Apple announced this week that it will invest $350 billion in the US over the next five years and pay approximately $38 billion in repatriation taxes.
According to an Apple press release issued on January 17th, “Planned capital expenditures in the US, investments in American manufacturing over five years and a record tax payment upon repatriation of overseas profits will account for approximately $75 billion of Apple’s direct contribution.”
More specifically, the American tech giant said, “Apple, already the largest US taxpayer, anticipates repatriation tax payments of approximately $38 billion as required by recent changes to the tax law,” representing “the largest of its kind ever made.”
Additionally, the press release said, “Apple expects to invest over $30 billion in capital expenditures in the US over the next five years and create over 20,000 new jobs through hiring at existing campuses and opening a new one.”
As explained by Reuters, however, the company did not disclose “how much of the plan was new or how much of its $252.3 billion in cash abroad - the largest of any U.S. corporation - it would bring home.”
Walter Piecyk, who runs BTIG’s TMT Research, told Reuters “he could not yet tell whether the U.S. expansion was an increase from a previous plan or meant investment abroad was being refocused in the United States.”
According to Bloomberg’s Alex Webb and Mark Gurman, however, “the tax rate indicates that Apple is likely bringing back a majority of its overseas cash back to the U.S., leaving only a small portion for international investments like retail stores.”
Matthew Kanterman, an analyst with Bloomberg Intelligence, believes that by the time all the funds are brought onshore, the company will “have well over $200 billion by the end of this year that will be available for incremental investments, capital returns and M&A.”
Furthermore, Cross Research analyst Shannon Cross says, “the announced tax payment was roughly in line with expectations.”
As explained by Reuters, “Apple had set aside $36.3 billion in anticipation of tax payments on its foreign cash, meaning the payment would not represent a major impact on its cash flow this quarter.”
Donald Trump Praises Apple’s Tax Announcement
Donald Trump was quick to take praise for Apple’s decision to repatriate billions of dollars.
On Twitter, the US President said, “I promised that my policies would allow companies like Apple to bring massive amounts of money back to the United States. Great to see Apple follow through as a result of TAX CUTS. Huge win for American workers and the USA!”
Apple CEO Tim Cook took a more diplomatic approach explaining his company’s decision and told ABC News, “Let me be clear: There are large parts of this that are a result of the tax reform, and there’s large parts of this we would have done in any situation.”
As explained by Bloomberg, Trump’s recently passed tax reform “imposed a two-tiered levy on…accumulated foreign income: Cash will be taxed at 15.5 percent, less liquid assets at 8 percent,” and “companies can pay over eight years.”
Spinning Apple’s Tax Decision
Apple, of course, has been slammed following this announcement.
In an op-ed for Fortune, Josh Hoxie, the Director of the Project on Opportunity and Taxation at the Institute for Policy Studies, criticized the American tech giant for spinning this decision as one that will benefit the US versus one that will provide a huge tax cut for the company.
According to Hoxie, “What Apple really unveiled were plans to collect a massive windfall from the GOP’s corporate tax handout. This was a pay-to-play political scam at its ugliest—and the rest of us are the chumps.”
“Before the recent tax code overhaul, the company would’ve paid $78.6 billion in taxes if it brought the money home, according to the Institute on Taxation and Economic Policy,” he says.
Obviously, writes Hoxie, “Apple didn’t want to pay this tax, so it let the cash sit offshore for years.”
The Wall Street Journal’s Editorial Board, however, disagrees with Hoxie’s position and says these funds were never available to the US in the first place.
“The more dishonest critics are saying Apple received a tax “cut” by bringing the money back at a lower rate, which is some crack economic theory,” it explains.
“The reality is that Republicans unlocked $38 billion for the Treasury that otherwise might have been $0.”
In an opinion piece for the Financial Times, Richard Waters looks at things a bit differently, suggesting that Apple is preempting discussions over its investment in the US economy.
Waters writes, “Apple’s announcement is probably most usefully seen, however, as a pre-emptive move to head off a question that might otherwise soon ring loud: shouldn’t it actually be planning to invest much more in the US?”
What are your thoughts on Apple’s announcement?