Anorak | Apple’s huge stash of cash is invested in the global financial system

Apple’s huge stash of cash is invested in the global financial system

by | 13th, December 2017

Much financial illiteracy in the Guardian, wherein there’s talk of Apple and its billions. Writing beneath the headline “The tech giants will never pay their fair share of taxes – unless we make them” Guardian readers are told about Apple’s tax avoidance schemes and how they must be stopped. It begins:

Any sufficiently advanced technology is indistinguishable from magic, and the accountants of Silicon Valley have proved Arthur C Clarke’s third law to be as true of tax avoidance as it is of tech.

Clarke’s third law features on the writer’s essay Hazards of Prophecy: The Failure of Imagination, as seen in his book book of 1973 (originally published in 1962) Profiles of the Future: An Inquiry into the Limits of the Possible. The law states: “Any sufficiently advanced technology is indistinguishable from magic.”

But it’s nothing like magic what Apple does. Fortune has a decent take on how it works. And it can be argued that Apple has painted itself into a corner, albeit one of sublime luxury on small islands. “Apple and firms like it are hoist by their own petard,” says Professor Edward Kleinbard of the University of Southern California. “They have gigantic pools of cash that are the fruit of their tax-avoidance labour but they can’t enjoy it in the way they want because that is the deal. The way to look at the cash is not that it’s a problem but that it’s the result of the success US firms have had in generating stateless income.”

And so we get to this nonsense in the Guardian:

The most recent outrage is Apple’s $252bn offshore cash pile, as exposed by the Paradise Papers investigation. More valuable than the foreign currency reserves of the US or the UK, it represents all the money that the world’s most valuable company has siphoned out of the global financial system for the benefit of its shareholders.

Bizarre stuff indeed to view Apple’s billions as cash dumped in a treasure chest. There is sits, not being used for investment in bills, bonds, overseas goods and services, nor even earning interest in its host nation.

CNN helps us know how the money is used:

So Apple has actually been going into hock to help fund some of its stock buybacks and dividends. The company raised $10 billion in debt last quarter and now has about $47 billion in long-term debt overall.

Apple can use its cash reserves to buy unsecured debt, paid back at a much lower rate than 35%. As Bloomberg noted in May:

The iPhone-maker has $148 billion of its record $257 billion cash pile invested in corporate debt alone, according to a company filing from Wednesday.

Buy debt and wait for a tax window to repatriate the cash? If Apple moves the cash from overseas to the US, it’ll receive a gigantic tax bill.

…the Cupertino, California-based company invests in corporate bonds and other assets like money market funds and U.S. Treasuries.

With more than 90 percent of its war chest abroad, the company regularly issues bonds of its own to help fund programs like share buybacks and capital spending.

Shareholders and investors see that huge stack of cash and want some.

Apple said Thursday it’s selling what may be $7 billion of debt, and will use proceeds in part to support a 63-cent dividend and an increased stock-repurchase program.

The money is not siphoned out of the global financial system. It’s just in another part of it.

PS – if you have business idea and don’t live in a high-tax juristiction, call Apple.


Posted: 13th, December 2017 | In: Broadsheets, Money, News Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink