Magazine article Global Finance

US Tech Giants Absorb Impact of Tax Reforms

Magazine article Global Finance

US Tech Giants Absorb Impact of Tax Reforms

Article excerpt

Apple says it will make a "direct contribution" to the US economy of $350 billion in the next five years, creating more than 20,000 new jobs. The iPhone maker did not say, however, how much of that spending would come from its overseas cash holdings of S252.3 billion, or how much was previously planned.

Apple announced in January that it would make a onetime mandatory tax payment of $38 billion under the new US tax law. That wculd free up the company to move any or all of its overseas cash holdings to the US.

The new US tax code requires companies to pay tax of 15.5% on accumulated overseas profits held in cash and other liquid assets, regardless of whether or not the company repatriates the money. US companies have $2.5 trillion of jntaxed cash overseas, according to Citi.

The US government expects to collect $339 billion in taxes on these foreign profits in the next 10 years, as it transitions to a territorial tax system from .:s current worldwide taxation on profits earned by foreign subsidiaries. Under the new system, income will be taxed in the country where it is earned and won't be taxed again when it is repatriated.

Analysts expect much of Apple's repatriated cash to be used for share buybacks and dividend payments. The company previously funded such activities by borrowing in the US market. The tech giant could also use some of the repatriated fundi to pay off some of its $116 billion in debt. Apple also plans to give each of its 120,000 employees a $2,500 stock grant. …

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