When it comes to paying taxes, any corporation with competent accountants tries to find the most effective legal means to reduce its tax liability. If Apple’s (NASDAQ:AAPL) tax accountants get paid bonuses based on how much they save the company, they may be in for a big one this year. Apple avoided $9.2 billion in taxes by choosing to fund its ambitious stock repurchase plan with U.S.-based debt rather than bringing some of its overseas cash reserves into the U.S,. according to Moody’s Investment Services.
Although it’s a common tax avoidance maneuver done by many companies that generate profit overseas, not every company can claim it was able to dodge such a large amount of potential taxes. Instead of shelling out $9.2 billion in taxes, Apple will only be paying a comparably paltry amount of $308 million a year in interest on its $17 billion bond deal.
As Moody’s senior vice president Gerald Granovsky put it via Bloomberg, “From a pure corporate-finance theory perspective, this was a no-brainer.” Apple finance chief Peter Oppenheimer also explained the maneuver in understated terms during an analyst conference call, “We are continuing to generate significant cash offshore and repatriating this cash would result in significant tax consequences under current U.S. tax law.”
Current U.S. corporate tax law takes 35 percent of any cash that is returned to U.S. shores. Besides avoiding an enormous tax bill, Apple has the added bonus of being able to write off its bond interest payments as tax deductions.
However, don’t think that Apple doesn’t pay its fair share of taxes. Apple paid $6 billion in federal corporate income taxes last fiscal year. This means that approximately one out of every forty dollars in corporate taxes collected by the federal government came from the Cupertino-based company.
Apple’s ambitious shareholder capital return plan will run through 2015 and will return a total of $100 billion.
The chart below shows how Apple has traded so far this week.