Apple notches big league win with U.S. Republican tax cuts, but faces snag with taxes on foreign patents
“The U.S. Republican tax overhaul passed by Congress this week will allow Apple Inc. to bring back its $252.3 billion foreign cash pile without a major tax hit – a long-standing company goal,” Stephen Nellis reports for Reuters. “Other provisions of the bill, namely the cut in the corporate tax rate from 35 percent to 21 percent, are also a big boon for Apple.”
“But not everything went the company’s way. A critical difference between the Senate version of the bill and the final version could actually raise the amount of cash taxes that Apple pays on profits from patents held abroad, tax experts said. The treatment of foreign patent profits is important to Apple because shifting those profits overseas was a cornerstone of its tax practices for decades,” Nellis reports. “The bill has a pair of provisions designed to make that maneuver less alluring. One creates a minimum tax on foreign patent income that is expected to come to about 13 percent, said Gavin Ekins, a research economist with the Tax Foundation. At the same time, a tax break for patents held in the United States will lower the tax on licensing income from the standard corporate rate of 21 percent to 13.1 percent – about the same as if the patents were held abroad.”
“Congressional Republicans ‘don’t want the tax rate to be a consideration in where you put your intellectual property,’ Ekins said. ‘The whole intention (of the measures) is to bring back that intellectual property to the United States,'” Nellis reports. “But the final bill omits any explicit way for patents held overseas to be returned to the United States without being taxed… For those patents that remain overseas, the minimum tax on foreign patent profits means Apple might actually face higher cash taxes abroad.”
MacDailyNews Take: Surely Apple and/or Uncle Sam will figure something out regarding foreign patent repatriation.
Beyond the foreign patent issue, once President Trump signs the Tax Cuts and Jobs Act, Apple will have a one-time tax of 15.5% on their overseas cash. So, on $252.3 billion in overseas cash, Apple’s tax payment would total around $39.1 billion. Apple has already smartly set aside $36.3 billion just for that purpose.
Going forward, as Nellis notes, Apple will pay 21% on U.S. profits and a minimum 10.5% tax on foreign profits, “but they will be able to deduct foreign taxes already paid on those profits, so in many cases the foreign profits can be brought home with no additional U.S. taxes paid.”
Apple CEO Tim Cook and U.S. President Donald Trump at tech summit in JuneUnder 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
