Apple Inc. (NASDAQ:AAPL) CEO Tim Cook has finally chimed in on what it would take for the company to bring billions of dollars held overseas back into the United States. And it only took a few months of heated discussion by Apple stock investors and pundits.
In short, Cook said it would take a much lower tax rate on repatriated money for AAPL to bring that money home where it can be effectively redeployed for growth.
Not that any owners of Apple stock had any reason to be surprised, but it was disappointing all the same. It has been a sore spot for a while now, as the domestic Apple cash and securities hoard isn’t all that impressive. Apple’s long-term debt has grown from nothing in mid-2012 to nearly $70 billion now, as AAPL has financed everything from buybacks to dividends to acquisitions.
Granted, it’s cheap money, but any interest payment is too much when your own money is just sitting there idly.
The good news is there may be a light at the end of the tunnel.
Apple Cash Stranded Overseas
For the record, Tim Cook didn’t cite a specific number, or rate, that it would take for Apple to bring its overseas loot back home. He simply described the requirement as a “fair rate.”
While that fair rate may be non-specific thus far, what is specific is what it could cost the company (and by extension, owners of Apple stock) to bring back that foreign-held cash into the company’s home country. If Apple were to bring all $181 billion of it back to the U.S. where it could freely do what it wanted to with it, it would fork over at least $59 billion of it to the federal government in taxes. Throw in state taxes, and the tax hit approaches 40%.
When put in those numerical terms, Cook’s hesitation is understandable.
Also in his defense, Cook isn’t being unpatriotic, nor is he leading AAPL to become a tax-dodging organization. In a recent interview with the Washington Post’s Jena McGregor, he explained:
“The tax law right now says we can keep that in Ireland or we can bring it back. And when we bring it back, we will pay 35 percent federal tax and then a weighted average across the states that we’re in, which is about 5 percent, so think of it as 40 percent. We’ve said at 40 percent, we’re not going to bring it back until there’s a fair rate. There’s no debate about it. Is that legal to do or not legal to do? It is legal to do. It is the current tax law.
“It’s not a matter of being patriotic or not patriotic. It doesn’t go that the more you pay, the more patriotic you are. … We are the largest taxpayer in the United States. And so we’re not a tax dodger. We pay our share and then some. We don’t have these big loopholes that other people talk about. … The second thing I would point out is we have money internationally because we have two-thirds of our business there.”
And he’s right. Moreover, Apple’s not alone. U.S. companies waiting for a more palatable tax rate are holding more than $2 trillion worth of cash or cash equivalents overseas.
Like Cook, none have said what the magic number is. But there’s little doubt that for most of them, the number is much, much lower than 35%.
Bottom Line for Apple Stock
Just a few months ago, it looked as if all of Apple’s cash could have been locked out of the United States forever. The 2016 presidential election campaigning, however, has at least forced the debate, even if it hasn’t yet forced new legislation.
GOP candidate Donald Trump is offering the most generous deal, suggesting the government make a one-time offer of a 10% tax rate to all companies in AAPL’s situation. He’s also aiming to cut the U.S. corporate tax rate from 35% to 15%, on the premise that a bigger bottom line with lead to more reinvestment.
Democratic candidate Hillary Clinton hasn’t offered anything quite as generous, though she has supported — and voted for — so-called “tax holidays” in the past as a means of allowing money held overseas to be brought back to the United States. She hasn’t necessarily ruled out the idea during her campaigning. However, the bulk of her focus so far has been on the prevention of corporate tax inversions and tax breaks for companies that share little of the wealth with employees.
Bear in mind, of course, that plans laid out before an election are just that — plans. There’s no assurance any of them will become reality.
In other words, owners of Apple stock expecting the company to get around a big financial hurdle may not want to hold their breath.
Tim Cook certainly isn’t.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.