“A growing number of big US technology companies are heeding the call from Wall Street to hand more of their excess cash back to shareholders,” Richard Waters reports for The Financial Times. “But that does not look likely to stop a huge build-up of liquid reserves that has already left the sector with a cash mountain of historic proportions.”
“By the middle of last year, the concentration of wealth in the hands of a few tech winners had left just six companies – Apple, Microsoft, Google, Cisco, Oracle and Qualcomm – with more than a quarter of the $1.5tn held by US non-financial corporations, according to rating agency Moody’s,” Waters reports. “With nearly $150bn in its coffers, Apple alone was sitting on close to 10 per cent of corporate America’s cash.”
“Alongside the strong cash generation has been a habit of hoarding, caused partly by an innate conservatism in a sector where fortunes can reverse quickly. Steve Jobs, who had his own brush with bankruptcy, paid out nothing at all in dividends and buybacks, even though Apple generated $55bn in free cash flow in his final three years at the helm,” Waters reports. “But as the cash mountains have grown, a second factor has assumed even greater significance. Due largely to tax avoidance strategies that have made it possible to book profits in low-tax countries, much of the tech cash is held offshore. Rather than return it to the US to pay dividends or fund buybacks and incurring an extra tax charge, most tech companies have preferred to wait – and lobby in Washington – for a tax holiday.”
Read more in the full article here.
MacDailyNews Take: Obviously, the U.S. corporate tax rate is far 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
[Attribution: Slate. Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]