Why Apple Isn't Paying a Dividend

Though they own stock in one of the most admired companies in the world, Apple (Nasdaq: AAPL  ) shareholders have one common, and stern, grievance: Why does the company hold so much cash, and why does it refuse to pay a dividend?

Conspiracy theories abound. Apple is saving for a massive acquisition. Management is inept. Steve Jobs is a just a jerk.

In truth, there's a good reason Apple isn't paying a dividend. All you have to know is this short passage from the company's 10-K annual report:

As of September 25, 2010 ... $30.8 billion ... of the Company's cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S. dollar-denominated holdings. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S.

For perspective, Apple holds around $51 billion in total cash and cash equivalents. More than 60% of its cash hoard, then, is subject to repatriation taxes -- 35% -- if it's ever brought back to the U.S. Add in dividend taxes, and more than 50% of Apple's cash could be devoured by the IRS if paid out to shareholders.

Steve Jobs isn't a jerk. He can add. And you should thank him for it.

A broken system
U.S. companies have more than $1 trillion in cash abroad. Their options for this cash are straightforward: Pay a 35% repatriation tax to bring it home, or keep it abroad. Most wisely choose the latter.

There's an easy solution to this inanity: A repatriation tax holiday that lets companies bring foreign cash home with minimum penalty. It's been done before. In 2004, the Homeland Investment Act temporarily cut repatriation taxes to 5.25%. Roughly $300 billion returned to the U.S. over the following year, up from an average of $62 billion during the previous four. It worked, in other words. Quite well.

Congress attempted to include a repatriation holiday amendment as part of the 2009 stimulus package, but it was voted down. There's talk today of giving it another go. One company at the heart of the lobbying effort: Apple.

Other companies with mountains of cash abroad, including Oracle (Nasdaq: ORCL  ) , Cisco (Nasdaq: CSCO  ) , Duke Energy (NYSE: DUK  ) , and Pfizer (NYSE: PFE  ) , are also in the lobbying fight. Cisco CEO John Chambers has been especially vocal on the issue. During a conference call earlier this month, an analyst inquired about the size of Cisco's upcoming dividend. Chambers hinted that repatriation taxes could be the deciding factor:

The only question is, is it 1% or 2%? ... Every major developed country in the world, doesn't matter if it's Japan, it doesn't matter if it's Germany, France, you go right down through the list, all of them bring back those foreign earnings at 0% to 2%. So we have a tax policy that is just broken. It's at an unreasonable high rate, and then it's the worst of all worlds. The majority of our growth, almost 70% of our market, and probably 90% of long-term growth is outside of the country, and we have a policy that makes us non-competitive outside the country and then not only doesn't encourage us to bring it back, but penalizes it with double taxation.

Dumb rebuttals
The chief criticism with repatriation holidays is that, while they're marketed as a tool to help companies bring cash home to invest in new factories, they almost never work this way. Instead, repatriated cash winds up in the pockets of shareholders.

A Harvard study on the 2004 holiday found that "a $1 increase in repatriations was associated with a $0.60-$0.92 increase in payouts to shareholders." Dell (Nasdaq: DELL  ) , for example, brought home $4 billion during the 2004 holiday, and promptly spent half on a share buyback. "Repatriations did not lead to an increase in domestic investment, domestic employment or R&D," bemoaned the Harvard study.

To which the only reasonable response is, so what? Try arguing that this cash is better off in a bank account in Geneva than in the pockets of domestic shareholders -- tens of thousands of whom are pension funds and mom-and-pop investors. If a repatriation holiday only accomplishes a payday for domestic shareholders, with no cost to taxpayers, I'd call it a huge victory. The end-all measure of economic success isn't whether more factories are built. It's whether we're better off. And after repatriation holidays, history shows that we are.

Don't blame Apple for not paying a dividend. Blame long-standing tax policy that encourages it not to.

