“The Republican tax bill now awaiting President Trump’s signature has two major pieces of good news for America’s most valuable company, Apple: It cuts the corporate income tax to 21 percent, and creates a cash repatriation holiday, allowing the company to bring tens of billions of dollars stashed overseas back into the U.S. under a lower rate,” Luke Stangel reports for The Silicon Valley Business Journal.
“But a key provision in the tax bill challenges Apple’s longstanding practice of holding intellectual property in foreign subsidiaries, a decision the company has relied on for decades to reduce its overall corporate tax rate,” Stangel reports. “And, it appears Republicans didn’t design an easy way for Apple to transfer that intellectual property back to Cupertino.”
“For years, Apple CEO Tim Cook has lobbied federal lawmakers to reduce taxes across the board, particularly on the more than $250 billion in cash the company holds in its foreign subsidiaries. Under the Republican tax plan, Apple would pay a one-time tax of 15.5 percent to repatriate its cash reserves. After that, companies would pay taxes of at least 10.5 percent on repatriated cash, but would be able to deduct foreign taxes already paid on the money, effectively lowering the repatriation rate to zero,” Stangel reports. “Going forward, reducing the national corporate tax rate from 35 percent to 21 percent will also help Apple’s bottom line.”
MacDailyNews Note:
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
MacDailyNews Take: There needs to be a way for companies to bring internationally-held patents back into the U.S. without exorbitant taxation, if lawmakers desire to disincentivize companies from holding patents overseas.
There is another problem with the patent tax. Quite a few US pharmaceutical and similar firms have built high-tech plants in Puerto Rico and hold the patents there. The island operates under a separate Federal tax code, so those patents are treated as “offshore” under the Trump Tax Reform and are subject to the new tax. That creates a major incentive for the firms to move their plants back to the mainland, further devastating the Puerto Rican economy. Congress was informed of the probable effect on the US citizens dependent on these plants, but chose to ignore it since Puerto Ricans can’t vote (until they are forced to move to Florida and start deciding elections in that state).
How would you feel about paying a few $Billion to transfer property you owned from Europe to the United States?
Our system of taxing production forces tax law to be complex. It has been no different with previous tax law revisions. Tax complexity is eliminated by abandoning production taxation and adopting consumption taxation, it is how our trading partners are able to maintain low income taxes. They call many names, but it is most commonly known as VAT (Value Added Tax) and is paid at the point of sale.
Now that this issue has become known Congress will fix it, just don’t expect a fix until Congress returns in January.
Just for clarity, the tax is due whether the property is transferred or not. If you are a US corporate taxpayer and own property overseas, the property itself (and not the income) will be taxed at 15.5% unless it is a fixed asset like real estate, in which case it will be taxed at 8%. Once the taxes are paid, you can transfer it to the US or leave it in Europe. Your choice. There is no actual inducement in this bill to bring any of that money back to the US or to invest it in infrastructure or wages if it is repatriated.
It would be most agreeable if Apple paid the taxes it owes to the various nations where the sales were made rather than doing nefarious book transfers to avoid paying legitimate taxes. Doing evil.
Apple must be really suffering now. So, what’s this patent tax going to add up to? A few billion dollars?
There is another problem with the patent tax. Quite a few US pharmaceutical and similar firms have built high-tech plants in Puerto Rico and hold the patents there. The island operates under a separate Federal tax code, so those patents are treated as “offshore” under the Trump Tax Reform and are subject to the new tax. That creates a major incentive for the firms to move their plants back to the mainland, further devastating the Puerto Rican economy. Congress was informed of the probable effect on the US citizens dependent on these plants, but chose to ignore it since Puerto Ricans can’t vote (until they are forced to move to Florida and start deciding elections in that state).
How would you feel about paying a few $Billion to transfer property you owned from Europe to the United States?
Our system of taxing production forces tax law to be complex. It has been no different with previous tax law revisions. Tax complexity is eliminated by abandoning production taxation and adopting consumption taxation, it is how our trading partners are able to maintain low income taxes. They call many names, but it is most commonly known as VAT (Value Added Tax) and is paid at the point of sale.
Now that this issue has become known Congress will fix it, just don’t expect a fix until Congress returns in January.
Just for clarity, the tax is due whether the property is transferred or not. If you are a US corporate taxpayer and own property overseas, the property itself (and not the income) will be taxed at 15.5% unless it is a fixed asset like real estate, in which case it will be taxed at 8%. Once the taxes are paid, you can transfer it to the US or leave it in Europe. Your choice. There is no actual inducement in this bill to bring any of that money back to the US or to invest it in infrastructure or wages if it is repatriated.
It would be most agreeable if Apple paid the taxes it owes to the various nations where the sales were made rather than doing nefarious book transfers to avoid paying legitimate taxes. Doing evil.