US Government Considering Tax Holiday

Of its $156B in cash, $138B (88.5%) is banked overseas…

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Apple has a lot of cash. $156B USD to be exact, and $138B USD of it, or just about 88.50% is kept in banks outside the US. To the unfinancially initiated, like me, this seems curious. However, when you consider the 35% tax hit ($48.3B USD) that Apple would be charged to bring the money back to the United States, it’s no wonder they don’t think twice about it. Spending $$48.3B to bring back just $89.7B isn’t worth the hit. So, the money stays outside the US, and Apple deprives the US of the tax revenue.

Apple needs a place to park the money, and it – like nearly every other large corporate entity – banks a lot of it in Ireland. They have much kinder tax laws, making it more fiscally responsible for Apple to store it there. However, this makes it difficult for Apple to use it the way they want to; and it would be a lot easier for them to bring the money home.

As such, the US Government is currently considering a tax holiday that would allow Apple to make a one-time transfer of its cash hoard back into US banks. The last time this happened in 2004, the government lowered the tax rate to 5.25%. However, at that time, Apple was still three years away from releasing the iPhone and six years away from releasing the iPad. It wasn’t able to take advantage of the tax break.

Recently, Apple has been the target of a US government cash into its tax payments. This effort, and the resulting news coverage on Apple’s – as well as other organization’s – legal use of Ireland’s corporate tax haven, has caused the European Union to take a much longer, more scruitinous look at those laws. While Apple hasn’t broken any laws with its international tax policies – Apple paid over $7.0B in US Federal, corporate taxes in fiscal 2013 – the company wants permanent tax reform in the US.

The US Federal Highway Trust is out of money at the end of August 2014. With major road repairs to major infrastructure – like I-80, which crosses the Continental US from Coast to Coast, East to West – the US government must do something. For its part, Apple is willing to repatriate its large cash hoard, but won’t without a tax repatriation holiday and without permanent tax reform.

This particular issue is going to linger on for quite a while. While I’m not one for financial news, I will update this story if anything interesting develops over the next few months.

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Mt. Gox is Mt. Gone

The Bitcoin exchange has filed for bankruptcy protection.

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You can’t say no one didn’t see this coming. It wasn’t a matter of if, it was a matter of when. Mt. Gox has filed for bankruptcy protection in Japan after losing what has been validated at 750K customer owned Bitcoins and 100K Bitcoins of its own. The losses represent approximately $474M based on a Bitcoin price of $558.

Mt. Gox has ¥6.5 billion in outstanding debt. Approximately ¥2.8 billion in cash cannot be accounted for.

“I am deeply sorry,” Mt. Gox CEO Mark Karpeles told reporters in Japanese, offering a ritual bow of apology. “There were weaknesses in the system.” The website, mtgox.com remains off line.

While Gox is apologetic, other investors are seeking justice. One investor, declining to be recognized, said, “This is not just a civil matter. They knew they had lost these coins and continued to operate the exchange and accept deposits. You can’t sell something you don’t have and not be committing fraud.” Other investors are alleging that the bug that was exploited to misappropriate all the funds was something that had been well known in the Bitcoin community for years.

However, the issue appears more clouded and much more complicated than a mere hack. Kenji Saito, an assistant professor at the Graduate School of Media and Governance at Japan’s Keio University indicated that, “the [bug] is too small [of an exploit] to shut down one of the largest Bitcoin exchanges in the world. Rather, it must be that Mt. Gox has [been defrauding] its customers, [well in advance of the] February 2014 [announcement].”

Japanese authorities are conducting an investigation of Mt. Gox, following is closure.

In the US, Gox was subpoenaed by Federal prosecutors in New York. According to an unidentified source for the Wall Street Journal, Gox has been asked to preserve specific documentation. The US Attorney’s office in the Southern District of New York declined commenting, citing the ongoing investigation.

Now… I’ve heard a lot of speculation from a number of people here at the office saying that crypto-currencies are all going to die and this is the end of Bitcoin, Dogecoin, etc. While I’m certain that would make many international governments very happy (Bitcoin is a universal currency, and largely unregulated), I am not entirely certain that it’s going to kill the commodity. However, it certainly hasn’t done Bitcoin any favors; and its likely made its universal acceptance that much more difficult as well as pushed that possibility further out into the future.

What do you think? Did Mt. Gox defraud its investors and customers? Were they aware of the vulnerability in their systems and ignored it; or were they caught off guard? What about the ¥2.8 billion in missing cash? What’s going to happen to crypto and other digital currencies? Please tell me what you think in the discussion area, below. I’d love to hear your opinions on the matter.

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