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Apple Could Return a Boatload of Cash to Shareholders if Tax Reform Happens

Over the past decade, Apple  has stashed a significant chunk of its iPhone-fueled profits overseas to avoid paying high corporate taxes Opens a New Window. in the United States. As a result, by the end of September, Apple had more than $250 billion of cash and investments held outside the U.S.

However, the tax reform bill currently being considered by Congress would dramatically change the U.S. tax code for corporations. If it passes, it would enable Apple to repatriate a huge amount of cash — and return most of it to shareholders. Let’s take a look at just how much money could become available.

Tax reform is on the table

Many experts believe that the United States’ statutory corporate tax rate of 35% is too high. For one thing, it encourages corporations (including Apple) to find various loopholes to reduce their tax liabilities. It also has induced some companies to relocate to lower-tax countries, leading to a loss of high-paying jobs in the U.S.

Under the Republican proposal, the statutory corporate tax rate would be reduced to 20%. In addition, the U.S. would move to a territorial tax system under which foreign profits would no longer be subject to U.S. tax in most cases.

Finally, the proposed tax bill would impose a one-time tax of 12% on liquid assets held overseas. However, that cash would no longer be subject to repatriation taxes upon being brought back to the U.S.

What it would mean for Apple

As of the end of September, Apple had $268.9 billion of cash and investments on its balance sheet. Of that total, $252.3 billion was held overseas for tax purposes, with the remaining $16.6 billion held in the United States.

Based on the current tax proposal, Apple would incur a tax liability of $30.3 billion on its cash and investments held abroad. This sum would be payable over eight years. But even if Apple set aside $30.3 billion immediately to cover the tax bill, it would still have $222.0 billion that could be repatriated with no further tax consequences.

This doesn’t mean that Apple will be able to return $222 billion to shareholders anytime soon. That’s because Apple has issued an enormous amount of debt over the past few years, in order to pay for its buybacks and dividends without repatriating any of its overseas cash.

At the end of September, Apple had $103.7 billion of term debt and another $12.0 billion of commercial paper outstanding. Just this week, it issued even more debt Opens a New Window.. If Apple were to spend all of its cash while leaving its debt load intact, its credit rating would plummet.

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