We reported a few weeks ago that Apple had parked scads of cash overseas, some $74 billion in cash. Looking forward to tomorrow’s earnings report, however, it can be argued that their financial numbers could be much higher if the cash, mainly parked overseas due to potential tax liabilities in the US, were returned to US Apple coffers.
According to the Associated Press and reported by USA Today, Apple typically understates its profits when compared with other multinational corporations, due to this “phantom tax” liability, a tax they may never have to pay. Like many multinationals, Apple is counting on the US lowering tax rates in the near future, minimizing the amount of tax they’d end up owing if they brought that $74 billion home.
Apple does have one feather in its cap, of course, in that it actually marks the funds parked overseas as eligible for US taxation. It records these tax liabilities and then subtracts them from its profits, leaving the funds parked and marked. This creates a difficult dilemma, however. While shareholders would love for the company to bring more earnings home, and the company would rise in valuation based on its now-higher earnings, Apple would be seen as a less responsible corporate citizen.
Apple, of course, will not comment on its tax strategy, or the funds sitting overseas. “Apple has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules,” Apple said in a statement. When listening to the financial reports tomorrow, remember that all dividends that Apple starts paying this summer are based only on moneys in US accounts.
“We do not want to incur the tax cost to repatriate the foreign cash at this time,” Chief Financial Officer Peter Oppenheimer told investors in March. That’s not to say that Apple is just sitting around, however. Apple is part of a coalition of multinational corporations called Working to Invest Now in America. This group is lobbying to change tax law via two congressional bills that propose to reduce the tax rate on overseas earnings by a significant amount. Apparently, the group feels that this would encourage its member organizations to “repatriate” some of the over $1.4 trillion sitting overseas for this very reason.
Source: Associated Press.