Apple’s Overseas Cash: Shady Game or Good Business?

Is Apple (NASDAQ:AAPL) playing a shady tax game with its overseas cash hoard or is it just executing a sensible business practice? It’s no secret that Apple has accumulated an impressive cash pile of approximately $145 billion. However, not everyone is aware that the majority of Apple’s cash is strategically kept overseas and out of the reach of America’s tax collectors. Hibah Yousuf at CNN Money notes that $102 billion of Apple’s $145 billion in total cash is kept overseas.

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Apple could face a corporate tax rate of 35 percent under current U.S. tax laws if it tries to bring its cash into the U.S. On the other hand, Apple is likely to get a borrowing rate of less than 2 percent in the U.S., according to RBS (NYSE:RBS) credit strategist Edward Marrinan via CNN Money. This was made apparent when Apple CEO Tim Cook announced that it would fund the company’s increased dividend payouts and share buyback program by borrowing the money in the U.S., rather than bringing its overseas cash back into the States.

Apple finance chief Peter Oppenheimer explained in an analyst conference call via CNN Money that “We are continuing to generate significant cash offshore and repatriating this cash would result in significant tax consequences under current U.S. tax law.” On the other hand, borrowing money in the U.S. is currently very inexpensive thanks to the Federal Reserve holding interest rates down.

Although executives like Apple’s Oppenheimer seem to point to America’s high corporate tax rate as a reason for keeping cash overseas, history shows that a reduced tax rate would probably not change Apple’s overseas cash reserve policy. Allan Sloan at CNN Money notes that a 12 percent corporate tax rate reduction in 1986 had little to no effect on most companies’ inclinations to play overseas tax games…

Rather than moving cash back into America, most companies simply continued to try to dodge the new lower tax rate as much as the previous higher tax rate. Sloan calculates that even with a tax rate reduced to 25 percent, it would still be cheaper for Apple to borrow money in the U.S. rather than bringing its cash back into the country. However, Yousuf notes that Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), and Cisco (NASDAQ:CSCO) were all lobbying Washington last year to reduce the cash repatriation tax rate to 5 percent.

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Although this is the first time the Cupertino-based company has gone into debt, it is not alone in its practice of keeping its money in low-tax countries. Sloan notes that Starbucks (NASDAQ:SBUX), Amazon (NASDAQ:AMZN), and eBay (NASDAQ:EBAY) also play similar tax games.

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