AAPL tax liabilities

  • Posted: 23 July 2012 03:46 PM

    This has been discussed a bit in the past but the topic is getting serious publicity at the link below. This could be a HUGE boon for AAPL longs.

    http://finance.yahoo.com/news/apples-phantom-taxes-hide-billions-183756755.html

         
  • Posted: 23 July 2012 05:21 PM #1

    adamthompson32 - 23 July 2012 06:46 PM

    This has been discussed a bit in the past but the topic is getting serious publicity at the link below. This could be a HUGE boon for AAPL longs.

    http://finance.yahoo.com/news/apples-phantom-taxes-hide-billions-183756755.html

    Interesting article.  Anyways, I think taxes on production should be entirely replaced with taxes on consumption.  The benefits are just too great to ignore.  The only sticking point for such a change, is that you can’t redistribute income with consumption taxes.

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  • Posted: 23 July 2012 05:21 PM #2

    The recording of a Deferred Tax Liability related to APB 23 is somewhat subjective, however the external auditors have to OK the policy before it can get into financials. All US multinationals have to set a policy on how they treat their accumulated earnings in certain jurisdictions. The ability to “permanently reinvest” earnings overseas is predicated on facts and circumstances. Last I checked Apple has differing assertions on different pools of cash. [So it’s not going to be easy to come to an estimate on how tax they are accruing on their earnings which are false/inaccurate/won’t ever be paid.]

    With Apple declaring dividends to its shareholders there may be more reason for then to say that its foreign cash is needed in the US, and therefore a tax liability on the repatriated taxes is required.

    [ Edited: 23 July 2012 05:29 PM by Pot Committed ]      
  • Posted: 23 July 2012 05:49 PM #3

    Pot Committed - 23 July 2012 08:21 PM

    The recording of a Deferred Tax Liability related to APB 23 is somewhat subjective, however the external auditors have to OK the policy before it can get into financials. All US multinationals have to set a policy on how they treat their accumulated earnings in certain jurisdictions. The ability to “permanently reinvest” earnings overseas is predicated on facts and circumstances. Last I checked Apple has differing assertions on different pools of cash. [So it’s not going to be easy to come to an estimate on how tax they are accruing on their earnings which are false/inaccurate/won’t ever be paid.]

    With Apple declaring dividends to its shareholders there may be more reason for then to say that its foreign cash is needed in the US, and therefore a tax liability on the repatriated taxes is required.

    The dividend is miniscule relative to Apple’s cash and future cash generation. No cash currently held overseas or generated overseas in the future is needed to fund the current dividend.

         
  • Posted: 23 July 2012 06:06 PM #4

    Agreed, for now. However the auditors probably have this logged as under the column for “US Cash Needs”. Apple makes loads of cash within the US, but if US earnings dip then would the dividend go down with it?

    Like you said, Apple was clear to say they would only distribute dividends out of its US earnings. Thus the reason Apple is lobbying to change tax law on dividends into the US from its foreign Subs.

    I’m curious what pools they’ve recorded a liability for and what pools they’ve tagged as “permanently reinvested”.

         
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    Posted: 23 July 2012 06:11 PM #5

    Isn’t provision for income taxes just what it says on the income statement?

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  • Posted: 23 July 2012 06:11 PM #6

    Pot Committed - 23 July 2012 09:06 PM

    Agreed, for now. However the auditors probably have this logged as under the column for “US Cash Needs”. Apple makes loads of cash within the US, but if US earnings dip then would the dividend go down with it?

    Like you said, Apple was clear to say they would only distribute dividends out of its US earnings. Thus the reason Apple is lobbying to change tax law on dividends into the US from its foreign Subs.

    I’m curious what pools they’ve recorded a liability for and what pools they’ve tagged as “permanently reinvested”.

    I don’t know much,but I know that Apple’s U.S. (or otherwise) earnings are not going to “dip” anytime soon.

         
  • Posted: 23 July 2012 08:51 PM #7

    Mav - 23 July 2012 09:11 PM

    Isn’t provision for income taxes just what it says on the income statement?

    Yes.  It means exactly that.  Its a provision, not actual tax paid.  The difference between the two is recorded on the balance sheet as (in this case) a contingent liability, meaning its not a liability unless some event, which may not occur, does.

    I think the author’s calculations are reasonable.  It doesn’t matter what pools there are if Apple has no intent to ever repatriate a portion of foreign held funds.  The issue only relates to those funds that Apple may want to repatriate in the future.

    The liability that Apple’s is carrying on its balance sheet is based on current tax rates.  The amount paid will be based on the tax rate applied at the time the funds are repatriated.  If Apple et al are successful in getting the corporate tax rate on repatriated funds reduced to ~5%, the $10 Billion contingent liability will be reduced to ~$1.5 Billion.

    The savings are far more than enough to pay about 2/3s of the first dividend, having very little impact on the balance sheet.

    Dividend calculated at 950 million shares at $700 each with a 1.9% dividend.

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