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SEC closes investigation of Apple's foreign cash pile

updated 10:54 pm EDT, Fri October 4, 2013

No laws broken, no action to be taken as foreign sales mount

The SEC investigation of Apple's foreign cash holdings and whether the company was dodging -- legally or otherwise -- any tax responsibility to the US has closed with the agency planning to take no further action on the matter. Following somewhat fiery hearings in Congress that some say used Apple as a scapegoat for the wider issues of US companies taking advantages of tax loopholes -- which Congress inserted into the tax code in the first place -- the agency appears to have found Apple doing nothing wrong within the boundaries of the current law.

Apple CEO Tim Cook appeared before a Congressional sub-committee in the spring to testify about Apple's tax payments and foreign cash, which at the time was estimated to be around $40 billion. Despite wild claims by committee chair Carl Levin that Apple had an "elaborate system" in place to avoid US tax responsibilities, Cook told Congress that the company does not plan to repatriate the money into the US because of some 30 percent or more additional US taxes that would have to be paid on it, in addition to the taxes already paid on the earnings in Ireland, where Apple maintains its primary non-US administrative headquarters. He also denied strongly any suggestion that the company was taking advantage of loopholes, and dismissed accusations that Apple had a "special deal" with Irish authorities for the lower tax rate there.

Ireland's corporate tax rate is 12.5 percent -- substantially lower than the US theoretical top rate of around 39 percent (though very few companies pay that rate). Apple's US tax rate for a number of years has hovered around the 25-26 percent mark, and many large US corporations essentially pay little if any tax at all after subsidies and write-offs. According to a report from the non-partisan Government Accounting Office, the overall average effective tax rate for US corporations is 12.6 percent.

The investigation confirmed what Cook told Congress -- that as Apple continues to make more of its money from non-US markets, its balance of foreign cash comes almost entirely from those sales and are reinvested in non-US operations. The company told the SEC in its inquiry that Apple pays normal US tax rates on its US earnings, which are more than enough to fund the company's activities. Apple has taken on some debt in part to drive its recent stock buyback and shareholder dividend programs, but ironically could borrow cash to pay for those incentives at far lower rates if it had used repatriated foreign-earned funds.

Cook specifically noted during his testimony before Congress that Apple doesn't engage in "tax evasion" strategies espoused by other US companies, such as moving intellectual property and staff into offshore tax havens, or have its foreign subsidiaries "loan" money back to the US headquarters. The SEC investigation appears to have come to the same conclusion, and exonerates Apple of any ethical or legal wrongdoing.

Apple estimates that it will pay some $7 billion in US taxes in 2013 -- about 1/40th of all the corporate taxes collected in the US. The SEC's report says that by funnelling most non-US sales through its Ireland subsidiary, the company saved roughly $5.9 billion last year compared to the rate it would have paid in the US.

The SEC did make one recommendation to the company: as the inquiry had determined that nearly all of the company's foreign money was generated through its Ireland offices, the agency asked Apple to "specifically reference the potential risks associated with any changes in Irish tax laws" in advisories to the SEC and shareholders. Apple said it would do so.




by MacNN Staff

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Comments

  1. Inkling

    Dedicated MacNNer

    Joined: 07-25-06

    This is finances and with finances the numbers matter. If Apple makes money in a foreign country, it generally pays taxes in that country. In Europe, the average corporate tax is around 17%. If it keeps that money overseas, it pays no U.S. corporate tax because that money has not become U.S. income.

    If Apple moves that money into the U.S. though, it has to pay the difference between the taxes it paid overseas and the corporate taxes here, which at 30% are among the highest in the world. That means that if Apple brings $10 billion into this country, it must pay about $1.3 billion in taxes. Needless to say, Apple would need a very good reason to do something that'd blow away such a huge some of money.

    Like a number of other giant global corporations, Apple's hoping Congress will create a tax holiday that would allow them to bring that money into this country without paying those taxes. That money could then be invested in ways that create jobs. Others point out that a more sensible policy would be to reduce our corporate taxes to closer to the world average so there's no incentive to keep the money overseas and none of the political corruption that'd accompany a tax holiday.

  1. ctt61

    Fresh-Faced Recruit

    Joined: 06-21-05

    what you said made sense, but it is to much sense for our government. Our government did not make anything but want to take money from the same people who create job in this country.

  1. slapppy

    Fresh-Faced Recruit

    Joined: 03-23-08

    What a waste of time and money. Go after the real guilty parties. Apple did nothing wrong and proved it.

  1. chas_m

    MacNN Staff

    Joined: 08-04-01

    Inkling, just to update you slightly: at one time, Apple was lobbying with other corporations for a "tax holiday" type scenario, but has since decided to abandon that approach. Tim Cook made a number of recommendations to Congress on the topic of how to get US corporations to repatriate their foreign cash, almost all of which are identical to President Obama's proposals.

    Apple's current position (which might change again someday) is that the money it earns from foreign sales wlll be reinvested in foreign markets (their major focus of expansion these days anyway), and money they make in North America will be used to run the core business. Thus, no tax issues and no need to "stash cash in tax havens."

  1. Flying Meat

    Dedicated MacNNer

    Joined: 01-25-07

    "Nominally" 30%. Almost no major corporation pays anything near that. Period.

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