Apple says $60 billion will remain overseas until US tax law changes

March 20, 2012  ·  Filed under: IRS

Topic we’re familiar with…

Apple made an aggressive pitch for a corporate tax holiday Monday, stressing that it plans to keep more than $60 billion parked offshore until Congress makes it easier for companies to bring those profits home.

The warning from the nation’s most valuable company came as Apple announced it would pay a dividend to shareholders and buy back stock, moves that will cost about $45 billion over three years.

But Apple — which, like several other Silicon Valley titans, has spent months lobbying for more flexibility to repatriate offshore profits — said it will rely exclusively on domestic cash reserves for the transactions and will not touch the billions in profits held abroad.

“Repatriating the cash from offshore would result in significant tax consequences under current U.S. law,” Apple Chief Financial Officer Peter Oppenheimer said on a conference call.

Apple and other backers of a repatriation holiday — including Oracle, Cisco, Microsoft and Google — threw their support last year behind the WIN America Campaign, a lobbying coalition that urged Congress to temporarily reduce the tax rate that U.S. multinationals have to pay on offshore profits.

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13 Responses to “Apple says $60 billion will remain overseas until US tax law changes”
  1. Correct me if I’m wrong, but didn’t the Bush administration try an IRS amnesty plan back in 2004 in an effort to repatriate some of those offshore funds. And, as I recall, the few corporations that did take advantage of that scheme, which resulted in $300-400 million in repatriated funds, promptly turned around and invested those funds overseas. Little net gain as I remember it.

    Let me add that nowhere in HR25 is there any mention of amnesty, yet Fairtax advocates continue to claim that $13 trillion will come rushing home. Utter nonsense in my opinion. There isn’t $13 trillion out there, and the IRS will be in business for three years after passage of HR25, so who wants to stick their head in that noose???

    Hank Van Gieson  ·  Mar 20, 2012 at 2:36 pm  ·  Permalink
  2. Haven’t they heard? Congress isn’t in charge anymore. The UN is.

    God help us!

    Lou Buren  ·  Mar 21, 2012 at 1:16 pm  ·  Permalink
  3. Hank,
    First, you were addressing the 2004 American Jobs Creation Act which allowed one year for corporations to repatriate earnings from foreign subsidiaries at a lower tax rate in 2005. The usual rate, 35% minus foreign taxes paid was reduced to 5.25% for one year. The corporations were also required to invest the repatriated earnings in the U.S. The Joint Committee on Taxation predicted a return of $200B with an associated $2.8B gain the first year, then big losses. What actually happened was that over 800 corporations repatriated $362B for an $18B gain the first year, a 9.6% increase in investment and an increase in revenues for the follow-on years exceeding estimates. The lessons learned (and quickly discarded) were:
    1.) 5.25 % of $362B is much greater than 35% of nothing,
    2.) Overlooked Variable: Tax increases/reductions change behavior in
    different ways,
    3.) $T’s of annual global capital flows are sensitive to tax rates,
    4.) The U.S. is suffering from a high corporate tax rate of 35% vs. 10%
    in some countries, and
    5.) 35% tax rate inhibits repatriation of foreign subsidiary income.

    You’re right about amount of un-repatriated earnings. There’s more like $15 Trillion in dollar denominated accounts avoiding the 35% tax. $13 Trillion is an old number. Also, there is no amnesty. It’s not needed, since the income tax ends on December 31st and the FairTax takes over the next day – January 1st. As shown above, when the FairTax is enacted and corporate taxes are reduced to 0.0%, repatriated earnings will flow back to the U.S. by the buckets full!
    And, as required by HR 25/S 13, the IRS is then in business to do only two things: 1.) reconcile and collect over the next two years and nine months (gov’t fiscal years) the income taxes due through December 31st, and 2.) destroy all income tax records excluding only Social Security and Medicare taxes. For the years prior to the FairTax going into effect, “contributions” of present payroll tax payers into the system will need to be maintained to prove eligibility for SS and MC. Finally, at 2-years and 9-months after the FairTax goes into effect, the IRS is defunded.

    Chuck B  ·  Mar 22, 2012 at 12:02 am  ·  Permalink
  4. “Let me add that nowhere in HR25 is there any mention of amnesty, yet Fairtax advocates continue to claim that $13 trillion will come rushing home. Utter nonsense in my opinion. There isn’t $13 trillion out there, and the IRS will be in business for three years after passage of HR25, so who wants to stick their head in that noose???”

    When the Fair Tax is passed there will be no penalty or tax on any corporations off shore funds.

    Gracemarie Collins  ·  Mar 23, 2012 at 6:41 am  ·  Permalink
  5. Gracemarie,

    Interesting. Where in HR25 does it say that? Thanks!

    Hank Van Gieson  ·  Mar 23, 2012 at 1:09 pm  ·  Permalink
  6. It says it by not saying it. You need a law to “penalize” such or tax such an action. The business is not doing anything illegal. It’s not amnesty. Under the current tax law, they’re taxed when they bring back such money. Under the FairTax, they’re not. The IRS being around for three years is to finish collecting on revenue that falls under that tax code period. It would make no sense to apply income tax law to a time period where the law is revoked and a new law is applied. That would be illegal.

