Apple giving Pimco a run for its money in the bond market

“There’s a new whale in the corporate-bond market,” Nabila Ahmed and Mary Childs report for Bloomberg. “Apple Inc., Oracle Corp. and the other tech giants hoarding half a trillion dollars in cash have joined the ranks of the biggest buyers of the debt, often snapping up as much as half of some bond issues, according to five people with knowledge of the transactions.”

“The companies are muscling into a market traditionally dominated by big bond funds including Pacific Investment Management Co., BlackRock Inc., Vanguard Group Inc. and Fidelity Investments,” Ahmed and Childs report. “They’re honing in on one of asset managers’ favorite ways to juice returns, particularly as the Federal Reserve holds short-term interest rates near zero for a seventh year.”

“All four of Australia’s biggest banks, heavily reliant on offshore debt markets, have sent representatives to Reno, Nevada, where Apple’s money-management unit, Braeburn Capital Inc., is based, according to people with knowledge of the trips,” Ahmed and Childs report. “Apple, Oracle, Google Inc. and seven of their biggest peers now have in excess of $500 billion of cash and marketable securities, up more than three-fold since 2008, according to data compiled by Bloomberg. The problem is much of it is stuck overseas. Bringing it home would mean subjecting it to U.S. repatriation taxes, so they invest it in the bond market. Apple, run by Tim Cook and based in Cupertino, California, had $171.3 billion of its cash and marketable securities in foreign subsidiaries and ‘generally based in U.S. dollar-denominated holdings’ as of March 28, according to a regulatory filing.”

Ahmed and Childs report, “Companies including Apple, Google and pharmaceutical giant Pfizer Inc. have been lobbying Congress for two years to approve a repatriation holiday that would allow them to transfer overseas profits to the U.S. and pay a tax levy that is lower than the current rate.”

Read more 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

SEE ALSO:

Obama targets foreign profits with tax proposal, Republicans skeptical – February 2, 2015
Senator Rand Paul finds Democratic partner for tax repatriation holiday – January 30, 2015
Businesses hopeful Republican control of U.S. Congress will break tax-reform gridlock – November 5, 2014
Not in Taxes anymore: On site at Apple’s famous Irish ‘headquarters’ – November 2, 2013
Regan: U.S. tax code spurs loveless foreign corporate ‘marriages’ – May 13, 2014
Ireland to close Apple’s tax loophole, but leave bigger one open – October 15, 2013
G20 think tank OECD proposes blueprint for global crackdown on tax avoidance – July 19, 2013
Thomas Sowell on Apple, corporate taxes, and ‘the road to serfdom’ – May 28, 2013
Taxing Apple just taxes you – May 24, 2013
Don’t tax Apple, tax its shareholders – May 24, 2013
If Apple paid more tax, we might pay less or something – May 22, 2013
Apple CEO Tim Cook pounds another nail into the Keynesian coffin – May 22, 2013
Apple CEO Cook makes no apology for company’s tax strategy – May 22, 2013

8 Comments

  1. It would be more accurate to say that the US corporate tax rate is way too high and way too low, at the same time. The US has a high sticker rate and low actual rate due to numerous carveouts, deductions, writeoffs, etc. etc. that reduce many companies’ actual rate to approaching zero.

    The problem is that most of those deductions and writeoffs and subsidies etc. were put in for more traditional companies and the tech sector doesn’t match many of them.

    Which leaves tax policy in the current bind: GE, car companies, oil companies and the like have low taxes, tech companies are hoarding money abroad because they don’t want to pay the high taxes they would incur bringing the money home, but the obvious solution of lowering the overall rate while eliminating deductions is opposed by the traditional companies that benefit from those deductions.

    So you get idiocies like the tax holiday proposals—hey, here’s a break to bring money back in, so that you will then hoard money abroad for the next decade or two waiting for another holiday.

    1. Also there is idiocy like Intellectual Property created in the USA by USA-based corporations, that are transferred to subsidiaries in low tax countries like Ireland and Panama, that are used to lower U.S. taxes by creating expenses (IP royalties) that go to those offshore companies gathering cash for an expected once per decade tax holiday.

  2. “Repatriation Taxes” <–The source of all this nonsense. No 'holiday' is required. Cutting taxes on foreign made profits in half is a great and permanent first step. Wake the hell up, #MyStupidGovernment! You’re literally forcing money out of the USA. How stupid can you get? Don’t tell me. It’s already obvious.

  3. I think people across the political spectrum agree that our tax system is a complex, incomprehensible mess desperately in need of a swift application of reform. It is astonishing that our useless Congress has done nothing about it, a failure that mutually lies in the laps of all parties.

  4. I think giving at least a partial tax credit for taxes already paid abroad would be a great idea. Having these “tax holidays” every 10 years when it gets out of hand just encourages companies to hold cash overseas instead of investing it here.

  5. I’m sure it’s a great opportunity when representatives of the four Australian cross the pond to discuss financing, and of course cricket. Reminds me of what happened when the Americans came over to help the Commonwealth bank and cricket players do more.

    Thank goodness for Australians, they make Americans look oh so very good.

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