Apple's Tax Payment Could Set Off Repatriation
January 17 2018 - 6:54PM
Dow Jones News
By Tatyana Shumsky
Apple Inc.'s plans for a repatriation tax payment may signal a
tipping point for U.S. corporate offshore cash hoards.
Apple on Wednesday announced it would make a one-time mandatory
tax payment of $38 billion related to unrepatriated offshore cash
holdings under the new U.S. tax law.
That equates to 15% of its $252.3 billion offshore cash pile,
broadly in line with the 15.5% tax rate required by the new law.
Previously, multinational companies like Apple would pay the
difference between lower foreign tax rates and the 35% U.S.
corporate tax rate to bring the money home.
That unfavorable U.S. tax regime had contributed to a buildup in
U.S. corporate offshore cash reserves. U.S. nonfinancial companies
socked away a record $1.3 trillion in cash held overseas at the end
of 2016, a total that was forecast to climb to $1.4 trillion by the
end of 2017, according to Moody's Investors Service Inc. Apple's
overseas cash accounted for the largest share of that pile.
An analysis by Zion Research Group puts the total for the full
S&P 500 at about $2.8 trillion.
"There's no longer an economic reason to maintain cash offshore
to avoid high U.S. taxation," Mr. Lane said. "For that reason,
offshore cash balances are going to come down quite notably from
our estimate of $1.4 trillion at the end of 2017," he added.
Apple on Wednesday said it would also make a number of
capital-intensive investments in the U.S. It's unclear whether the
iPhone maker will use some of its multibillion-dollar cash pile to
fund those projects. Some of its expansion plans were in the works
prior to the signing of the tax bill.
Companies don't have to bring the money home, they're just
required to pay the tax on it. The new tax law offers a one-time
bulk payment option or spread payments out over eight years. Future
future overseas earnings will be tax-free.
To be sure, Apple won't need to "physically" move much of its
foreign cash to the U.S. The bulk of its overseas holdings are
invested in commercial paper and other short-term money instruments
held by foreign subsidiaries. Repatriating those funds is a matter
of signing over ownership to the U.S. parent company, Mr. Lane
said.
"It's more an administrative matter, in terms of where the
security is held and where it will be held after they affect the
repatriation," Mr. Lane said. "It's really like moving money within
a family, it doesn't require the sale of a security to a third
party."
Write to Tatyana Shumsky at tatyana.shumsky@wsj.com
(END) Dow Jones Newswires
January 17, 2018 18:39 ET (23:39 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
Apple (NASDAQ:AAPL)
Historical Stock Chart
From Mar 2024 to Apr 2024
Apple (NASDAQ:AAPL)
Historical Stock Chart
From Apr 2023 to Apr 2024