Apple vs the U.S. Congress: Can Apple convince Congress to fix cash repatriation tax laws?

Apple vs the U.S. Congress: Can Apple convince Congress to fix cash repatriation tax laws?

Apple has $102 billion in cash overseas. It wants to bring that money back to the U.S. but it doesn't want to pay the 35% in taxes the U.S. government is demanding. Apple calls it smart business, Congress might end up calling it tax evasion. Who's right?

It’s quite popular for people reporting on Apple’s financial position to quote the absurdly high level of cash the company holds on its balance sheet. At the end of last quarter the $145 billion is more than a rainy day fund, which is why the board of directors approved a massive stock buyback and dividend hike. Of course Apple won’t be using much of its cash to do this. Instead, it raised debt. Why? Because so much of the cash -- about $102 billion -- is not on US soil. Instead this money is held in other countries.

Apple is playing a waiting game with Congress, and I’m betting they will win it. Apple doesn’t need the money onshore nearly as much as Congress would like them to bring it on shore and encourage more US investment.

Tim Cook is scheduled to testify in Washington next week. According to all the headlines on this subject, the government wants to know if Apple is evading taxes. I’m certainly no tax expert but I’ve seen smartly organized tax systems work for a variety of companies in my time following stocks. There are a number of perfectly legal ways to generate profits outside of your home country, avoiding domestic taxes on that profit. Companies can be quite aggressive by establishing high internal costs in another country, therefore siphoning more profit away from the USA, and into the country where they establish internal high costs. Or they can be less aggressive, as Apple claims is their case. Either way it’s legal.

Would Apple like to bring home the bacon? Yeah, of course they would. It would simplify things and make it easier for them to invest locally. But with a 35% tax rate applied to this repatriated cash, according to Tim Cook as quoted by this excellent Politico article, there is no way in hell they’re going to do it. They’ll wait. And I hope US Congress can get their thumbs out of their asses long enough figure out that they can’t win against companies as big as Apple with as many other global opportunities available to them for investing this cash. And of course with Apple’s stellar balance sheet they can avoid repatriating cash forever if they want. They can continue to rely on local debt markets if they need more cash than they have.

If you want Apple to invest more in the USA, make it more attractive for shareholders

To me this seems like a no brainer -- If you want Apple to invest more in the USA, make it more attractive for shareholders. After all, shareholders run the company and shareholders don’t care to pay 35% repatriation tax. For Apple to do anything less than fight this battle would be irresponsible.

People can scream all they want about tax avoidance and “dodging” tax responsibilities. Bottom line: The US government created their laws, and Apple is playing within the rules. So are many other companies.

If you don’t want people dodging taxes, stop throwing dodge balls at the places that hurt them most.

Chris Umiastowski

Chris was a sell side financial analyst covering the tech sector for over 10 years. He left the industry to enjoy a change in lifestyle as an entrepreneur, consultant, and technology writer.

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Apple vs the U.S. Congress: Can Apple convince Congress to fix cash repatriation tax laws?

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Apple should pay. All companies should pay, if they don't want to pay move over seas where they can keep all their money without the taxes.

Ok, sorry for the line here but "Helloooo ... McFly?" (no offence ... just kidding around)

They have moved over seas. That's where they generate this profit that the US isn't taxing. You really think the US wants to see Apple become a foreign entity now also?

I like you. Finally... a financial perspective from someone that actually understands standards, economics and business and not more "class warfare" influenced rhetoric.

Because its "class warfare" to expect a company that has hundreds of billions of dollars of cash on hand to pay 35% taxes. And dont give me that crap how bringing that money home will mean jobs. Bullshit.

They already paid taxes on the money. The money in the bank is from overseas revenue, not stateside. The United States has no reason to enforce double taxation, because it's not "American" money. This is another aspect where the U.S. tax laws are very anti-business.

"Bottom line: The US government created their laws, and Apple is playing within the rules."

The US government should than change the law and force apple and other companies to pay up.

So ... Apple wants them to change the law, which is exactly what Cook will be proposing on Tuesday. They just don't believe 35% is fair (nor do I, as a shareholder). I should have mentioned this more clearly in the article. Check out the Politico article I linked to. It's a great piece.

