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> "however, it is not tax efficient to do this by simply paying dividends with profits. By offshoring the money they can minimize taxes, and still pay stock hol

by whack 10y ago

> "however, it is not tax efficient to do this by simply paying dividends with profits. By offshoring the money they can minimize taxes, and still pay stock holders by taking massive loans with the cash hoard as security, effectively repatriating the money without paying taxes." Assuming that there's no tax holiday, the above is a losing strategy over the long term. The ROI that Apple is getting on its cash hoard, which is mostly getting invested in treasuries and other ultra-safe investments, is lower than the interest rate that Apple is paying on its debt. Which means that by borrowing money at 3.5% interest and investing it at a lower ROI, Apple is bleeding money every single year. Yes, they avoid having to pay taxes for now, but they are just pushing this off to a later date. If they adopt a strategy of keeping the money offshore forever, their interest debt will keep ballooning, and the amount of money they lose on interest debt over the long-term will overshadow any one-time tax payments. Apple's strategy only makes sense if they are anticipating a tax holiday in the short/medium term, at which point they can repatriate all their money at a lower tax rate. I hope to hell they don't get it, because if they do, every single company is going to start doing the exact same thing. It will become yet another gigantic tax loophole, and a drag on the economy to boot.

alanfalcon 10y ago
Surely Apple's semi-recent mega-success (iPhone onwards) puts them in a fairly uncommon position among companies? For this strategy to work, don't they need a huge surplus of (foreign) cash AND a reasonable expectation of a Tax Holiday in the near/medium future? Given those, it would seem most companies would be wrong to do the exact same thing (even if in this case Apple "gets away with it").
valuearb 10y ago
Every company is doing it already, because it can be tax efficient even if no tax holiday ever occurs. let me show how. Let's assume Apple earns 2.5% on its Ireland cash, but is paying 4% to borrow against it. On US profits it has to pay almost 41% in taxes, on its Irish interest income it's laying almost zero. It's debt interest is tax deductible and hence costs less than 2.4%, making this example profitable. And nothing stops Apple from buying short term investments that yield close to its boeriwng costs. But even if it's close to break even it's a no brainer. Once you repatriate profits you can never undo the tax consequences for those profits. And events other than tax holidays can happen that may cause you to regret not waiting. For example, if Apple decides to do a large international acquisition/investment (Porsche?), and pay $50B in cash as part of it. They would have had to repatriate over $80B to have $50B after tax. Or they could do the acquisition from Ireland for only $50B.

by whack 10y ago

alanfalcon 10y ago

Surely Apple's semi-recent mega-success (iPhone onwards) puts them in a fairly uncommon position among companies? For this strategy to work, don't they need a huge surplus of (foreign) cash AND a reasonable expectation of a Tax Holiday in the near/medium future? Given those, it would seem most companies would be wrong to do the exact same thing (even if in this case Apple "gets away with it").

valuearb 10y ago

Every company is doing it already, because it can be tax efficient even if no tax holiday ever occurs. let me show how. Let's assume Apple earns 2.5% on its Ireland cash, but is paying 4% to borrow against it. On US profits it has to pay almost 41% in taxes, on its Irish interest income it's laying almost zero. It's debt interest is tax deductible and hence costs less than 2.4%, making this example profitable. And nothing stops Apple from buying short term investments that yield close to its boeriwng costs. But even if it's close to break even it's a no brainer. Once you repatriate profits you can never undo the tax consequences for those profits. And events other than tax holidays can happen that may cause you to regret not waiting. For example, if Apple decides to do a large international acquisition/investment (Porsche?), and pay $50B in cash as part of it. They would have had to repatriate over $80B to have $50B after tax. Or they could do the acquisition from Ireland for only $50B.