Better yet, sound off in the comment section below.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Pfizer is a Motley Fool Inside Value pick. Apple is a Motley Fool Stock Advisor selection. The Fool has written puts on Apple. The Fool has created a bull call spread position on Cisco Systems. The Fool owns shares of Apple, and Oracle. Motley Fool Alpha owns shares of Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (61) | Recommend This Article (80)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 22, 2011, at 3:31 PM, beetlebug62 wrote:

    Thank goodness someone finally read Apple's financials. I wonder sometime how people get paid to spout off without doing the most obvious of research tasks, reading the 10K and Qs.

  • Report this Comment On February 22, 2011, at 5:02 PM, SimonJester753 wrote:

    How about I open an off-shore account and Steve Jobs can deposit my share without ever bringing it home?

  • Report this Comment On February 22, 2011, at 5:08 PM, TMFHousel wrote:

    Email him and ask, simonjester. He's been known to reply.

  • Report this Comment On February 22, 2011, at 5:52 PM, slpmn wrote:

    Well, a repatriation tax holiday every five years would certainly be a boon to companies that game the international tax system to shift costs into high tax markets and profits into low tax markets, thus generating piles of cash overseas. Isn't that what they're doing, and why they are supposed to pay 35% when they bring it back into the US?

  • Report this Comment On February 22, 2011, at 6:36 PM, koolkrissy wrote:

    No wonder we have trillions of $$$ in national debt. Apple has made billions of $$. They are an American company and they should be paying their taxes as good corporate citizens do. Whether it is a repatriation tax or whatever does not matter. Apple needs to pay their taxes! When the national debt goes down everyone in the country gets a dividend and so do our children and grandchildren.

  • Report this Comment On February 22, 2011, at 6:39 PM, TMFHousel wrote:

    ^ People and corporations respond to incentives. Apple's incentive is to keep money parked overseas.

  • Report this Comment On February 22, 2011, at 7:25 PM, mike2153 wrote:

    OK Republicans, here's something you might be able to accomplish that actually makes sense: drastically reduce or even eliminate that repatriation tax. I own Apple. Regardless of what people actually might do with all that money, it would be here.

  • Report this Comment On February 22, 2011, at 7:32 PM, ynotc wrote:

    Morgan,

    It seems kind of hypocritical that you would advocate an increase in tax (Just the Facts: A Look At Obama's budget proposal) to pay for the inevitable gap between social security income and outgo but that you would cheer Apple for protecting the shareholders money from taxes.

    I too, cheer Apple for avoding taxes and looking out for thier shareholders interests. To bad no one in Washington is doing the same for all of the money that taxpayers have poored into this hole riddled bucket.

  • Report this Comment On February 22, 2011, at 7:44 PM, TMFHousel wrote:

    ^ Not necessarily cheering Apple; just stating that it's responding to incentives. Everyone's going to avoid taxes to the extent they can. If a company can leave money abroad and avoid taxes, it's going to do so.

  • Report this Comment On February 22, 2011, at 8:07 PM, TMFRhino wrote:

    beetlebug62,

    There's still plenty of cash held onshore and I'm sure they could raise debt at nearly costless levels. To be certain, many people aren't fully aware of the level of Apple's offshore holdings, but still... Just because every article doesn't acknowledge offshore taxes when the author advocates some modest repurchases or a one time dividend, doesn't make them some of knowledge-less doofus.

    -Erc

  • Report this Comment On February 22, 2011, at 8:12 PM, EquityBull wrote:

    Great article. I was not aware how much of their cash was held overseas. Based on this info I agree jobs is smart to leave it there until the repatriation tax is reduced or abolished.

  • Report this Comment On February 22, 2011, at 8:21 PM, stan8331 wrote:

    I definitely agree that we need to find a way to lower corporate taxes. America now exists within a world economy - whether we like it or not, companies ARE going shop around for favorable tax treatment.

    However, the devil is always in the details. Given our massive national debt and budget deficits, any change to tax policy needs to be both revenue neutral. The sticking point is that actually getting something signed into law would require finely calibrated bipartisan cooperation to avoid adversely impacting any specific constituency. Amongst the zealots who rule the roost in both parties these days, bipartisan cooperation is being directly correlated to treason against one's political party and sufficient grounds for removal from office.

    So, even though it makes great economic sense to increase our global competitiveness by reducing our corporate tax rate, it's hard for me to see it really happening.

