Apple’s massive $100 billion capital return program is a perfect tax arbitrage

“As you likely know, about two-thirds of the $145 billion of cash on Apple’s books is held in overseas subsidiaries, and Apple would have to pay U.S. income tax if it used that money in the U.S.,” Allan Sloan writes for Fortune. “So instead of bringing in money from overseas to pay for its stepped-up stock buybacks and higher cash dividend, Apple will borrow money instead.”

“It’s a perfect tax arbitrage,” Sloan writes. “Let’s say Apple borrows money at an interest cost of 3% a year (which is more than it would likely pay), and uses it to buy back stock at the current price of about $410 a share. Each share that Apple buys back will reduce its annual dividend obligation by $12.20 a share, at the company’s current dividend rate. The interest on the borrowed money would be $12.30 a share — about the same as the dividend. But interest is tax deductible, and dividends aren’t.”

Sloan writes, “With tax rates at 35%, it’s considerably cheaper for Apple to borrow money in the U.S. than it would be for it to repatriate cash held in foreign subsidiaries. But even if the tax rate were only 25%, it would still be cheaper for it to borrow than to repatriate.”

Read more in the full article here.

Related articles:
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


            1. everything I have commented on I have backed up with simply call me names. (Which is okay, I consider it a badge of honor that a statist and a defender of tyranny, such as yourself, is an enemy.)

            2. Goes to show how different our mindsets are doesn’t it?

              You call me the “enemy”, despite the fact that I am an American, a decorated US veteran, and solely because my opinion differs from yours. How democratic of you to so easily hate and marginalize opposing viewpoints, a real defender of freedom you are. No real American patriot would expose such an ideology as to say: think my way or count yourself as the enemy. Just think about the crap coming out of your mouth for once.

              Yeah, I do call you names from time to time. It is frustrating to see so much stupid, so much hate day after day on a site I have been visiting since 2001. I sometimes give in to the urge to call an ass an ass. you sir are an ass.

              You are not my enemy, you are simply poorly informed, poorly educated and have a rather myopic worldview. I have pity and sorrow for you, not hate. I hope that someday you emerge from your stupor.

              Sadly I was once a brainwashed little rightwing troll like you. Then I went to war, saw the world, went to school expanded my sphere of influence and can now clearly see how wrong I was.

      1. Isn’t it kinda funny that the less you need to borrow and the higher rate you ca pay, the better terms in a loan you get. I know the risk thing but its still kind upside down. The people that might actually need the money the most have to pay rates that will make them to under, not save them. Things are kind upside down in this world :p

    1. Home mortgages are currently below 3%, WhoKnows, if you have a good credit rating. Secured loans are not generally very risky and can be obtained at lower rates. Since Apple already has far more cash and securities in hand than it plans to borrow, Apple’s debt is probably safer than that backed by the full faith and credit of the U.S. Government, itself.

      botvinnik, you are a fool and a tool parroting a nonsensical political meme. The U.S. Government provides services to its citizens. Those services cost money. The money is collected largely in the form of taxes. The amount of taxes collected should equal the amount of money spent (balanced budget). In order to cut taxes, the government should also cut spending commensurately, because the tax cut stimulus effect is neither instantaneous, nor a miraculous method of generating future tax revenue out of conservative dreams.

      A fool and a tool… botvinnik, you are a sad, sad little creature.

      1. from 1789 to 1913, the Federal Government was financed by tariffs on imports. Wonderful things resulted from this: A. The Federal government was limited in it’s size and power and protected individual liberty. B. The American job force was protected against cheap imports, resulting in Americans making their own stuff. C. The average annual growth during this period grew at 10%.

        1. Constitutionally, United States currency must be created and regulated by Congress. In 1913, this was changed by the Federal Reserve Act, which is neither federal nor a reserve. It is a cadre of domestic and international banks. This created the National Bank that Jefferson and Jackson warned against and JFK fought against with his United States Note of June 1963.
          In order to finance the national bank, the Federal Income Tax was also created in 1913. This allowed the Federal Reserve to loan tax-paying Americans their own money plus the usury of interest.
          This is what is happening now to our country:
          “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…I believe that banking institutions are more dangerous to our liberties than standing armies… The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” – Thomas Jefferson

        2. You conservatives (regressive is more accurate) and your revisionist history.

          You would see us return to to the Victorian era? An era of vast inequality, racism, subjection of women, child laborers, rampant pollution and corruption? In 1900, 49% of the country aged 5-19 could not even read. Too busy working for slave wages in unsafe conditions.

