US Government Considering Tax Holiday

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

TaxHoliday

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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