    Morphh  ·  Mar 25, 2012 at 6:52 am  ·  Permalink
  7. Note Chuck’s comment above that was approved just now.

    Morphh  ·  Mar 25, 2012 at 6:54 am  ·  Permalink
  8. Thank you Charles B.

    The bigger picture of this subject is that ANY elimination of the US corporate tax (even one merely limited to eliminating the tax on repatriation of foreign earnings) would give corporations an incentive to bring home those funds. That is, WE DO NOT NEED THE HORRENDOUS FAIR TAX TO ACCOMPLISH THAT!

    While I have not studied the specific FT sales pitch on this point, can someone point me to any “independant” strudy that tells us mnore precisely how much is truly out there that would be repatriated a) with simply another 5.25% tax on repatriated earnings, b) by simple a 0% tax on repatriated earnings, or c) a complete elimination of the US corporate IT replaced with something other than the “fairtax”.
    Further, it seems most unreasonable that the 5.25% rate brought back a mere $362B, but that 0% will bring back $13-15T. As a former large corporate tax consultant, it seems to me that surely any rational corporation would have recognized that 5.25% was as good as it gets and would repatriate as much as possible. Reducing the rate to 0% might have brought home a l;ittle more, but likely not much more.

    Stephen C. Eldridge  ·  Mar 25, 2012 at 12:17 pm  ·  Permalink
  9. Chuck — Thanks for your contributions to this board. We have had numerous discussions on the alleged $13 trillion held abroad (which you say is more like $15 trillion). None of us have been able to find a reputable source for this number. Can you please cite us to any authority you have as to where this number came from?

    Hayden Kepner  ·  Mar 26, 2012 at 1:33 pm  ·  Permalink
  10. Chuck,

    While responding to my and Hayden’s request to support the claim of $15T, please also explain the magic of $15T coming home because of a 0%
    rate when the fabulouslyu low 5.25% rate brought in only $362B.
    Please also explain why you feel that ONLY the FT will bring that money home and why other simpler methods, including some I noted in 8, above) won’t work.

    Stephen C. Eldridge  ·  Mar 26, 2012 at 3:35 pm  ·  Permalink
  11. Folks, I think we are getting snarled up over two separate issues.

    The first is the original claim by Boortz in his first book that there was $11 trillion in US wealth hidden away in offshore accounts to avoid taxes.(see page 104) That claim was just plain false. To repeat the only source I have found on this issue, the Tax Justice Network, (an international organization that tries to track offshore holdings), produced a report that showed that in 2005, world wide offshore holdings were indeed around $11 trillion. Of that amount, $1.6 trillion was owned by North Americans, and there are 23 sovereign nations in NA. My best estimate for US owned wealth in offshore accounts was $700-800 billion at that time.

    A related but quite different issue is the overseas investments of US corporations. Here, $13 trillion or more has been invested in foreign countries, and foreign investment in the US amo8nted to over $15 trillion. Those US investments aren’t likely to come home just due to a different tax system. There are many other reasons for corporations to invest overseas including skilled labor rates, raw materials, market access, infrastructure, and contractual offsets as part of business decisions. In 2005, corporate income taxes amounted to 3.2% of sales. Are taxes any reason to relocate back to the US? I don’t think so.

    By the way, a former Congressman reportedly got Princeton Econometrics to do a survey of foreign businesses. We have since been deluged with “facts” that show that all companies surveyed said they would relocate to the US given the Fairtax. The trouble is that no one has ever seen the actual survey questions, let alone the results. Can anyone help with this one?

    Hank Van Gieson  ·  Mar 27, 2012 at 7:01 pm  ·  Permalink
  12. Further to Hank’s point

    The overwhelming majority of US overseas funds are likely corporate investments. Much of that is overseas because of a variety of factors including being closer top their markets physically and politically, just as Toyota has several plants in this country. These funds will not come home because of the magic of the FT. I maintain that the $362B that came hoime as a result of the 5.25% tax rate holiday is virtually all that would have come home from a 0% tax rate (the amount of such funds currently “available” to come home is unknown).

    Whether foreign corporations will suddenly rush to send all of their money to the US under the spell of the FT is 100% pure speculation, economic “Hope and Change, Change you can believe in, Yes we can”.

    Stephen C. Eldridge  ·  Mar 28, 2012 at 9:04 am  ·  Permalink
  13. Thank you, Stephen. That is what I was trying to get across, but my mind wanders due to an extensive home remodeling project.

    My bottom line is that the $11 trillion in US owned wealth, hiding in offshore banks, is a Fairtax/Boortz myth. And, the $14-$15 trillion in corporate overseas investments, while very real, isn’t “coming home” any time soon, if ever.

    Hank Van Gieson  ·  Mar 28, 2012 at 12:45 pm  ·  Permalink