Why should the US government and its citizens who will enjoy the tax money agree with Apple? 35% sounds fair to me.
Apple has enough cash on its hand and wont be effected in any way even if they pay 35%of their 150 bil cash.

its actually a pretty simple argument to drop the tax rate. if they drop it, then apple will repatriate their cash, doing this will mean apple pay lets say $17.5bn (jus a figure for if they halved the tax rate).

now, would you want the US government to get $17.5bn, or nothing.

that's the real decision here, something or nothing.

Not really. Especially if an assessment of the total tax revenue decreases in total by decreasing the tax rate for all businesses. If the tax rate is dropped to 20% (for example) for all businesses - that could mean an overall decrease in tax revenue. It would be difficult to crunch those numbers unless you had access to all of the numbers.

Sounds to me like Apple needs to fire their accounting team. If a gigantic behemoth like GE can reduce their tax liabilities to zero (regardless of how they arrive at that number) then why cant Apple.

I think your confusing paying tax on revenues versus tax on repatriation.
you suggest apple cut their tax bill, when that's actually what they've done by no repatriating their cash.

the real problem here is that laws (and not just US laws) on tax are out dated, they don't take into account the `modern` world in the sense of the global reach.

That a company can build so much cash outside the US when its a US company is by and large quite a new challenge for them to face on that scale.

Also, it should be noted that people saying `for big ammounts it should be less` don't get the picture, Apple have this cash because they have been saving it, under peoples idea of a tiered system, companys would simply build up their cash until they hit the lower tier, so nothing would be gained from that adjustment.

But you are totally right that without all the figures sweeping statements are of course suggestive at best, and that's the problem I guess is that we`ll never see those figures.

Nice to see at least one person with some understanding of economics and fairness replying to this article.

Like _so_ many other corporations, Apple made that money overseas. Legally. If they want to move this money back to the U.S. for their use, they may do so but they have to pay taxes on it. Legally. That's the way the system works.

you all say that apple made their money fair.
In Europe people are getting more more anger that huge international corporations are based in Low tax countries like Luxembourg & use this to pay less tax for their business in Europe. The global scale of the company gives them the advantages of using such loopholes.. (note: I don't say it's illegal.) So being global is not just a disadvantage for them.
Now if they want to move this money around and pay tax for that, I think that's perfectly fine.
They used an advantage in the first place when generating the money.

Is this a serious question? The U.S. Government, composed of your elected representatives, decides. That's who decides. In conjunction with the Department of the Treasury.

It's pretty simple because most of that money was not earned in America it was earned overseas. 70% of apple's profits are earned outside the US. This is really a circus, if the government wants to wage a war on capital they will lose, capital always win. They'll just move the corporate headquarters to the Bahamas and end this fiasco.

I totally agree that 35% is a huge figure, but as mentioned apple are playing fair. The government made the laws that apple follow and now seem a bit pissy that someone is using those laws for their benefit. They shouldn't remove the tax just lower it the government gets paid still. If they don't change it they are going to have nothing.

No....they have zero chance of turning Congress around on this. Class warfare is too big of a political stick for one side to give up in their issue portfolio. A lot of people make a lot of money pitting the rich vs the poor. The fact that there are far more of the latter than the former means there will always be a target rich audience to pander to for votes.

Add in some term limits and our esteemed elected officials would be much more inclined to actually do something of substance.

Only way term limits would work is if they were referendums at the state level. No way is congress ever going to vote themselves term limits.

Agreed. Speaking of things they would never do, ever heard of Congress NOT voting themselves a pay increase? I haven't. Talk about hypocrisy. One respondent said the tax laws are fair, because 'we' voted for elected officials, who passed laws that established the tax rate. If only it were that simple. He implied that the rate is 'fair' also because it was established by government. And who says the government is fair? Who says taking other people's money is fair? I'm thinking that would probably be Marxist's.

Lately, it's all I see in TV shows and movies...demonizing the wealthy...blaming them for the record debt (which was caused by what? Oh, yeah...RECORD SPENDING). This phrase 'the one percenters' is tossed out like the term 'Nazis'. Watch a few episodes of 'Arrow', and you get the picture...fast.

Class warfare is in high gear in the media...all media. TV, movies, music and network news are the new bully pulpits. The gospel being preached is that taxation is good, and keeping the profit that you make by working is evil...that there is no debt crisis, just a lack of people paying their 'fair share'. Apparently, for almost half of the US population, the fair share is zero tax, but I digress.

Class warfare and Marxism are all the rage these days, my friends. As for companies keeping their profit overseas, don't worry. The Prez and Hillary and their like-minded friends have a fantastic solution for that little problem. If they can't get Congress to enact laws to force US corporations to bring those profits home, they'll try to divert that power to tax to the UN, so there's no place to 'hide'. Think I'm crazy? Check it out, and you decide.

Yea, you are crazy, crazily mis-informed. My guess is you've been educated by Fox news or Rush Limbaugh, easy to tell when you keep throwing around the term class warfare when you clearly don't have much of a clue what it actually is, and who is waging it.

I can agree with a reduced tax rate on a company who makes that much but if the tax rate across all businesses is reduced to that - the government has no incentive to do that as it may result in decreased revenues.

Well then congress can spend less. That's what the average Joe has to do when their budgets are tight.

To those who say "Apple should pay" I have two questions.

All those Amazon purchases they sent you an email about saying they owe you taxes on? Did you pay those taxes? {iSRS raises his hand, looks around sheepishly as he realizes he is in an overwhelming minority}

You do realize the money over seas has nothing to do with any sales or income made here in the United States, right? That it comes from overseas income, made on overseas business, that was taxed overseas, that Apple would like to bring back into the US and not give 35¢ on the dollar on money that was already taxed. In other words, they have a problem giving nearly $36 BILLION (based on the full $104 Billion) to taxes when it could be used to build new stores, buildings, etc (creating jobs while the building is taking place0, PLUS new jobs when the places open.

Tell you what. I'll send you my address. Send me 35¢ for every dollar you make. You already paid taxes on it, I understand, but you have no issues with Apple getting hit twice, you should have no issue doing the same.

I'll use that money wisely.

Oh, and it isn't that Apple is saying "Let me bring all this money back to the US to do all these great things TAX FREE," just a little more fair and in line with the rest of the world.

This is exactly the kind of thing that's should never be allowed. Why do you think the economy go so bad? It's because big corporations use all tricks to don't pay there taxe if I make big money overseas and bring it back I won't have choice to pay.. But as they are a mega corporation oh no they don't.. and don't say they already paid taxe just like Starbucks Apple got way to evade tax in all country thinking otherwise only mean you are blind.

You clearly have very little understanding of economics.
Could the economy troubles have anything to do with overspending?
Oh, I will private message you my address. Looking forward to getting 35% of your money for nothing.

You've been duped by big business friend.

They say they're going to invest in America, but the whole reason they have this money is because they didn't invest in America. Instead of building more factories here and investing in America and American workers, they invested overseas and helped those economies. Then, once they've made all their money, they want to bring it back here and give it back to their investors tax free. What are the tax rates in countries like China and Bangladesh and India? There is a reason it's more profitable to make stuff over there; low wages that take advantage of poor working conditions that would never fly over here, and low taxes because the governments are more or less corrupt. So Apple investors are essentially making free money off of slave and child labor in third world countries. Then they get mad when the US says, hey, it's fine if you want to send American jobs overseas, but if you expect to bring those profits back here tax free, you'll first need to pull your head out of your ass because it isn't going to happen.

Laws are laws. If you bring the money home, obey the current law and pay your fair share. They can certainly afford it.

Clearly missing the point. They already paid their "fair share" in taxes in the countries where the money sits. Apple will get taxed AGAIN if they bring the money here.

Sure we are. Anytime an American makes money off an investment, it is taxed, whether overseas or domestic. It's because that initial investment is a tax write off. You only pay taxes on it if you make money off of it. It's a way of forcing the wealthy to invest in America instead of overseas ventures to keep America strong. To not agree with this essentially means you don't want to keep America strong.

Problem is no matter what percentage they agree to (thats lower than 35) you know whats lower? The 0% they lose by having the money overseas. The government created an awful system of taxation all around and people and businesses who pay lower or no taxes will never ever be happy with paying higher taxes. Its a broken system and I don't think Tim Cook and Apple have the fix for this but we'll see. I'm all ears.

Thanks for the article, Chris, and the attempt to respond to some of the "bumper sticker" comments. It's easy to post that Apple should "pay up". It's complicated to get into why things are they way they are and the ramifications of the tax laws that are passed.

