast - 17th May 15
Stock Market Diagonal Pattern Nearly Complete - 16th May 15
Gold And Silver - Elite's Game Of Jenga In Place. Your Move - 16th May 15
You’ll Never See a Better Moment to Invest in China - 16th May 15
Are Gold and Silver Stocks Breaking Out? - 16th May 15
War On Cash - Why the IRS Seized All the Money from a Country Store - 16th May 15
Is China Economy a Fire-Breathing Dragon or a Dragon on Fire? - 16th May 15
Silver Buying Only Starting - 16th May 15
Why Opinion Pollsters Got UK Election 2015 Badly Wrong - 15th May 15
Double Black Diamond - What a Bond Bear Market Looks Like - 15th May 15
This “Bubble” Is Set to Kick Off New Energy Profits - 15th May 15
German Gold Demand "Spikes"- Investment Demand Surges 63% - 15th May 15
How GDP Metrics Distort Our View of the Economy - 15th May 15
McDonald's Future Is Hard to Digest (NYSE: MCD) - 15th May 15
Dry Bulk Shipping Index Chart Analysis Update 2015 - 15th May 15
Economic Expansion Ahead? World Stock Markets Analysis - 15th May 15
Why Not Tell Greece How To Run A Democracy? - 15th May 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Biggest Debt Bomb in History

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

© 2005-2015 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

Biggest Debt Bomb in History