On Monday, Apple announced that it is planning to pay a significant dividend to its shareholders for the first time since 1995. The dividend plan is being maneuvered through a maze of U.S. tax issues having to do with repatriating off-shore income. According to its latest regulatory filing, Apple is sitting on a cash hoard of nearly $98 billion. However, $64 billion of its estimated cash is held by Apple’s foreign subsidiaries that are not subject to U.S. income taxes. If Apple was to use the cash being held by its foreign subsidiaries to fund the dividend distribution, it will first have to pay the 35% U.S. tax rate on the repatriation (this may be partially offset by foreign tax credits) before the cash can reach the hands of the Apple shareholders, who in turn will have to pay U.S. tax on dividend income.  This cost is too big a bite for Apple.

During an analyst conference call, the company’s chief financial officer Peter Oppenheimer described the repatriation cost as an “economic disincentive” and further said “we do not want to incur the tax cost to repatriate the foreign cash at this time.” The company’s chief executive officer, Tim Cook added that Apple’s domestic cash was being used to pay the dividend because of the “tax consequences of repatriating foreign cash.”

This is an issue that is being faced by many multi-national companies including many tech giants like Google, IBM, Dell and Oracle. In 2011, Microsoft increased its quarterly dividend by 25%. At the time Microsoft had a $52 billion in its cash holding. However, approximately $45 billion of this cash belonged to Microsoft’s foreign subsidiaries. Instead of repatriating the cash to fund the dividend hike, Microsoft instead borrowed the money by issuing long term bonds. It is now estimated that U.S. companies have more than $2 trillion of cash parked in foreign subsidiaries.

There is now a push in the congress to reduce the tax impact of repatriating foreign earning.  A bill in congress has 109 co-sponsors.  Apple’s CFO mentioned that “we have expressed our view with Congress and the administration.”

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Founded in 1953, Green Hasson Janks is a Los Angeles-based accounting firm that specializes in nonprofit, food and beverage, entertainment and media and health and wellness companies. Recipient of the Los Angeles Chamber of Commerce 2018 Employee Champion For Life Work Harmony Award and named a…Learn More