“Investors in Apple (AAPL) and other technology companies like Google (GOOG) (GOOGL), Cisco (CSCO), and Qualcomm (QCOM) are well aware these companies are very cash rich,” Seeking Profits writes for Seeking Alpha. “However, a lot of their money is offshore to minimize their effective tax rate. Under U.S. law, repatriating this money is very expensive with a tax rate of 35%. As a consequence, this money is effectively trapped overseas and cannot be used to buy back shares or pay down debt. This is why companies like Apple and Cisco are borrowing to fund their capital returns despite having a gross cash position of $150 billion and $50 billion respectively.”
“These technology companies would love nothing more than to be able to return cash to the U.S. without paying such a prohibitive tax rate. This money could be used to fund capital returns, investments, and domestic acquisitions, all of which could be good for current shareholders,” Seeking Profits writes. “It now appears that there is a significant probability of a repatriation tax holiday, which would make it possible to return money to the U.S. This could be a catalyst to move tech stocks like Apple even higher.”
“On Tuesday, Republican Senator Rand Paul said on CNBC he was finalizing a deal with Democrat Majority Leader Harry Reid on a tax holiday that would see the rate fall below 10% for three years,” Seeking Profits writes. “Typically, Republicans have been supportive of a holiday while Democrats have opposed one. However, there is reason to believe Paul and Reid can actually reach a deal. With this bipartisan coalition of very powerful senators, final passage in the Senate and House would be all but assured. Deadlines often spur action, and the U.S. faces a serious cliff this summer that could spur such a deal.”
Read more in the full article here.
“‘I think this is a win-win situation. Lower tax and bring in more revenue,’ Paul said on “Squawk Alley,” Drew Sandholm reports for CNBC. “He also said the tax holiday would wrap into the transportation bill, thereby allocating the increased revenue toward building new roads and bridges.”
“At this point, talks are being held up by some on Capitol Hill who have the ‘traditional Washington mentality’ of either doing a big tax reform bill or nothing at all, Paul complained,” Sandholm reports. “‘For the four years I’ve been here, we’ve gotten nothing. I say break this baby up into small pieces. Do this on the transportation bill in the next three weeks, and we’ll do something that Republicans and Democrats both like: Lower a tax, bring in more revenue and build more roads,’ he said.”
More info and video in the full article here.
MacDailyNews Take: The U.S. corporate tax rate is way too high. Obviously.
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
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