          America was ‘better then?

          The sociopath mind is a terrible thing indeed.

        3. “American job force was protected against cheap imports”

          You are a fool.
          Today the world is global. No one is safe from cheap imports or labor. Today you have to compete on knowledge.

          1. You idiot, it’s been a global economy since the Spice Traders..the keys has always and will always be the nation that is making and selling…that’s how wealth is created. There is no other way.

  1. so…”Apple would have to pay U.S. income tax if it used that money in the U.S.,”

    feature that, a corporation having to pay income tax – just like the rest of us do.

    as much as i love apple and am a long term investor who wants to see them – and therefore me – succeed financially, as well as technically, i happen to have ZERO sympathy for them or any other multi-billion dollar corporation that seeks to avoid paying taxes.

    pating taxes, no matter how distasteful or aggravating, just happens to be one of all of our obligations as a citizen of these here united states. remember? like mitt romney says “corporations are people, my friend”

    great if mr. apple are a people, pay your damn taxes.

    when corporations and politicians start playing games and getting “sophisticated” about money – especially large sums of money – nobody loses but us.

    grow a pair mr. apple pay up and try to stay out of wall streets clutches (i know, too late already) you have more money than you know what to do with, you can afford to pay your damn taxes.

    1. The problem is they have already paid taxes on this money in the country that it is currently in. So just the simple act of bringing the money into the US triggers a tax. This is what happens when the tax code is such mess. It makes it cheaper to borrow money (which becomes a tax deduction). Unreal. Instead of telling someone to pay taxes, please ask yourself,

      Why does the government decide what is fair and how much of you money you can keep?

      1. like i say….when corporations and politicians start playing games and getting “sophisticated” about money – especially large sums of money – nobody loses but us. – via a goofed up tax code.

        and why does the gubmint get to decide, well that is just the nature of government.

        would you prefer that corporations get to decide what is fair and how much of their money they should get to keep?

        i would bet about all of it.

        imagining that a multibillion/multinational corporation would pay taxes of their own volition would be about as realistic an outlook as former fed chairman alan greenspan telling us that the banking industry needs no oversight because they are all good businessmen and pride themselves on their sterling reputations and business acumen to stay in business.

        1. No, I would rather that I decide how much tax I’m going to pay. When you tax income whether corporate or individual the decision is made. When you tax purchases then the individual can decide not to pay taxes by not spending money.

      2. Why?
        You are kind stupid for asking that. They are the government. They decide such things. Some one has to or it will be a mess. The government is elected. Don’t like the taxes you pay you can vote for a new government. This is the system we live in. It’s kinda stupid to ask why they are deciding…

    2. individuals pay income tax, not corporations…

      The Revenue Act Of 1913 (which allowed the institution of the Federal Income Tax):

      …subject only to such exemptions and deductions as are hereinafter allowed, the net income of a taxable person shall include gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, businesses, trade, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property, also from interest, rent, dividends, securities, or the transaction of any lawful business carried on for gain or profit, or gains or profits and income derived from any source whatever…

      1. So your tiny little conservative mind feels this is equitable?

        Corporations are people thanks to the conservative fools on SCOTUS remember? They can spend freely on electing their guy in hopes that he reciprocates with reduced regulation, lax oversight and favorable policy-making and law creation. BUT in your twisted mind they should not pay taxes? Don’t their products ride on semi’s on the same roads I travel, roads payed for with races? Do they not enjoy TIF’s and numerous other BS ‘breaks’ in exchange for creating a few jobs, no matter how low skilled or paid.

        You do realize that government-to-business subsidy (WELFARE) dwarves the actual welfare your type opposes, as does military industrial complex spending?

        AND you GOP types think government should be run like business..

        Funny that you view taxation as tyranny, but have no problem turning over the running of America to corporate stooges?

        (yeah R & D’s both love to suck at the teet of big business now don’t they?)

