Apple's tax dodge

[marmar]

(CNNMoney) Instead of using its own cash hoard to reward shareholders, Apple plans to go into debt for the first time ever.

Apple CEO Tim Cook said late Tuesday that the company will double the amount it returns to shareholders through share buybacks and dividends by 2015, but will "access the debt market" to pay for it.

Borrowing money seems odd for a company like Apple (AAPL), which has $144 billion in cash. But more than $100 billion of that is overseas. If Apple were to try to bring that cash back to the United States, it could be taxed at the top corporate tax rate of 35%.

And that doesn't sit well with Apple. .......................(more)

The complete piece is at: http://buzz.money.cnn.com/2013/04/24/apple-debt-repatriation-taxes/

[mahatmakanejeeves]

1. What Apple's stock buyback shows about corporate tax games

The always great Allan Sloan talked about this in a column that ran in the Washintgon Post the other day.

What Apple's stock buyback shows about corporate tax games

If "Monk" were a show about a CPA with obsessive-compulsive disorder, this is the part of the show where Monk would say, "here's what happened."

By Allan Sloan, Apr 26, 2013 12:14 AM EDT
The Washington Post
Published: April 25

....
As you probably know, about two-thirds of the $145 billion in cash on Apple’s books is held in overseas subsidiaries, and Apple would have to pay U.S. income tax if it used that money in the United States. So instead of bringing back money from overseas to pay for its stepped-up stock buybacks and higher cash dividend, Apple will borrow money instead.

It’s a perfect tax arbitrage. Let’s say Apple borrows money at an interest rate of 3 percent a year (which is more than it would probably pay), and uses it to buy back stock at the current price of about $410 a share. Each share that Apple buys back will reduce its annual dividend obligation by $12.20 a share, at the company’s current dividend rate. The interest on the borrowed money would be $12.30 a share — about the same as the dividend. But interest is tax-deductible, and dividends aren’t.

At a 35 percent tax rate, the borrowed money would cost Apple $8 after taxes for each share it bought back. That’s significantly less than the $12.20 after-tax cost of its $12.20 dividend. At a 25 percent tax rate, the borrowing would cost $9.23 after taxes—but that’s still less than $12.20. So lowering the tax rate to 25 percent from 35 percent doesn’t remove Apple’s incentive to play the deduct-interest-to-retire-stock tax game. It would be less lucrative than it is at 35 percent — but it’s still lucrative. And, by the way, the borrowing-to-buy-back maneuver would not only reduce Apple’s taxes but also increase its earnings per share.

With tax rates at 35 percent, it’s considerably cheaper for Apple to borrow money in the United States than it would be for it to repatriate cash held in foreign subsidiaries. But even if the tax rate were only 25 percent, it would still be cheaper for it to borrow than to repatriate.

[BadgerKid]

2. Several thoughts.

1. oh sure, let's pile on Apple because they're today's visible company with tons of cash. Same goes for Google, Facebook, etc.

2. Reducing corporate tax rates doesn't stop the games.

This point is mentioned next in the article, which I hoped it would. This could be one of those instances where politicians could try to go after so-called tax-abusing companies in order to score points with voters, but doing so changes nothing in reality.

3. Schemes to avoid taxes are available to those have the access.

So if I wanted to avoid taxes, could I, as an individual, incorporate my trade as an offshore entity -- or something like that? There are structures like family partnerships that get special treatment but are frowned upon solely to avoid taxes. It's good to be a multinational company, isn't it?