  • Report this Comment On February 22, 2011, at 8:57 PM, fantoozler wrote:

    Corporations with large overseas operations use a variety of techniques to avoid taxation (e.g., Google's use of the "Dutch sandwich"). However, while legally avoiding US taxation, they will make explicit use of US services (our court system to enforce contracts, patents and trademarks). What's the proper rate to avoid free riding?

    Also note that the 2004 tax relief bill was bundled as part of a jobs act; the profits were to be used to increase US employment, not to pay shareholders.

  • Report this Comment On February 22, 2011, at 9:29 PM, dlomax77 wrote:

    Steve Jobs is still a jerk. I own plenty of stocks with market caps at or below $20B that pay a dividend.

  • Report this Comment On February 22, 2011, at 9:40 PM, ershler wrote:

    I don't think you are doing a good job explaining how the corporate tax system works. The 35% that you point out is the same 35% a US company would pay if the profit was earned in the US. With the foreign tax credit it should come out even. As previously stated, corporations already do an excellent job of shifting around costs to avoid. You want to penalize companies for conducting business in the US. The problem isn't that our corporate tax rate is to high, it is that we need to collect taxes on foreign companies so there is no tax advantage for companies from any country.

  • Report this Comment On February 22, 2011, at 10:20 PM, TMFTypeoh wrote:

    Morgan,

    Keep up the great writing. Im a huge fan of your stuff.

    Brian

  • Report this Comment On February 22, 2011, at 10:26 PM, TMFHousel wrote:

    Typeoh,

    Thanks! I'll keep smashing away at the keyboard.

    Morgan

  • Report this Comment On February 22, 2011, at 11:06 PM, mfuser123 wrote:

    This is a basic misunderstanding of elementary math...let's say this tax rate is temporarily lowered to 10%, which causes money to be "brought home" that would otherwise stay abroad. A comparison, then, follows:

    35% of 0 = 0

    10% of some amount of money > 0 = an amount > 0

    So by decreasing this tax rate, Congress actually increases revenues.

  • Report this Comment On February 23, 2011, at 2:11 AM, slard271 wrote:

    You guys really need to figure out the spam problem.

  • Report this Comment On February 23, 2011, at 3:41 AM, PerfectlyLegal wrote:

    I love the spam problem! Couldn't be more appropriate. While the tax rate might have to be reduced, it is unwise to imagine that corporations which game the system to avoid taxes would cease doing so just because the U.S. cut its corporate tax rate. The proper question is, what rate of tax will attract enough money back to offset the tax cut for domestic corporations?

  • Report this Comment On February 23, 2011, at 10:13 AM, jmerrittdevoe wrote:

    I'm new to this and learning, so be patient. American companies sell in other countries and leave the cash there to avoid taxes here at home. Companies in other countries do the same, but tax repatriation at rates less than 5%. It appears to me that bringing money home - even if it goes to shareholders (gasp) - is a better idea than leaving it in another country.

    Why has it become such a bad thing to have money? I only have 10 shares of Apple, but I'm retired and on SS. A few extra $$ would be welcome and I would promise to spend them here at home.

  • Report this Comment On February 23, 2011, at 10:26 AM, TMFDiogenes wrote:

    It's probably a good idea to reduce the repatriation tax rate so that other companies bring cash back home, but I'm not convinced apple specifically would pay out a dividend even if they could repatriate the cash.

  • Report this Comment On February 23, 2011, at 11:10 AM, wolfhounds wrote:

    Morgan, you make a very important point in comparing U.S. foreign earnings dividend tax to other western countries. You didn't state an obvious (I don't think you don't know this) advantage that European corporations have over U.S. corporations. Because of their very low repatriation tax, not only can these foreign companies afford to pay substantial dividends, but they also can fund domestic operations with less debt.

    Some respondent here don't appreciate that much of the cash generated overseas funds overseas growth. It works both ways. A Dutch company I worked for, VNU, used it's substantial U.S. profits to fund expansion in the U.S. and acquisitions, as well as paying a substantial dividend to the Dutch parent company at zero tax. VNU is obviously at a competitive advantage to similar U.S. companies.

