Apple, returning overseas cash, to pay $38bn tax bill

Bloomberg

Apple Inc. said it will bring hundreds of billions of overseas dollars back to the US, pay about $38 billion in taxes on the money and spend tens of billions on domestic jobs, manufacturing and data centers in the coming years.
The iPhone maker plans capital expenditures of $30 billion in the US over five years and will create 20,000 new jobs at existing sites and a new campus it intends to open. The Cupertino, California-based company’s shares rose 1.7 percent to a record closing price of $179.10.
“We are focussing our investments in areas where we can have a direct impact on job creation and job preparedness,” Chief Executive Officer Tim Cook said, which also alluded to unspecified plans by the company to accelerate education programmes.
Apple also told employees Wednesday that it’s issuing stock-based bonuses worth $2,500 each following the new US tax law, according to people familiar with the matter.
In its December approval of the most extensive tax-code revisions since 1986, Congress scrapped the previous international tax system for corporations—an unusual arrangement that allowed companies to defer US income taxes on foreign earnings until they returned the income to the US.
That “deferral” provision led companies to stockpile an estimated $3.1 trillion offshore and many were criticised for the moves, including Apple.
By switching to a new system that’s designed to focus on domestic economic activity, congressional tax writers also imposed a two-tiered levy on that accumulated foreign income: Cash will be taxed at 15.5 percent, less liquid assets at 8 percent. Companies can pay over eight years.

New Jobs
Apple is the first major US technology company to act on the new tax law and it joins others, such as Intel Corp., in responding to criticism by President Donald Trump and others that corporations have been ignoring American workers and manufacturing.
Job creation was a key pillar of Trump’s election campaign. That means the new positions created by Apple are likely to have a more significant political impact than its $38 billion tax payment, according to Erik Gordon, a professor at the University of Michigan’s Ross School of Business.
“The thrust here is American jobs, jobs on American soil, build manufacturing here, don’t build everything in China,” Gordon said. “You can’t have an announcement of a million jobs. But you can have companies like Apple saying that we’re going to have 20,000 new jobs here. If other companies say they’re going to have new jobs too, it does add up.”
Trump tweeted a response lauding Apple’s announcement. “I promised that my policies would allow companies like Apple to bring massive amounts of money back to the United States,” he wrote.
“Great to see Apple follow through as a result of TAX CUTS. Huge win for American workers and the USA!”
Apple has the largest offshore cash reserves of any US company, with about $252 billion at the end of September, the most recently reported fiscal quarter.
The tax rate indicates that Apple is likely bringing back a majority of its overseas cash back to the US, leaving only a small portion for international investments like retail stores.
“They’re going to have well over $200 billion by the end of this year that will be available for incremental investments, capital returns and M&A,” said Matthew Kanterman, a New York-based Bloomberg Intelligence analyst.
The new tax law lets US companies bring overseas cash reserves back home in one year and pay the resulting tax bill over eight years.
“And Apple hasn’t historically done big M&A,” he said.