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.