    A change in tax policy is long over due. Readers who think U.S. corporations are somehow cheating forget that income taxes have already been paid to foreign governments leaving after tax cash to be distributed.

  • Report this Comment On February 23, 2011, at 11:30 AM, KWT8011 wrote:

    "Repatriations did not lead to an increase in domestic investment, domestic employment or R&D," bemoaned the Harvard study.

    To which the only reasonable response is, so what? "

    That's hardly a reasonable response when unemployment is pushing double-digits. I'd much rather see them at least marginally increase R&D and domestic employment than redeploy 90% of their money in share buybacks or dividends.

  • Report this Comment On February 23, 2011, at 11:48 AM, slpmn wrote:

    Why stop at just a Repatriation Tax Holiday? Why not just eliminate the repatriation tax? Better yet, let's give them a tax credit for every dollar they bring back into the US, and heck, let's give them a further tax credit if they distribute the funds to their shareholders, too. Then let's build a memorial to Steve Jobs on the Mall in DC where we can pay homage to American genius and thank them for providing us with the ipod and iphone. Don't we owe them that for all they've done for the country?

    Its pretty simple - Apple should pay their income taxes and distribute whatever cash they don't need to shareholders. Dodging taxes and hoarding cash is unamerican and an affront to capitalism.

    - shaking my angry little fist

  • Report this Comment On February 23, 2011, at 11:57 AM, curilla wrote:

    As West European, I can not understand all the tax-phobia here. Just as the so Fool-admired Warren has often say: taxes are necessary and everybody should pay his/her/its share. Only in this way, a country such as the USA can pay for the infrastructure that all of you enjoy: roads, schools, networks, electricity, research labs, etc.

    Also Apple should pay its share of taxes; or better said: specially successful companies such as apple should do so. Why? Because they live from the pioneer research done by US scientists, take well educated workforce that learned writing in public schools, etc.

    I wonder whether Apple could exist in countries with de-facto no taxes such as Somalia, Etiopia, Botswana or Mali. No, they definitely could not and that is why they owe their shares of taxes !

  • Report this Comment On February 23, 2011, at 4:30 PM, TMFHousel wrote:

    ^ Apple should have to pay taxes on the profits it makes in the US. And it does. It shouldn't have to pay US taxes on profits it makes abroad. That's the issue here.

  • Report this Comment On February 23, 2011, at 6:15 PM, mythshakr wrote:

    ^ And it most likely pays taxes in the foreign country on the profits that were earned there.

    At the least they could just do away with the double taxation of dividends.

  • Report this Comment On February 24, 2011, at 1:14 AM, PoundMutt wrote:

    , slpmn wrote:

    "...Dodging taxes and hoarding cash is unamerican and an affront to capitalism...."

    BULL!!! They are as United States as apple pie!

  • Report this Comment On February 24, 2011, at 12:38 PM, loki2009 wrote:

    Great stuff and well written. As a friend pointed out to me long ago - stop trying to look for logic in the Tax System - it doesn't exist and you will only give yourself ulcers trying to find it [logic]. Just recognize that the Tax "System" is simply a mismatched collection of garbage that results from everyone's pet project tacked into place with no real rationale for the way it fits into an integrated whole. That's why we need so many tax lawyers and accountants and why there is no real incentive to straighten out the mess. Oh well - we can only hope.

  • Report this Comment On February 24, 2011, at 1:30 PM, rfaramir wrote:

    "Don't blame Apple for not paying a dividend. Blame long-standing tax policy that encourages it not to."

    Exactly. There should be no tax on money just crossing a border. That's practically the definition of highway robbery! Except that, being institutionalized, you have no chance of catching the robber napping.

  • Report this Comment On February 24, 2011, at 6:32 PM, beetlebug62 wrote:

    You wrote, " TMFRhino wrote:

    beetlebug62,

    ... Just because every article doesn't acknowledge offshore taxes when the author advocates some modest repurchases or a one time dividend, doesn't make them some of knowledge-less doofus."

