Another Big Obama Corporate Sponsor Doing Their Duty
Posted in the Minneapolis Forum
Since: Oct 08
#1 May 2, 2013
Apple will avoid a potential tax bill of up to $9bn by using the proceeds from its $17bn blockbuster bond issue to pay shareholders rather than bringing back cash from abroad.
The technology group would have paid as much as 35 per cent in tax to bring that amount of cash back into the US, according to lawyers and accountants.
Apple, which has $100bn worth of offshore cash compared with just $45bn in the US, last month announced it would partly fund a record-breaking $55bn share buyback programme by using money raised in the corporate bond market.
The company will also save around $100m a year from using the debt rather than straight cash. Although the company’s $17bn borrowing from the corporate bond market this week will cost it around $310m a year in interest payments, it will regain about a third of that due to tax deductions.
“There is a huge tax saving for Apple in borrowing the money rather than bringing it back to the US,” said Kevin Phillips, international tax partner at Baker Tilly.“The company will keep getting that $100m or so tax credit every single year.”
Gerald Granovsky, an analyst at Moody’s, said:“If you assume the statutory 35 per cent corporate tax rate, based on the data available and on a back of the envelope calculation, to generate in the US the equivalent of $17bn the company would need to repatriate $26bn.
“That is less attractive than paying the $300m in interest attached to this bond sale,” he added.
The tax saving comes at a time of growing unease from policy makers about how multinational groups handle their tax affairs. Western governments have been spurred into taking action in part by the pressure on their own finances.
The fundraising comes as Apple has promised to return $100bn to shareholders over the next three years in a bid to appease investors disgruntled at the falling share price. It would not necessarily have to bring money back from offshore to achieve this, as the company has strong free cash flow.
In 2012, Apple made provisions for $14bn in income tax on pre-tax profits of $55.7bn, according to a Securities and Exchange Commission filing. This gives the company an effective tax rate of 25 per cent.
The group made an income tax provision of $713m on its foreign pre-tax earnings of $36.8bn, according to the same filing, giving the company a foreign effective tax rate of 2 per cent.
Apple declined to comment.
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