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Anorak | Apple’s Bond deal is the most glorious tax avoidance ruse

Apple’s Bond deal is the most glorious tax avoidance ruse

by | 1st, May 2013

CERTAIN people are getting rather angry about yesterday’s bond deal by Apple:

As is par for the course, the financial media is telling a story about a major US company from the perspective of the investing classes, rather than the broader public.

The poster child is the New York Times’ Dealbook, in a story titled “To Satisfy Its Investors, Cash-Rich Apple Borrows Money.” It third paragraph reads:

Apple’s return to the debt markets raises a riddle: Why would a company with so much cash even bother to issue debt?

A full seven paragraphs later, the article gets around to the last, and arguably the most important reason:

By raising cheap debt for the shareholder payout, Apple also avoids a potentially big tax hit. About two-thirds of Apple’s cash — about $102 billion — sits overseas in lower-tax jurisdictions. If it returned some of that cash to the United States to reward its investors, it could have significant tax consequences for the company. In some ways, the bond issue is a response to that tax situation.

The only reason that Apple has issued these bonds is to get around having to pay the corporate income tax in the US. Maybe this makes Apple naughty boys: or maybe it shows how silly the tax system is.
The basic deal in the US is that companies pay tax on their profits. But, if you make foreign profits and you keep those foreign profits outside the US then you don’t. So US companies have vast amounts of these foreign profits just lying around in tax havens.
However, Apple wants to get some of those foreign profits into the hands of shareholders. They do, after all, own the company and the money does belong to them. But if they bring the money in to pay a dividend then that corporate income tax of 35% must be paid.
So, instead, Apple is issuing bonds, to borrow money, which they will then pay to investors as those dividends. All of which is rather silly really. Wouldn’t it just be easier to say that Apple can bring in those foreign profits without paying tax? Then pay them out as dividends?



Posted: 1st, May 2013 | In: Money Comment (1) | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink