Apple & Co. Repatriate Foreign Spoils

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What's going on?

Apple is shifting at least tens of billions of dollars of cash it’s held overseas to the US and will spend a good deal of it on expanding its operations there – but it has to pay a $38 billion tax bill first!

What does this mean?

A few years ago, Apple’s CEO called the US tax system “total political crap” for encouraging companies like Apple to keep their overseas profits outside of the US (in order to avoid paying America’s relatively high tax rate). But due to a new lower repatriation rate brought in under the new US tax laws (down from 35% to 15.5%), Apple – and likely others – will bring much of their foreign cash onto home turf.

The idea is that all this extra loot will, at least partially, be used to expand the companies’ operations in America, creating jobs and boosting the economy. For its part, Apple said it would invest $30 billion in the US over the next five years, including a new corporate campus – creating more than 20,000 jobs.

Why should I care?

For markets: Investors could be even bigger winners than workers.

Apple and other American companies were legally unable to use their overseas cash to pay shareholders (e.g. via dividends or buying back their own stock). But with this money now homeward bound, the firms will soon have plenty of shekels sloshing around – and they’ll almost certainly pay out a significant amount to shareholders.

The bigger picture: Companies are walking a political tightrope.

Detractors of the new tax law worry that businesses will favor rewarding their shareholders over spending money expanding in the US, which is not as clear a positive for the US economy. Companies like Apple have been quick to tout elaborate new projects, magnanimous bonuses for workers and job creation figures – which is good PR. Investors, and the rest of us, haven’t heard much about dividends and stock buybacks – yet.

Originally posted as part of the Finimize daily email.

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