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Apple saves $9bn with bond manoeuvre Apple saves $9bn with bond manoeuvre
(5 months later)
Apple saved as much as $9bn (£5.8bn) when it decided to issue $17bn in debt rather than use its foreign cash reserves to pay money back to shareholders, accountancy experts have calculated.Apple saved as much as $9bn (£5.8bn) when it decided to issue $17bn in debt rather than use its foreign cash reserves to pay money back to shareholders, accountancy experts have calculated.
The technology firm announced its first bond issue in almost two decades on Tuesday, a week after chief executive Tim Cook pledged to pay a further $55bn back to disgruntled shareholders. Apple's shares have fallen since hitting record highs last year and the company is planning to buy back $100bn in shares over the next two years.The technology firm announced its first bond issue in almost two decades on Tuesday, a week after chief executive Tim Cook pledged to pay a further $55bn back to disgruntled shareholders. Apple's shares have fallen since hitting record highs last year and the company is planning to buy back $100bn in shares over the next two years.
Wednesday's announcement comes after Apple revealed it has $145bn in cash on its books, $102bn held in foreign bank accounts. The company may be paying between 3.2% or less tax on those funds, according to assistant professor Jennifer Blouin at University of Pennsylvania's Wharton business school.Wednesday's announcement comes after Apple revealed it has $145bn in cash on its books, $102bn held in foreign bank accounts. The company may be paying between 3.2% or less tax on those funds, according to assistant professor Jennifer Blouin at University of Pennsylvania's Wharton business school.
If the company was to move that cash back into the US, then it would be subject to a 35% tax rate. In order to raise $17bn, the company would need to repatriate $26bn from overseas before paying $9bn in tax. "They would face a very substantial tax liability whichever way you look at it," said Blouin.If the company was to move that cash back into the US, then it would be subject to a 35% tax rate. In order to raise $17bn, the company would need to repatriate $26bn from overseas before paying $9bn in tax. "They would face a very substantial tax liability whichever way you look at it," said Blouin.
She calculates that Apple's complex overseas taxes may be even less than her "conservative" 3.2% estimate for some of its huge cash pile. "Apple has a pool of money it calls 'permanent reinvested earnings' and it has said its anticipated tax rate is 34.16%. So given that the US rate is 35%, that would suggest the foreign rate is less than 1%," she said.She calculates that Apple's complex overseas taxes may be even less than her "conservative" 3.2% estimate for some of its huge cash pile. "Apple has a pool of money it calls 'permanent reinvested earnings' and it has said its anticipated tax rate is 34.16%. So given that the US rate is 35%, that would suggest the foreign rate is less than 1%," she said.
Many companies are, like Apple, taking advantage of low interest rates in the US and low taxes abroad to borrow money and pay back investors. Microsoft raised $2.7bn last week, and after Apple's debt offering, the total level of new issues for April will top $100bn, the strongest April for debt sales since 2008.Many companies are, like Apple, taking advantage of low interest rates in the US and low taxes abroad to borrow money and pay back investors. Microsoft raised $2.7bn last week, and after Apple's debt offering, the total level of new issues for April will top $100bn, the strongest April for debt sales since 2008.
The company and others have been lobbying for tax breaks on bringing cash back into the US. Analysts expect that pressure for change will only increase if and when interest rates start to rise. In the meantime, there seems to be no shortage of tax havens for global corporations.The company and others have been lobbying for tax breaks on bringing cash back into the US. Analysts expect that pressure for change will only increase if and when interest rates start to rise. In the meantime, there seems to be no shortage of tax havens for global corporations.
"This is a trend that has become more prevalent over the decade. These companies have intangible assets. It's not like they are moving factories. The what-makes-Apple-Apple, the ingenuity, the marketing, the money that comes from that, can be situated anywhere," said Blouin."This is a trend that has become more prevalent over the decade. These companies have intangible assets. It's not like they are moving factories. The what-makes-Apple-Apple, the ingenuity, the marketing, the money that comes from that, can be situated anywhere," said Blouin.
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