An activist hedge fund has thrown down the gauntlet to Apple, pushing it to consider new ways to return billions of dollars to shareholders after the fall of the iPhone maker's share price by more than a third in recent months.
The decision by David Einhorn's Greenlight Capital to sue the world's most valuable company is the latest effort to unlock the huge cash piles being hoarded by large technology groups. The 20 largest US companies in this sector, many of which are averse to making big investor distributions, are sitting on close to $500bn of cash and investments.
But there is good reason why the shareholders can't have that cash: it is located in places like Bermuda. And it's there because bringing it in to the USA to pay the shareholders would incur a tax charge. And the companies don't want to pay that tax. So the shareholders, the US economy and even the world at large are suffering as a result, from not being paid, from not having tax revenue and form the misallocation of recourse respectively.
These are themes discuss in my new book - Over here and under-taxed - now out 18 February. Sorry for the delay.
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You may well be right about the tax, but it isn’t the whole story.
Read:
http://www.zerohedge.com/contributed/2013-02-07/apple-big-hedge-fund-stars-sell-sidevaudeville-act-burn-your-hard-earned-mone
It’s not as clear-cut…..
In Apple’s case you aren’t entirely right. Apple only doesn’t account for tax on foreign earnings where there is a plan to reinvest that income into its foreign businesses. For instance in its 2012 financial year, it earned $36.8bn, of which it accounted for $19.8bn as remittable (and hence raised deferred tax balances for it) and the remaining $17bn as to be reinvested. So of the $82.6bn that Apple had in foreign cash at the end of 2012, only $40.4bn was untaxed. The remaining $42.2bn could be remitted without incurring any tax on the income statement, though obviously there would be a cash tax impact.
The other thing about the cash is that although it is in theory overseas, in practice it is mostly re-invested back into the US economy, through holding of US govt debt, US corporate debt and US mortgage debt.
Deferred tax is not tax paid
I think my point stands
And as a matter of fact what are they going to do with $40 bn investment in their overseas business?
That is a good question. I suppose there is always the possibility that they buy part of their supply chain (as I understand it they already lend money to their suppliers for capex to supply Apple). But I guess over time that money will also come back into the US and get taxed.
Richard
To take your point on the deferred tax, you’re right that it’s not paid on a current basis, but will be paid when those earnings are repatriated (probably as dividends) back to the US. these will then be subject to US Federal tax as foreign source income (probably in the general basket if memory serves – US tax experts correct me if wrong here) where it will attract a US foreign tax credit for the overseas taxes paid (subject to the level of earnings and profits generated by the dividend and the creditable taxes that attach to those earnings and profits. To the extent that the creditable taxes (the tax suffered overseas) is less than the US tax in the overall general basket, then additional US federal tax will be payable. To the extent that that the foreign tax credit does not exceed the US federal taxes due then no additional US tax is due as a result of the foreign tax credit granted. This is of course after the overall level of foreign source income in the general basket has been reduced by allocation of US interest.
To sum it all up, overseas tax will have been paid or not on these profits and then the US tax system either adds more tax or not, depending on the overall basket.
that analysis, respectfully, belongs in Alice in Wonderland
“Apple declined to comment on its Nevada operations. Privately, some executives said it was unfair to criticize the company for reducing its tax bill when thousands of other companies acted similarly. If Apple volunteered to pay more in taxes, it would put itself at a competitive disadvantage, they argued, and do a disservice to its shareholders”
http://www.zerohedge.com/news/2013-01-27/600-billion-trades-four-years-how-apple-puts-even-most-aggressive-hedge-funds-shame
http://www.zerohedge.com/news/2012-09-30/presenting-worlds-biggest-hedge-fund-you-have-never-heard
Are we suggesting that Apple would never buy a big foreign company? Such as a competitor like Samsung or Nokia?
Telefonica bought O2. Vodafone bought mannesman mobilfunk.
Apple knows it’s biggest competitors will be foreign, and if they don’t need it for operating expenses back home, then keeping it offshore makes good startegic sense.
Nothing to see here…
Sittin’ on a mountain of money.
Not spendin’, not payin’ tax.
With their own investment company/s.
http://www.theregister.co.uk/2013/02/11/australia_summons_apple_microsoft_adobe/