    Actually, virtually all of the articles that I have seen that mention stock repurchases or one-time dividends, etc., cite the $60B in cash and equivalents. If they cited the $25B in domestic cash and equivalents, then I'd give them a pass, but they don't.

    As of the end of December, cash held in foreign subs is now $35B.

    Amazing how so many people misunderstand what is being discussed.

    Apple pays taxes on its US income in the US. Apple pays taxes on its foreign income in the foreign country generated. HOWEVER, the US also taxes foreign income in excess of foreign taxes paid, up to 35%. This is NOT the way most countries do it. Thus, most US companies that have large foreign profits tend to keep it there.

    Perhaps a personal income example would help people understand. What if you, a US citizen worked overseas in say Hong Kong. What if you paid personal income taxes in Hong Kong, of say around 20%? What if you wanted to send that income home to your bank account in the US for your wife to use? The IRS would want you to pay an additional 15% in tax for income earned abroad. The total 20% tax paid in HK, plus the 15% paid in the US, would equal 35%. Do you think that would be fair?

    That was just an example with made-up percentages, to illustrate what US companies face when repatriating profits earned abroad. Some people think it's fair, some people think it's not. Regardless, it creates an incentive for US companies to leave their profits earned abroad in accounts abroad. It is perfectly legal and perfectly rational from a business perspective. Particularly when you consider the US government has in the past, declared a repatriation tax holiday. This creates an even greater incentive for US companies to wait, knowing that there is a potential for another tax holiday. All legal and rational behavior.

    People who are angry or upset, are just being irrational or have never worked in business. And, if you are singling out Apple, then you are being hypocritical, seeing as virtually every US company that does business abroad do the exact same thing. Why? It's rational.

  • Report this Comment On February 25, 2011, at 12:15 PM, john3eck wrote:

    Why doesn't the Congress contribute to economic growth and recovery by allowing the repatriation of corporate profits at a very low or no-tax rate if those profits are used for constructing new production faciities and to provide jobs for additional (new) workers?This could result in a successful "stimulus" program managed by the private sector, not the gtovernment.

  • Report this Comment On February 25, 2011, at 1:15 PM, MAP16 wrote:

    Apple should pay dividends to its shareholders because what good is it for all that money to sit in accounts in other parts of the world not being used. What does it benefit the shareholders to see its company make boat loads of money but never having the opportunity to use it. Apple would not be the first company to do business in other countries and repatriate it back to the shareholders in the U.S. Speaking of double taxation, even when companies make money in America it is doubled taxed because the company pays a corporate tax and the money is taxed again when the employees and the domestic shareholders are taxed so this is nothing new or special. To be hoarding all this cash, Apple is doing its shareholders a disservice, life is short.

  • Report this Comment On February 25, 2011, at 2:11 PM, ddepperman wrote:

    Is there anything right with US policy? Perhaps some humanitarian initiatives. Much of our policy is to protect interests in the rest of the world, rightly or wrongly. Wrongly as in Vietnam, Iraq, Afghan(some points here as say failure to destroy taliban and alkaida at ToraBora, these make on wonder if US policy was to keep the enemy fighting so our arms dealers could make profits as long as the war dragged on.)

    Vietnam and the War of Poverty have actually damaged our couintry badly. Ditto Iraq. If only we had finished off the baddies early in Afghanistan war.

    And then there's the movement of US factories abroad. Bye bye jobs, bye bye middle class, bye bye US competitiveness economically. Hello multi trillion dollar deficits. I think I'm a going to cry. Bye Bye wealth good bye.

    So who can argue with tax holidays?

    No rational country allows its business to move operations abroad!

    Had we not allowed this the world would be a different place now, and this would be another "US Century".

    Now China is finding Chinese labor is too expensive and is looking to SE Asia, and then maybe if that continent ever gets its S(act)t together, then Africa will host a new wealthy elite.

    Of course if democracy sweeps the muslim world, then they might be the next to get the jobs.

    And then finally late in this or another century, the US would again be a candidate for jobs because of the impoverished american clinging to his/her

    welfare/socsecurity/medicare/medicade 'benefits' which won't amount to a hill a beans. All infrastructure crumbled. Maybe then the US will be the northernmost province of Mexico, or Venezuela.

