Trump’s tax breaks could be great for Apple

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Donald Trump speaks to supporters at an immigration policy speech at the Phoenix Convention Center in Arizona.
Reforms could add 16 percent to Apple's profits.
Photo: Gage Skidmore/Flickr CC

Apple has clashed regularly with President Donald Trump over a variety of issues, but one thing both sides should be able to agree on is a policy that makes Apple more cash.

That’s exactly what Citi analysts think Trump’s proposed tax reforms would do. A reduction of the U.S. corporate tax rate from 35 percent to 15 percent, and a tax of just 10 percent on a one-off repatriation of overseas cash piles, would be great for Cupertino.

According to Citi, such a move would boost Apple’s profits by a whopping 16 percent — which isn’t too shabby for a company that pulled in revenue of around $78 billion last quarter, with a gross margin of 38.5 percent and operating expenses of $7 billion.

During that same quarter, Apple had around $246 billion in cash, of which $230 billion was held outside the United States.

As Citi analysts Jim Suva and Asiya Merchant point out, Apple has the potential to be a “significant beneficiary of Trump tax reforms”:

“Apple is very well positioned to benefit from potential tax reform of either or both a repatriation tax holiday and or a lower corporate tax rate. Our analysis show a reduction in US tax rate will drive 6% benefit to EPS while a cash repatriation holiday and share buyback could drive an incremental 10% EPS benefit (assuming 25% of repatriated cash used for stock buy back).”

Whether the Trump proposals ultimately become tax policy remains to be seen, but tax reform is certainly something Tim Cook — a Hillary Clinton supporter — is unlikely to argue against. In previous interviews about the existing complexity of the tax structure, Cook suggested lawmakers should “gut it.”

In a December 2015 interview with 60 Minutes, Charlie Rose prodded Cook about Apple’s massive pile of cash stashed overseas.

“It would cost me 40 percent to bring it home,” Apple’s CEO replied, “and I don’t think that’s a reasonable thing to do.”

Source: Business Insider