Best of the Week
Most Popular
1.Trump Delirium Triggers Stock Market Brexit Upwards Crash Towards Dow 20,000! - Nadeem_Walayat
2.The Future Price Of Gold Will Drop Below $1000 In 2017 -InvestingHaven
3.May Never Get Another Opportunity to Buy Gold at this Level Again - Chris_Vermeulen
4.Delirium - The Real Reason Why Donald Trump Won the US Presidential Election - Nadeem_Walayat
5.Why Nate Silver / Fivethirtyeight is one of the Most Reliable Election Forecasting Indicator? - Nadeem_Walayat
6.Gold Price Forecast: Nasty Naughty November Gold Price Trend - I_M_Vronsky
7.Gold Mining Stocks Screaming Buy! Q3’16 Fundamentals - Zeal_LLC
8.Delirium of Trump Mania Win's Mr BrExit US Presidential Election 2016 - Nadeem_Walayat
9.The War On Cash Goes Nuclear In India, Australia and Across The World - Jeff_Berwick
10.Hidden Signs for Gold and Silver - P_Radomski_CFA
Last 7 days
Trump Stocks Bull Market Furious Rally Towards Dow 20k as Bear Mantra Persists - 8th Dec 16
More Talk About More Economic Growth and More Globalization - 7th Dec 16
Cracks In US Treasury Bond Market, The Japanese Factor - 7th Dec 16
The Rise of Anti-Establishment Italy - 7th Dec 16
Trump Likely to Drive Another Bump in Stock Market Buybacks — Here’s How to Hedge - 7th Dec 16
World War II and the Origins of American Unease - 7th Dec 16
Online CFD Trading for Traders on a Budget - 7th Dec 16
Silver Bullion Price Buying Opportunity for 2017? - 7th Dec 16
The Imminent Multi-Trillion Dollar Surge In Social Security & Medicare Costs - 7th Dec 16
Gold Bullion Price Buying Opportunity for 2017? - 6th Dec 16
Shariah Gold Standard Approved for $2 Trillion Islamic Finance Market - 6th Dec 16
THE Gold Play for 2017 - 6th Dec 16
Trump Sets The Stage For A Huge Gold Rally In 2017 - 6th Dec 16
BrExit Tsunami Claims Emperor Renzi's Scalp, Counting Down to End of the EU, Next? - 6th Dec 16
Failed EU - Means an Expanded Dictatorship - 6th Dec 16
Crude Oil Prices: "Random"? Hardly - 5th Dec 16
The Coming Stock Market Crash and WWIII - 5th Dec 16
This Past Week in Gold Market - 5th Dec 16
Stock Market Short-Term Correction Underway - 5th Dec 16
If Trump Doesn’t Do This, We Will Have the Great Depression 2.0 - 5th Dec 16
India’s Demonetization Could Be the First Cash Domino to Fall - 5th Dec 16
Our Future Economy, Jobs, Banking, And Governance - 5th Dec 16
Gold and Silver Bullion Buying Opportunity for 2017? - 4th Dec 16
First UK BrExit then Trump, Next BrExit Tsunami Wave to Hit Italy HARD Sunday! - 3rd Dec 16
The 10YR Yield and SPX Stocks Bull Markets - 3rd Dec 16
Gold And Silver – Do Not Expect Much Difference With Trump Compared To Obama - 3rd Dec 16
Gold, Currencies and Markets Critical 61.8% Retracements - 2nd Dec 16
Gold Junior Stocks Q3’16 Fundamentals - 2nd Dec 16
Adventures in Castro’s Cuba - 2nd Dec 16
We Are Putting Off the Inevitable - 2nd Dec 16
Macroeconomic Cycles & Demographics - A Fuse, An Explosive and The Igniting Catalyst - 2nd Dec 16
How Moving Averages Can Identify a Trade - 1st Dec 16
Silver Prices and Interest Rates - 1st Dec 16
America, is it Finally time for us to say Goodbye? - 1st Dec 16
Blockchain Technology – What Is It and How Will It Change Your Life? - 1st Dec 16
Burn the Flags, Can Trump Salvage The Sinking US Economic Ship? - 1st Dec 16
Will US Housing Real Estate Market Tank in 2017? - 1st Dec 16
Referendum Puts Italy's Government to the Test - 30th Nov 16
Why We Haven’t Seen Gold Price Rally after Trump Victory - 30th Nov 16
Breakdown and Slide in Crude Oil Price - 30th Nov 16
A 'Wicked Rally' in Gold Price Predicted - 30th Nov 16
Silver Market Sentiment Looks Golden - 30th Nov 16
Indian Demonetization Denotes Severe Stress in the Global Gold Market - 30th Nov 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

$10000 Gold

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

© 2005-2016 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