    3. Well, Doc, given your attitude I assume that you always take NO tax deductions, take no advantage of any of the tax “loopholes” such as home interest deduction or charitable deductions, and likely don’t even take the personal exemption. Just because you’re so dedicated to making sure that the government gets every penny you earn.

      You need the 1040-FD form. It’s got three lines:

      Line 1. How much did you earn from employment? ____

      Line 2. How much did you earn from other sources? ___

      Line 3. Add Lines 1 and 2. This is what you owe. _____

      1. oh, they get their fair share – not that i am entirely pleased with how they spend it, and spend it and spend it.

        and yes, i do take advantage of the few deductions they allow which leaves me with virtually nothing in the bank and less than 25k per year to live on, pay my mortgage, and support my family. such is life.

        but i suspect that if i had about 130 billion in cash laying around, i wouldn’t need them deductions. nor would i be presumptive enough to take them.

    4. If the USA had a 20% tax on corporations and allowed offshore income, that has already been taxed, to enter the country at no expense, the USA could be out of debt in a decade or two.

      Corporations don’t just sit on their earnings, if the obstacles, to use those earnings, have disappeared.

    5. The problem is Apple has already paid taxes on the money in the countries it was earned. Apple has zero obligation to bring the money into the United States. Why should they waste money and pay more taxes. The second problem is people believe that we are all fighting over a fixed sum of money; that the United States’ economy is not a zero-sum game. It is not, the best way to help the people is to have the economy grow – more jobs and higher paying jobs. Thirdly, if the federal government gets more tax revenue from Apple it will have zero effect on your life. All the money they do spend seems to have had no positive effect on the economy. I could go on but the point is it would be better for the United State to have the money here than in foreign countries. The money here in Apple’s hands can grow the economy. So why not let corporation that have already paid taxes in the location of their foreign operation bring the money here without a tax penalty.

    6. As Schmluss indicates, Apple has already been taxed on their earnings. In addition bringing that money back into the us just to hand billions over to the United States Government so they can what, give WMD to the Egyptian Muslim Brotherhood, pay for more Michelle Obama vacations, squander money on more failing solar companies, offer stimulus funds to people who use the money to campaign for higher taxes, make more commercials telling people how to get on welfare, and on and on? I don’t think so.

      It should be clear to anyone with half a brain that Apple will make far better choices on what to do with their cash than the United States government will.

      Allowing Apple to bring their funds into the country tax free or with a cut in those taxes would be an effective stimulus. Apple would invest in more data centers, hiring more people, ramped up R&D, more Apple Stores, and possibly new manufacturing facilities here, in the U.S.

      If you think giving planes and tanks to the woman hating, Jew hating Muslim Brotherhood is a better use of money, send them yours.

      And yes, corporations are people. They are made up of people, just like Unions.

      1. Hell. Apple could pay for this with their money:

        The New York Times reported Friday that the U.S. Department of Agriculture (USDA) has likely enabled massive fraud in the Pigford series of legal settlements, in which black, Hispanic, female and Native American farmers have claimed to be victims of past discrimination.

        The cost of the settlements, which could exceed $4.4 billion, is the result of a process that “became a runaway train, driven by racial politics, pressure from influential members of Congress and law firms that stand to gain more than $130 million in fees,” the Times notes.

      2. AHA the evil, scary specter of Islam and a bunch of noise to support your partisan position. I see Faux news propaganda isn’t wasted on you, hook, line, sinker. Never-mind the American Christian Taliban setting the talking points for your party, you should be scared of the Muslim Brotherhood…

        If corporations are people do you agree they should have voting rights? Should we amend the constitution to say we the corporations? Do you support individual citizens incorporating themselves to enjoy tax loopholes and government subsidy? How does this differ in your opinion from TANF and other forms of welfare used by individual citizens?

        1. You guys sling so much muck around most of us have no idea what you stand for or are going on about.

          Under US law corporations are afforded many of the privileges and protections granted to individuals. That doesn’t make them “people.”

  2. Does not matter. It’s still stupid. Taking on debt for Apple is stupid and wasting 50 billion on a buy back is stupid. Invest that in new products instead of rewarding selling shareholders…

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