The FT's reported this morning that:
Apple sold bonds worth $17bn on Tuesday, the world's largest corporate debt sale, as the iPhone maker raised capital to finance a $100bn cash return to shareholders.
Apple, which had no debt before Tuesday's sale, has taken advantage of low interest rates to fund its return of $100bn to shareholders over the next three years.
The cash splurge is designed to appease investors concerned about slowing sales growth and comes a week after Apple reported its first year-over-year drop in net income in almost a decade.
But why would it borrow to return money to shareholders? After all, as the FT also notes:
Apple has $145bn of cash on its balance sheet
So why did it need $17 billion more cash?
The answer is in where the cash is:
$45bn is held in the US
And in what that means;
Repatriating foreign reserves would be costly due to tax implications.
So, as I've long argued, holding cash offshore is not in shareholder's interests: the fact is that a company, like Apple, who has not taken into account the tax cost of holding its cash offshore, can't pay that money to shareholders and has to undertake a programme of borrowing to pay dividends.
Only an offshore junkie, so dedicated to tax avoidance that they have forgotten the true purpose of their enterprise, could end up in such a farcical position.
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What makes it even more farcical is that Apple can invest its foreign cash back into a portfolio of US corporate debt, earning a rate higher than it is paying on its debt and not paying tax on this. And then the interest they are paying in the US would appear to be deductable. So the net effect is that they actually make money on the arrangement.
The US needs to scrap the law allowing the profits to sit outside the US tax-free or put a time restricton on how long they can be used for investing in foreign businesses before becoming taxable.
And that’s not all. The interest that they will pay on those bonds is tax deductible, while they won’t pay taxes on their deposits with foreign entities.
The real question is actually why the foreign taxes are so low that they can’t repatriate not that they would pay US tax when they are brought back. It’s the countries in which those earnings arose that are likely to have lost out not Uncle Sam.
I can only presume you are a paid troll for the tax abuse industry so tediously wrong are your comments
I will be blocking more nonsense of this sort. I have better things to do with my life than rebut continual false statements
Dear Richard
Whilst I agree with your original view on Apple’s offshore cash holding (and the general tenor of what you are trying to achieve), may I respectfully ask why your reply above (to James Benson) is so gratuitously rude?
“All human beings are equal and equally worthy of respect” (as Quaker principles have it). Clearly you have every right to disagree with James; but it seems to me that your tone (to those with whom you disagree) is hardly in accordance with these principles…..
Tom
You clearly do no realise Quakers speak both truth to power and plainly
I am in the radical Quaker tradition of doing so
And my response to James was I think wholly fair
You may of course disagree
But it most certainly against Quaker testimonies to speak what I think is the truth. After all we are The Religious Society of Friends of the Truth
Richard
Dear Richard
I do in fact realise that Quakers speak “truth to power”, and plainly. And I kind of guessed you are in the radical tradition!
It was your tone rather than content I was referring to….. in my view (with which you, in turn, may well disagree!) lack of courtesy generates heat rather than light in exchange, and this can be counter-productive. One can surely speak plainly, but with courtesy at the same time?
But thank you for taking the trouble to reply in detail.
Tom
I consider my reply to have been objective
“Tediously”? “Nonsense”? Not neutral words, surely?
Ah well. I suspect further discussion would be of no avail. A pity.
As Lord Melbourne said, “I wish I were as cocksure of anything as Tom Macaulay is of everything”.
Tom
George Bernard Shaw said:
The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.
George Fox was a thoroughly unreasonable man
If I am too, so be it
Richard,
You’re making a fundamental accounting mistake. Holding the money offshore *is* good for AAPL shareholders.
When held offshore, that $100 billion goes onto AAPL’s balance sheet as cash worth $100 billion.
That $100 billion market contributes to the book value of the company, which is reflected in the $400 billion market capitalization.
Now if that cash is brought back onshore, the company pays tax on it, say 30%. That means the book value of the company just went down 30 billion. This will naturally get reflected in the market capitalization and the stock price. AT the very minimum it would result in the stock price dropping linearly – 30 billion / 400 billion = ~8% drop.
But it could (and would) drop more. Because the market cap won’t just look at the book value, but also the relative competitiveness. IF AAPL ends up having less cash on it’s balance sheet than google microsoft samsung and it’s other competitors, then it’s market cap will drop even more. And that will also be reflected in a drop in the share price.
So…how is paying tax good for shareholders?
Wrong
I have drawn attention to a fundamental accounting deception
And you have fallen for it
Excuse me? You have not answered why AAPL shareholders would want the money brought back onshore?
The stock price would in fact drop.
It should
It’s wrongly priced
Not as sure what I think of this one as some others. There doesn’t seem to be much suggestion that Apple’s foreign holdings are significantly bolstered by transfer pricing on any other dodgy dealings, it’s just money that has been earned outside the US and taxed outside the US. And up until now the suggestion has been either that it would be repatriated (and US taxes paid) or would be spent in the non-US countries where it was earned. And that was all fine, as far as I could see.
So now they’ve taken out a loan, and will pay interest on it. And broadly that doesn’t seem like a problem either, there’s no law that says you can’t take out a loan when you have money in the bank, and I’m not sure I’d want there to be either.
But when you read how it’s all been played it seems like Apple have won on every angle, which doesn’t seem like it should be the way of things. Can’t figure out which specific part of it is the wrong bit though.
If you can’t figure out what’s wrong – how about thinking about the tax avoided which is leaving Americans on food stamps?
Is it that hard to see a connection?
Or coud it just be wilful blindness?
Mr Murphy
No tax has been avoided. The $17 billion proceeds from the bond issue will be distributed as dividends, and will eventually be taxed when the shareholders submit their returns. Also, $AAPL will pay interest on the bonds, and the bondholders will pay taxes on that interest.
Finally, $AAPL has risen by almost $50 since the bond issue was announced, resulting in a c. $45 billion increase in the company’s market cap. This will produce a lot of capital gains, and significant capital gains taxes for the government.
Your analysis is incomplete, and as a result elementarilly misguided.
Ah, that’s why around the world vasy swathes of the press agree with me, is it?