    And this assumes we figure out how to live through a planetary catastrophe of our making, destroying the oceans--at all levels--destroying arable land, freshwater the planetary genome.

    So sure, let's hear it for a tax holiday.

    Hooray awreddy.

  • Report this Comment On February 25, 2011, at 2:41 PM, henryk101 wrote:

    I think that, if they pay taxes in a countries with tax treaties, they can deduct these taxes from their american taxes. But, most of the times, taxes abroad are less than 35%, which is pretty high (too high, surely, and for every american companies) and could explain why they leave the money abroad. Another option is that they could have put this money in other countries, in "offshore" accounts, with no taxes or very few, waiting for better times.

    Question: where is the money stored?

  • Report this Comment On February 25, 2011, at 4:23 PM, mrspeabody wrote:

    In reply to the comment about working in Hong Kong and having to pay both local and US taxes. From what I understand, even if you don't send the money back to the US, you still have to pay US income taxes on it. See following quote from IRS.gov: "If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside." So the tax man gets you no matter where you live.

    My husband and I

  • Report this Comment On February 25, 2011, at 4:51 PM, trevorburdon wrote:

    The writing style adopted by the Fool is becoming sensational and circumspect with regard to the full detail. The imperative is to tell a good story first and not research comprehensively. Why is it left to subscribers to point out something as important and easily investigated as tax treaties. As an Australian living in Melbourne, the superficial Fool findings emanating from the new Fool AU office and the Global Gains newsletter are simplistic, and not particularly well argued or researched. Having this local knowledge has been a good litmus test of the trust I extend to the Fool to do a thorough job. It would be a relief to have less of the preachy advertorial - it smacks of If I say it often enough I will believe it and so will someone else.

  • Report this Comment On February 25, 2011, at 5:39 PM, TMFHousel wrote:

    Trevorburdon,

    I'm curious, what part of this article did you find preachy advertorial?

    Morgan

  • Report this Comment On February 25, 2011, at 5:49 PM, Gildell wrote:

    I appreciated the article, and learned a good deal. While I am generally on the side of being very watchful that corporations are "paying their fair share" I'm sympathetic to the argument that a "repatriation holiday" would be a good thing.

    That said, the argument that this is the reason that Apple is not paying a dividend is not as strong as is suggested. Literally every single time that Apple execs are asked why they keep all the cash (1/4 ly conference calls, annual meetings etc.), they answer something like this: "So that we are in a position to take advantage of opportunities that may arise." To the best of my knowledge they have never said: "Because it would cost us too much to bring the money home." Seems to me if that was the real reason they would say so. It is rational and defensible. They fact that they don't say this tells me that they mean it when they say they want freedom of action, whether that action is here or abroad.

    As a very happy Apple shareholder from back in the day when they did pay dividends up to the present, I'm OK with it either way. I'd love a dividend, I'd love to see them reinvest in more Data Centers here, but I trust these guys to make money for me, and so far it's working just fine.

  • Report this Comment On February 25, 2011, at 5:50 PM, niklinna wrote:

    I'm not sure I want a dividend payout. That would be taxed as regular income, no? (On top of the 35% repatriation? No thanks!) If Apple keeps the money and the share price reflects that, I'm only paying long-term capital gains tax.

    I'm relatively new to all this tax law silliness, so forgive me if I'm totally off base.

  • Report this Comment On February 25, 2011, at 6:32 PM, manicial wrote:

    Mrspeabody,

    Your comment about the IRS taxing you wherever you are is not true. Let's say you are a US citizen and work in Germany; you have a choice to either pay German taxes or US taxes but not both. Most people will pay US taxes because of the foreign income exclusion and the fact that US tax rates are lower than German rates.

  • Report this Comment On February 25, 2011, at 7:15 PM, Billy2010 wrote:

    Billy2010

    If Apple brings it home everyone wins. The share holders Apple(they can invest in more jobs) the feds will money on these jobs. Why let foreigners make this money.

