Tech Talk: Apple Gets $6 From Every US Taxpayer

About a month ago, we wrote how President Elect Donald Trump had promised to introduce a special, lower rate of corporate tax for American businesses repatriating cash back in the USA. The tax would be reduced from 35% to 10% and although no details have emerged, such a move would likely include measures designed to encourage these businesses reintroducing cash into the US economy to do so in order to create American jobs as part of the "Make America Great Again" campaign. However, it's important to put the scale of the cash held overseas into perspective because depending on what industry experts are asked the question, the figure is as high as $2 trillion worth held offshore. This is cash generated by businesses' offshore interests but kept overseas in order to avoid the 35% corporate tax applied.

Last week, Bloomberg ran an article explaining that America's most successful smartphone manufacturer, Apple, has received at least $6 per American taxpayer over the last five years. This payment has been received as interest receivable by Apple because of their investment of billions of dollars worth of US Treasury Bonds. Essentially, Apple has bought US Treasury Bonds using its overseas cash investment, essentially tax free. These bonds generate interest, which of course is payable to Apple and this forms the basis of the $6 or more calculation. Apple is not the only American business to hold significant cash, or near-cash, deposits away from American soil in order to avoid the 35% tax charge, but it is an easy target because of the amount of cash the business generates. The source website has reported that Apple's effective tax rate on overseas profits is just 2.3% thanks to a number of tax schemes in operation across the world - in common with many other businesses including both Google and Microsoft.

A number of sources have reported that way Apple retains much of its overseas cash holdings is nothing new and has "been around for decades." The US government is borrowing money by selling US Treasury Bonds, so when a company such as Apple uses overseas cash to buy the bonds, the US government ends up paying interest on borrowing money in which, theoretically, it has a 35% tax charge to be applied.

Is Apple (and similar businesses) behaving unfairly and so effectively cheating the US government out of millions or billions of dollars of tax revenue by not repatriating cash back onto American soil? If we consider Apple to be cheating by holding this cash overseas, this also means that it is also cheating through earning interest from investing some of this cash into US Treasury Bonds. As it stands, however, the US economy is benefiting from a ready buyer of its debt instruments and, according to tax law professor Samuel Brunson from Chicago's Loyola University, "seems to be making the best of a questionable, albeit legal, situation." Apple is effectively repatriating some of its overseas earnings back into the US economy without paying the tax charge through US government approved investment. It remains to be seen how President Elect Donald Trump will enact the repatriation tax cut to 10% and if it will encourage Apple, and other companies, to bring cash back to America.

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About the Author

David Steele

Senior Staff Writer
I grew up with 8-bit computers and moved into PDAs in my professional life, using a number of devices from early Windows CE clamshells and later. Today, my main devices are a Nexus 5X, a Sony Xperia Z Tablet and a coffee cup.