“Apple is preparing the groundwork for another blockbuster debt sale in the region of $17bn that could rank as the second-largest corporate bond sale of all time,” Michael Mackenzie and Vivianne Rodrigues report for The Financial Times. “The world’s most valuable company said last week that it planned to increase its share buyback from $60bn to $90bn, funded by domestic and international bond sales.”
“Apple plans to use proceeds from the debt sale to fund the buyback rather than tap its $150bn cash pile. About $130bn of that cash is held overseas, 88 percent of the total, and returning it to the US would lead to a tax charge of up to 35 percent,” Mackenzie and Rodrigues report. “A foreign debt sale would probably target the eurozone, where interest rates are lower than in the US, and diversify Apple’s debt investor base.”
During Apple’s quarterly results call last week, Luca Maestri, Apple’s incoming finance chief, warned that repatriating offshore cash would incur ‘significant’ tax consequences,” Mackenzie and Rodrigues report. “Apple was likely to raise ‘an amount of term debt financing similar to what we issued in 2013,’ he said, adding that preparations had also been made to tap the commercial paper market for short-term liquidity.”
Read more in the full article here.
MacDailyNews Take: U.S. corporate taxes are obviously too high.
Under the current U.S. corporate tax system, it would be very expensive to repatriate that cash. Unfortunately, the tax code has not kept up with the digital age. The tax system handicaps American corporations in relation to our foreign competitors who don’t have such constraints on the free flow of capital… Apple has always believed in the simple, not the complex. You can see it in our products and the way we conduct ourselves. It is in this spirit that we recommend a dramatic simplification of the corporate tax code. This reform should be revenue neutral, eliminate all corporate tax expenditures, lower corporate income tax rates and implement a reasonable tax on foreign earnings that allows the free flow of capital back to the U.S. We make this recommendation with our eyes wide open, realizing this would likely increase Apple’s U.S. taxes. But we strongly believe such comprehensive reform would be fair to all taxpayers, would keep America globally competitive and would promote U.S. economic growth. – Apple CEO Tim Cook, May 21, 2013
Related articles:
Apple announces 7-for-1 stock split; boosts dividend, ups buybacks to $90 billion – April 23, 2014
Apple goes big on debt – and gets it right – May 3, 2013
Apple avoids potential $9 billion U.S. tax bill – May 2, 2013
Debt-free Apple to take on debt to avoid huge U.S. repatriation tax hit – April 26, 2013
Apple’s massive $100 billion capital return program is a perfect tax arbitrage – April 26, 2013
Apple to tap a hungry debt market; strong demand likely from investors eager to get cash off sidelines – April 25, 2013
Debt-free Apple plans to borrow to finance massive capital-return program – April 23, 2013
Apple beats Street on EPS and revenue; ups quarterly dividend by 15%; ups buybacks to $60 billion – April 23, 2013
Apple paid $6 billion in U.S. federal income taxes, 1/40th of all corporate income taxes collected by U.S. government in 2012 – January 5, 2013
Google, Apple, eBay shouldn’t pay taxes – people should pay taxes – November 25, 2012
So how much did Apple really pay in taxes? – November 1, 2012
Apple’s showdown with the U.S. government over taxes on offshore cash – July 13, 2012
Apple‘s $74 billion tops list of U.S. tech companies’ overseas cash – July 9, 2012
Apple’s dividend move puts spotlight on foreign cash holdings, repatriation tax reform – March 20, 2012
Apple: Good start; and what about the overseas cash? – March 19, 2012
Apple’s foreign cash hoard piles up: $54 billion and rapidly growing – January 11, 2012
Senator John McCain eyes Apple’s $54 billion overseas cash pile – November 3, 2011
Google joins Apple in push for U.S. repatriation tax holiday – October 3, 2011
Apple lobbies Obama for tax holiday, wants to bring overseas bounty home – August 24, 2011
U.S Senate Democrat Schumer allies with Apple, other multinationals on repatriation tax talks – June 21, 2011
U.S. companies push for tax break on foreign cash – June 20, 2011
Apple, Oracle, Duke Energy, others organize lobbying blitz for tax holiday – February 17, 2011
Interesting that they are raising the money by domestic AND international bond sales.
Does Apple have to pay US taxes on the money raised internationally – I very much doubt it.
So what if they were to pay off the debt with their foreign tax? Is that a way of effectively repatriating the cash and only pay small amounts of interest?
Obviously there are many AAPL stock holders based outside of the US. I wonder how Apple pay the dividends to such people ? Is it financed by bond sales as in the US, or does Apple use some of it’s overseas funds for that purpose ?
Sorry last line should read:
So what if they were to pay off the debt with their foreign cash? Is that a way of effectively repatriating the cash and only pay small amounts of interest?
Does this mean Apple is doing what Carl Icahn wanted them to do a while ago?
No, Apple is continuing to do what they were doing pre-Icahn.
Yes, it is a variation on what Icahn wanted: go out and borrow more money so that Apple buys back more stock and pays bigger dividends. It may not be as large as Icahn originally wanted, but it is, in effect, what Icahn has been pushing for since he started his active advocacy for Apple to do this. Apple is adding up debt. Why? Just to please Icahn, his ilk, and Wall Street.
Who does this really help? Apple, Inc.? No. It helps stockholders — especially the large institutional holders and those like Carl Icahn. I defy anyone to show me how this directly benefits Apple, Inc.’s business. (If Apple were already an extremely leveraged company then an increase in stock price could help Apple negotiate lower rates and increase its financial rating, but as it has stood for the last few years, Apple has no need to do either — but it seems to be heading that way. JUST TO PLEASE WALL STREET)
Why Apple doesn’t buy its own shares directly abroad?
Perhaps someone with more financial market expertise can explain why Apple can’t just buy their own shares on foreign exchanges using their offshore cash?
I’m sure I’m missing something, but it seems to me that they don’t incur any tax consequences by spending their offshore money on their own shares and retiring them.
Is even listed on any foreign exchange?
Apple, as Apple, Inc. does not directly hold those overseas profits. Subsidiaries owned by Apple, Inc. hold those profits. If Apple were to use those funds to buy back stock or issue dividends then Apple, Inc. would have to move those profits from the non U.S. subsidiaries to Apple, Inc. proper before using those funds. In the act of moving the money from the subsidiaries to Apple, Inc. proper the money becomes taxable under the U.S. tax rules. Thus, Apple won’t buy back stock or pay dividends — even to non U.S. persons, with any of that money.
If a UK company sets up a USA subsidiary, and then sells a product in the USA and pays all USA taxes, does the UK government demand they pay tax again when they bring the profits back into the UK?
I don’t think so. Ban double taxation.