Apple Inc. Gets a Tax Bonanza

The Republican Party lead by Donald Trump has announced an overhaul of the taxation system in the United States. This new plan is known for favoring the corporates. However, Apple Inc., which is amongst the largest corporations in the world, is likely to benefit the most. Apple has been one of the most profitable companies in the United States and the world. However, it has been hiding its profits in tax havens overseas. It is rumored that Apple was waiting for an opportune moment to bring its huge stack of cash back home. It is also rumored that Apple wanted to fund a huge expansion plan with this fund.

Apple CEO Tim Cook was aware of the windfall gains that his company could possibly materialize if the tax rates in the United States were lowered. He, therefore, lobbied to create a tax code which was more conducive to his organization. President Trump has paid heed to his attempts. As per the new tax code, corporate earnings in America will be taxed at a top rate of 20% (as opposed to 35% earlier).

This is bound to have a positive effect on Apple. Analysts have given Apple the outstanding rating. They believe that the earnings per share will be up by 7% to 14% as a result of this move. The massive 45% in the valuation of Apple shares provides some hints about the bullish sentiment.

In this article, we will have a look at how Apple Inc. is likely to gain from this change.

Apple’s Plan

As per the new tax rules, companies can repatriate their foreign earnings back to America. They tax rate on such repatriation has been kept abysmally low at 15%. This has been done to encourage American corporations to repatriate huge sums of money back home and help grow the economy at a faster pace. As a result of this new law, Apple CEO Tim Cook has decided to bring back close to 90% of its $252 billion which was stashed abroad. Apple will pay a total tax bill of $38 billion. Apple has waited for years to bring these earnings back. Now, since the tax code is conducive, Tim Cook is trying to bring back as much as he can. This is obviously a bonanza for Apple’s shareholders. However, it is also a big win for Donald Trump’s government which has been facing constant negative publicity. It seems like Donald Trump is going the extra mile to ensure that his Trumped up trickle-down economics actually works. If Trump is to be believed, this is not the only big-ticket repatriation. He is said to be in talks with many bigwigs from Silicon Valley. Companies like Alphabet, Cisco, Facebook and even Google are likely to repatriate large sums of money to the United States.

Is This an Eye Wash?

Critics of the new tax code have called this big repatriation by Apple a publicity stunt. As per their estimates, Apple already spends about $55 billion a year in the United States. Hence regardless of the tax policy, Apple would bring in $275 billion in the United States over the next 5 years. If the earlier tax rates were continued, the United States tax department would have received more in the form of revenue. They believe that Apple has just repatriated the money in one lump sum instead of spreading it out over several small payments. They have just convinced the American people that something different is being done. The reality is that Apple is just following up on its annual plans. By giving Apple Inc. such a massive tax break, Donald Trump may have shortchanged the hard working American population.

Corporations Gain But Workers Lose

If it is actually believed that Apple will bring in more money than earlier, then too the average American doesn’t stand to gain too much. This is because Apple will use the money to buy back their shares from the markets. This is likely to benefit the rich shareholders of Apple Inc. It is very unlikely that any of this repatriated money will reach the workers.

Although Apple has stated that it will set up new facilities and employ close to 20,000 people, it is unlikely that this will happen in the near future. As far as the tax payer is concerned, Apple Inc. still undertakes a majority of its production overseas. They use America only as a market where they can sell their products. Now they have started using America as a place from where they can distribute their dividends. Apple has been trying to shed this image of a corporate predator. Apart from the delivery center, Apple is also planning to invest $5 billion in either Kentucky or Texas to start a greenfield manufacturing facility.

To sum it up, Apple has ended up receiving a $43 billion tax bonanza thanks to Trump’s new policies. The benefit that anyone else will receive is still uncertain. However, Apple itself has already gained a lot!


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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