Right - because asking a company with hundreds of BILLIONS of dollars of cash on hand to pay taxes on that is a "bumper sticker" comment.

I bet you don't even know what that term means. You clearly don't understand a lot of things. Apple already paid taxes. The money in their account is PROFIT. Do you know what PROFIT is?

Exactly, APPLE paid taxes on it, not the share holders who are getting their pay out. They used US money to invest in something, and now are going to have to pay US taxes on their return.

Um, did you know that for FY 2012 Apple paid $6B in taxes to the US government? Seems to me Apple certainly does pay their taxes.

Great article, Chris. Congress really has two choices, change the laws to make it more friendly to bring the money back (we have one of the highest corporate tax rates in the world) or stay the course and have companies continue to leave money overseas. With our growing debt issues and a spending crazy administration we could use the money.

"With our growing debt issues and a spending crazy administration we could use the money."

The exact problem with the economic mentality of this country. The problem isn't "needing more money". The problem is "spending crazy administration" spending more then it takes in. Decrease spending, decrease debt. It's "basic arithmetic".

Outside of the big kicker that both W and Obama did, government spending is way down than when Bush was in office. Not sure why you think it's higher.

Well there are dozens and dozens of media personalities and am radio shock jocks saying it to them everyday.. Therefore it's true!:)

What would Apple do with the money it brings back overseas anyways? Redistribute to shareholders? Buy back more shares? Apple certainly isn't struggling to stay afloat by any means.

I would rather they just keep the money overseas and continue to use it to improve on the infrastructure in that country.

Well some simpletons would say Apple should use the money to build iPhones in the USA. Because this made in the USA jingoism plays well the media and these clowns think the average joe across the street who is out of work could just step in to a factory and build an iPhone (and would want to do it). The hundreds of thousands of poor Chinese who would be jobless doesn't matter.

I live in neither the US or China. What Apple does with its money or where it chooses to do its business doesn't affect me one bit.

Besides, I don't like the tone of your question one bit. What is it about Americans that somehow makes them more deserving of welfare than the Chinese? Simply because Apple is an American company? People from all over the world buy Apple products too, you know.

I can't help how you "feel" about how you imagine my tone to be.

If your house is on fire as well as the house next to you, do you rescue your own family first or the family next door?

There's a reason while on an airplane, you're supposed to put your own mask on first before assisting others.

As the most powerful country in the world, it's great to want to help others, but if my country collapses, what do you think will be the effect on your country? Oh right, we already know what will happen, massive economic collapse like we've seen over the last 5 years, especially in Europe, an area heavily invested in the success of America.

Corporations do not pay taxes... they transfer taxes onto the consumer. Do you even have any idea how much tax you pay? I'm pretty sure you can figure out income and sales, but what about the hidden taxes. How much of a tank of gas is taxes? How much does Apple add to the price of an iPad to cover corporate taxes?. How much does your employer hold back on paying you to pay the employer portion of of employment taxes? THERE IS ONLY ONE TAXPAYER => YOU!!! Get rid of all these hidden taxes, simplify the tax code so that I can clearly see how much of MY money the government is spending.

Good article, and I agree with you that a 35% tax rate is too high, since it is a double taxation (once at the corporate level, and a second time at the shareholder level).

One thing I'd like to point out is that much of the foreign cash horde could well be invested in this country already. According to The Wall Street Journal, many companies with large cash hordes invest their cash in countries with strong currencies and, whatever most people think, the dollar is still very strong. Think of a corporation as an individual who has savings and invests that money in a foreign investment (the corporation being the overseas arm of a multinational corporation, and the foreign investment being a US bank, investment company or real estate). The money is overseas and is working to help that economy (the multiplier effect, although the bank could also invest overseas, mitigating that effect somewhat). It would not be atypical for the overseas arms of Apple (or any major corporation) to invest in the comparatively strong and familiar US economy.

The only ones truly screwed by the current US laws is the shareholder, as I see it...

I say don't give the government another dime. When they learn to quit pissing money away on bullcrap and show me a sensible budget has no wasteful spending I would be willing to pay more in tax. Especially if that more tax gets used on infrastructure such as roads and technology to better our lives.

The objective of any tax system is to maximise the take. If your system keeps money out its failing. However most of this income was generated outside the US, so it should stay there.