“Taxpayers are making millions of dollars in interest payments on U.S. Treasuries to an unlikely source — tech giants Apple, Microsoft, Google and Cisco,” Patrick M. Sheridan reports for CNNMoney.”Those tech companies have more than $100 billion in U.S. bonds, according to a report released Thursday by The Bureau of Investigative Journalism, a not-for-profit, privately funded reporting outfit in London. Due to U.S. tax laws, much of that cash is held in overseas subsidiaries — and it is likely that some of that cash is being used to purchase U.S. bonds.”
“If these firms are buying U.S. debt with that money, then U.S. taxpayers are on the hook for hundreds of millions in debt payments to the same U.S. companies they already buy billions of dollars from in iPads, software and routers,” Sheridan reports. “‘It means American taxpayers are effectively rewarding U.S.-based technology firms for avoiding taxes,’ said Nick Mathiason, the author of The Bureau of Investigative Journalism report.”
“But the situation isn’t a surprise — or even a problem — according to international tax experts,” Sheridan reports. “‘U.S. corporations can defer taxes by keeping earnings abroad and they can continue to defer the tax by buying U.S. Treasuries,’ said Michael Knoll, a professor at the University of Pennsylvania Law School… Knoll said that there are some benefits from having big companies owning U.S. debt. After all, the yield on a bond goes down when investors are buying bonds. So the bond purchases may help keep interest rates low.”
“Some argue that the 35% tax rate on foreign profits should be lowered to encourage U.S. companies to bring that money back home. But others think Congress should impose rules that penalize companies for shifting earnings out of the United States,” Sheridan reports. “What Apple, Microsoft, Google and Cisco are doing is perfectly legal. And the companies stressed that it’s up to Congress to enact new rules if they aren’t happy about the practice of parking cash overseas.”
Read more in the full article here.
MacDailyNews Take: In November 2012, Tim Worstall wrote an interesting article for The Register. In case you missed it:
Google, Apple, eBay shouldn’t pay taxes – people should pay taxes.
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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