Apple response to new tax code a victory for Trump

In a major boost for a new tax code championed by President Donald Trump, Apple said it will bring hundreds of billions of overseas dollars back to the U.S. and pay about US$38 billion in taxes on the money.

The company also said it was committing US$ 350 billion to the U. S to be spent on domestic jobs, manufacturing and data centres in the coming years.

Apple told employees Wednesday that it was also issuing stock- based bonuses worth US$ 2,500 each following the new tax law, according to people familiar with the matter.

The pledge comes just weeks af- ter U. S. Republicans dramatically lowered corporate taxes, including an incentive to encourage American companies to bring back profits parked oversees.

“This is truly a case where the results will speak for themselves, starting very soon. Jobs, Jobs, Jobs!” Trump tweeted in late December.

Apple is the first major U. S. technology company to act on the new tax law and it joins others, such as Intel Corp., in responding to criticism by Trump and others that corporations have been ignoring American workers and manufacturing.

Job creation was a key pillar of Trump’s election campaign. That means the new positions created by Apple are likely to have a more significant political impact than its US$ 38 billion tax payment, according to Erik Gordon, a professor at the University of Michigan’s Ross School of Business.

“The thrust here is American jobs, jobs on American soil, build manufacturing here, don’t build everything in China,” Gordon said. “You can’t have an announcement of a million jobs. But you can have companies like Apple saying that we’re going to have 20,000 new jobs here. If other companies say they’re going to have new jobs too, it does add up.”

Besides lowering the standard corporate tax rate, the tax reforms offer a one- time break on cash being held overseas.

Apple plans to take advantage of that provision to bring back most of its roughly US$252 billion in offshore cash, generating a tax bill of about US$ 38 billion. It’s something that Apple CEO Tim Cook promised the company would do if it could avoid being taxed at the 35 per cent rate that had been in effect under the previous tax law.

About US$ 75 billion of the US$350 billion in U.S. investments will be paid from money that had been overseas, Apple estimated.

Companies t hat bring back money stashed overseas this year will be taxed at a 15.5 per cent rate, below the new 21 per cent rate for U. S. corporate profits under the new law.

Other U. S. companies, including American Airlines, AT& T and Comcast, have been handing out US$ 1,000 bonuses to all their workers to share the wealth they will gain from the lower rate on their domestic earnings.

Excluding banks and other financial services companies, Moody’s Investors Service estimates corporate America has an estimated US$ 1.6 trillion in overseas cash. Most of that is in the technology industry, with Apple sitting at the top of the heap.

Analysts have been predicting that most of the overseas profits coming back to the U. S. would be plowed i nto paying shareholder dividends and buying back stock, something that happened the last time a onetime break on offshore profits was offered more than a decade ago.

Trump and l awmakers are hoping companies use the money to raise wages, expand payrolls, open more offices and invest in new equipment.

Wednesday’s announcement was clearly designed to be a show of faith in the U.S. — Apple’s most lucrative market.

“Apple is a success that could only have happened in America, and we always felt a very big sense of responsibility to give back to our country and the people who have made our success possible,” Cook said during a ceremony Wednesday celebrating a new warehouse being built in Reno, Nevada.