  • Report this Comment On February 25, 2011, at 7:57 PM, investor131 wrote:

    There is any thing we can say or do to make it easy for companies to bring the money from oversees even if we do tax 2% we will have the cash here to spend a lots of people banks and businesses will benefits Can We DO anything

    Anybody any hero

  • Report this Comment On February 25, 2011, at 8:53 PM, critter88 wrote:

    Cisco CEO John Chambers has good reasons to be upset. His company's effective rate for 2010 was 17.5% but it was paying as much as 21.5% in 2008. It "earned" $8.3 billion overseas, which was almost 90% of Cisco's total earnings, and paid about a 5% tax. How did it earn that much overseas? More importantly, while the U.S. corporate tax rate is high, there is no country in which Cisco operates that has a 5% tax rate - so how did they achieve such a low tax rate? I bet a lot of it was royalties income earned through a subsidiary with no employees incorporated in a tax haven, such as Bermuda, that owned valuable technology. How did this Bermuda subsidiary come to own such valuable technology? The technology was probably created at a U.S. lab that was subsidized by U.S. taxpayers in the form of research tax credits. Of course, U.S. taxpayers hope to recoup this upfront investment when Cisco brings the dividend back and pay U.S. taxes. Cisco is now telling the U.S. taxpayer that in lieu of paying them back, they are going to offer them what's behind door number 2. As for Mr. Chamber's crying about double taxation, since Cisco paid no taxes in Bermuda, there is no double taxation. If Cisco also ends up paying no taxes in the U.S., Mr. Chamber's secretary will have paid more taxes than Cisco paid on the billions of dollars earned by its Bermuda subsidiary.

  • Report this Comment On February 26, 2011, at 2:53 AM, TechnoHistorian wrote:

    There's a huge logical flaw in this article....

    Follow the thread:

    Apple has about $51 billion in cash and cash equivalents...

    Of this amount $31 billion is held abroad and subject to a 35 percent tax if brought back to the United States...

    So, the argument goes, it makes no sense to pay a dividend.

    BUT WAIT: what about the other $20 billion of Apple cash already in the United States? Even a small fraction of that money, not subject to the 35 percent tax would make a very pleasant dividend for shareholders -- and might even increase the value of the stock as individuals and institutions needing dividends had a new reason to buy the stock.

    So the overseas tax argument should be rocognized for what it is: A RED HERRING!

  • Report this Comment On February 26, 2011, at 3:38 AM, cflak wrote:

    This is more proof of why taxes in America should be a flat rate of approx. 10%, no deducts, no gimmicks, no subsidies, nothing. A business pays 10% on their profit and a family pays 10% on their income.....that's it. The idea would be to get it even less than 10% but this would be a good start.

  • Report this Comment On February 26, 2011, at 5:07 AM, uupdnn wrote:

    The beloved U.S. tax system would make the holding of offshore earnings and assets by businesses a criminal offense if they were instead individuals. Wasn't there a recent Supreme Court Decision that equated a political donation from a Pac or Business entity as being the same as that of an individual, who then has the "right of political expression" and therefore to deny a "company" would be to deny an individuals constitutional "rights"? In other words, a company is an individual when it comes making a "political" contribution? So, here are two far reaching issues, of which are linked to this matter, and I suspect that there are many others. Don't forget that the U.S. is still the only industrialized country in the world that does not provide healthcare to its citizens. Don't forget that the U.S. incursion into Iraq was a "pre-emptive" war, a doctrine that is now a part of U.S. "Commander and Chiefs" arsenal of possible actions. Those countries that have had devastating wars occur upon their soil have small repatriation fees, as is pointed out in this article. A large part of their tax dollars is committed toward its society. Maybe putting the monies that would enter the U.S. into the pockets of shareholders will prevent the other beloved U.S. entity, the Department of Defense Inc., from beginning yet another war on yet another "front" and wasting more American lives and "treasure" on pre-emptive wars that only benefit a small portion of corporate america. Unfortunately, it takes a Congress with more integrity than not to see these issues clearly and there is no indication that this in fact exists. If the repatriation percentage was equal to other western industrialized nations there would be that much less "treasure" to spend on overseas, endless war. "My country right or wrong" is so old.

