Best of the Week
Most Popular
1.China Crash, Greece Collapse, Harbingers of Stock Market Apocalypse Forecast 2015? - Nadeem_Walayat
2.Gold Price Awaiting Outcome of Greece Crisis - Clive_Maund
3.Gold Price Peculiar 6 Month Cycles - Rambus_Chartology
4.Gold Price Just a Little Bit More - Bob_Loukas
5.8 Unprecedented Extremes Indicate a Stock Market Bubble in Trouble - EWI
6.Gold And Silver – Without Either, You Will Be Greeced - Michael_Noonan
7.Lies, Damned Lies and Statistics - James_Quinn
8.China Crash, Greece Crisis Harbingers of Stocks Bear Market? Video - Nadeem_Walayat
9.Gold and Silver Record Shorting - Zeal_LLC
10.Markets Big Deflationary Downwave Quick Reference Guide... - Clive_Maund
Last 5 days
The Fed Can't Stop the Commodity Bear Market - 1st Aug 15
Meet the Leader Who Turned Google Into a “Buy” - 1st Aug 15
The Greek Coup: Liquidity as a Weapon of Coercion - 1st Aug 15
Gold’s Amazing Resiliency - 31st July 15
Silver – A Century of Prices - 31st July 15
Demand for Gold Bullion Surges – Perth Mint, and U.S. Mint Cannot Meet Demand - 31st July 15
Reasons Why the Greek Crisis Will Only Get Worse - 30th July 15
The War On Cash: Why Now? - 30th July 15
Greece - The IMF Experts Flunk, Again - 30th July 15
Threat Of Cyber Warfare the “Other Reason To Own Physical Gold” Warns Rickards - 30th July 15
The 5 Biggest Myths and Lies about the Middle East - 30th July 15
Greece, Diversion, and the New World Order - 30th July 15
Ibuprofen Warning - The Pain Killer that can Kill You! - 29th July 15
More Ritholtz on Gold, and Another Response - 29th July 15
Crude Oil Price Is Lower – and You’re Richer - 29th July 15
U.S. Home Sales Market Is Dead – This Chart Proves It - 29th July 15
Greece- What Happens When Economists Talk Politics - 29th July 15
The Gold - U.S. House Prices Ratio As A Valuation Indicator - 29th July 15
Will Crude Oil Price Decline Continue? -Video - 28th July 15
Gold & Silver Money Has Devolved Into Debt and Plastic - 28th July 15
Buy and "Own Gold Krugerrands" Says Money Expert Jim Grant, Very Bullish on Gold - 28th July 15
How to Protect Yourself from China's Crashing Stock Market - 28th July 15
Quantum Geopolitics - 28th July 15
Gold Mining Stocks to Weather the Storm - 28th July 15
Stock Market Bulls Beware! - 28th July 15
Will Chinese Stock Market Crash Affect the US? - 27th July 15
Crude Oil Price Under $48! - 27th July 15
Are We Seeing a Trend Reversal with U.S. Interest Rates? - 27th July 15
How to Know When the Gold Bear Market is Over - 27th July 15
Gold Bear Market Phase III - 27th July 15
Silver Bull Hammer Buy Signal - 27th July 15
Gold Cracks Support and Plunges to New Lows - How Low Will Price Go? - 27th July 15
Commodity Markets Breakdown Of 2015 Is Now A Fact - 26th July 15
Gold Price at a Five-Year Low: Here’s What to Do - 26th July 15
Stock Market Primary III Inflection Point - 26th July 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stock Market Bubble in Trouble

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