Apple vows to make big U.S. investment
Tech giant plans to capitalize on the new tax law
SAN FRANCISCO — Apple, which had long deferred paying taxes on its foreign earnings and had become synonymous with hoarding money overseas, unveiled plans on Wednesday that would bring back the vast majority of the $252 billion in cash that it held abroad and said it would make a sizable investment in the United States.
With the moves, Apple took advantage of the new tax code that President Donald Trump signed into law last month. A provision allows for a one-time repatriation of corporate cash held abroad at a lower tax rate than what would have been paid under the previous tax plan. Apple, which has 94 percent of its total
“We have a deep sense of responsibility to give back to our country and the people who help make our success possible.” Tim Cook, Apple CEO
cash of $269 billion outside the United States, said it would make a one-time tax payment of $38 billion on the repatriated cash.
For years, Apple had said it would not bring its foreign earnings back to the United States until the corporate tax code changed, because such a move would be too costly. Now Apple’s bet to hold back on paying such taxes is reaping rewards under the Trump administration.
In return, Trump and other Republicans can point to Apple as having come around because of their legislative action. The $38 billion tax payment from the Silicon Valley giant is set to be among the biggest payouts from the tax bill, and Apple said it would put some of the money it brought back toward 20,000 new jobs, a new domestic campus and other spending.
“I promised that my policies would allow companies like Apple to bring massive amounts of money back to the United States,” Trump tweeted on Wednesday. “Great to see Apple follow through as a result of TAX CUTS.”
‘Deep’ responsibility
Tim Cook, Apple’s chief executive, said in a statement, “We have a deep sense of responsibility to give back to our country and the people who help make our success possible.”
Apple estimated that its effect on the U.S. economy would total more than $350 billion over the next five years, but how much that goes beyond what the company would have spent anyway is unclear. Apple’s current pace of spending in the United States is $55 billion for 2018, so it was already on track to spend $275 billion over the next five years. After the $38 billion tax payment is subtracted, that leaves its new investment at roughly $37 billion over the next five years.
A.M. Sacconaghi, a financial analyst for Sanford C. Bernstein, said Apple had consistently spent tens of billions of dollars on areas like staffing and capital expenditures in recent years. Bringing back the overseas cash, he said, does little to aid its expansion. But it makes the company appear to answer Trump’s call for more jobs to be created in the United States.
“This is Apple putting its best foot forward consistent with objectives of the administration,” Sacconaghi said.
$43 billion savings
Apple is one of several multinational giants that have kept a total of roughly $3 trillion in global profits off their domestic books to sidestep the previous 35 percent federal corporate tax rate. Under the new tax law, companies that make a one-time repatriation of cash will be taxed at a rate of 15.5 percent on cash holdings and 8 percent on nonliquid assets. That is lower than the new 21 percent corporate rate. And under the new tax code, Apple would also have been taxed whether it brought the money back or not.
By shifting the money under the new terms, Apple has saved $43 billion in taxes, more than any other U.S. company, according to the Institute on Taxation and Economic Policy, a research group in Washington.
Other tech giants are set to follow suit in the coming months. Companies like Microsoft, Alphabet and Cisco also shifted their profits into offshore shell companies, avoiding billions of dollars in taxes, and are now in a better position to bring the money back.
Although Republican supporters of the tax law argued that the influx of international profits would create jobs and increase wages, many economists disagreed that a one-time repatriation would have any substantial effect on real investment.
Years of criticism
Apple’s announcement, couched as a major investment in the United States instead of a massive financial windfall, followed years of criticism that the company did not do enough for the U.S. economy because it makes most of its products in China and parked its profits abroad.
During last year’s presidential campaign, Apple was a frequent target of Trump, who pledged that as president he would force the company to start making iPhones and Macs in the U.S. While that has not happened and is unlikely to, Apple has since gone on a charm offensive to demonstrate its value to the U.S. economy.
The company has highlighted the number of jobs created by the so-called app economy, an ecosystem of software and services that run on the iPhone and other Apple products. Last year, Apple also said it was creating a $1 billion fund to invest in advanced manufacturing in the U.S. On Wednesday, Apple said it was increasing the size to $5 billion and noted that it was already backing projects from manufacturers in Kentucky and Texas.
Apple, which is based in Cupertino, Calif., also took a page out of Amazon’s public relations strategy on Wednesday by saying it will open a new domestic campus in a location where it currently has no operations. Amazon garnered goodwill throughout the country last year when it announced plans to open a second headquarters outside its home base of Seattle.