  • Report this Comment On February 26, 2011, at 10:04 AM, GregoryFul wrote:

    It is quite sensible, and obligatory for a company to manage its assets as benefits its owners most, in the opinion of its board. It is clear that unnecessarily paying taxes is not in the interest of its owners. It's also sensible that holding cash for investment in or within a company that returns a higher rate than is generally available is in the interest of its owners. Our board is doing the right thing, celebrate!

  • Report this Comment On February 26, 2011, at 1:54 PM, winkyinc wrote:

    Another way to look at it... the value of Apple stock is partly based on the cash on hand. 60% of it is overseas. Bring it back and reduce it by 35%. What happens to the value of Apple?

    As for a dividend, I would then have to pay 50% tax on it.

    Keep it overseas and send me a postcard.

  • Report this Comment On February 26, 2011, at 7:36 PM, northshoregirl wrote:

    This is interesting.

    Can someone explain what happens tax-wise to the profits that foreign companies make here in the US?

  • Report this Comment On February 27, 2011, at 11:44 AM, purdyping wrote:

    Simple economics of money creation that is good for the USA economy: The money that ends up in US Banks after a tax holiday multiplies in the system by 300% in "fractional-reserve lending of 30%." In 2004 the $300 billion of tax holiday funds turned into $900 billion in money creation. Bringing the money home is good. Why have AAPL multiply the money supply of other countries?

  • Report this Comment On February 27, 2011, at 11:50 AM, purdyping wrote:
  • Report this Comment On February 27, 2011, at 3:58 PM, MrCainThaler wrote:

    The US Government probably doesn't want that money coming back into domestic markets. How do you think they've been staving off inflation?

    Printing money isn't a problem so long as those notes stay far away and their credibility is never brought into question.

    If a few $trillion comes back home, however, coupled with current deficit spending, there could be some very nasty price increases.

  • Report this Comment On February 27, 2011, at 8:44 PM, splattercast wrote:

    In as much as these comments are presumably from investment oriented persons, many of them are, to me, astounding.

    Let me see now... do I want more money in the hands of government to manage or the private sector? Gosh! I wonder?

  • Report this Comment On February 28, 2011, at 1:09 AM, ikkyu2 wrote:

    Great article, Morgan. Thanks for laying this complicated issue out so clearly.

  • Report this Comment On February 28, 2011, at 1:29 PM, drborst wrote:

    Morgan,

    Sometimes you scare me. I keep thinking that you must be leaving something out because it can't be that simple.

    Based on the first third of the comments section, I get the feeling that we completely redo the tax system. Obama's commission might be on to something (reduce rates and eliminate tax breaks), but not enough.

    My bigger question is this, why do taxes matter at all? If congress cut everyones taxes by 50% tomorrow, wouldn't prices simply rise as more cash started chasing the same amounts of stuff to buy, leaving everyone at the same level of purchasing power (except the government).

  • Report this Comment On February 28, 2011, at 3:07 PM, mottledtool wrote:

    This is the most intelligent financial article I've read in some time. Your points are clear and well made. Thanks Morgan!

  • Report this Comment On March 05, 2011, at 10:41 PM, ershler wrote:

    winkyinc,

    Why are you paying 50% tax on your dividends? If they are qualified you are paying nothing or 15% and if they are not you are paying your regular tax rate, which the highest is 35%.

  • Report this Comment On March 05, 2011, at 10:47 PM, TMFHousel wrote:

    ershler,

    15% div tax + 35% repatriation tax. The total isn't paid by shareholders, but a combination of shareholders and apple.

  • Report this Comment On March 06, 2011, at 11:18 AM, ershler wrote:

    Morgan,

    If that is what winkyinc meant it is both grammatically and mathematically incorrect. It is grammatically incorrect because he/she used "I" and mathematically because you don't add percentages (at least not the way you/winkyinc did above). The combined tax rate would be 44.75%. It is the exact same amount that would be paid if the income was earned by a corporation in the US except a foreign country gets to take their slice first.

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