In 2016, SyFy debuted a new show called Incorporated about a dystopian future where corporations, not governments, rule the world. If that nightmare ever comes true, we all know which real-world corporation will rule them all. It’s Apple, of course, which just took the shrink-wrap off their $5 billion ring-shaped headquarters in Cupertino, CA and is on the verge of becoming the world’s first trillion-dollar company.
Odds are good that you’ve got an iDevice of some sort in your home, office, or pocket. Apple’s product design geniuses use crack-like design and technology that keeps users hooked like heroin addicts, to make Apple the most valuable corporation in the world. But what you may not know is how Apple’s financial geniuses use proactive tax planning to make their company even more valuable. And now, the Tax Cuts and Jobs Act has inspired them to act again.
Apple has scattered their manufacturing operations throughout the world to take advantage of lower costs overseas. (You think your 10-year-old’s science fair project is special? Big deal — 10-year-olds in China are making iPhones!) This has prompted various entertaining debates over the ethics and politics of offshoring, which we won’t presume to touch here.
Apple hasn’t just offshored manufacturing operations to cut manufacturing costs. They’ve also offshored their profits, to take advantage of tax rates that are lower than our own traditional 35%. This involves strategies with names like the “Double Irish with a Dutch Sandwich” strategy, which sounds like something you’d see figure skaters attempting at the upcoming Winter Olympics. Apple’s Irish subsidiary, Apple Operations International, earned $30 billion from 2009-2012, and didn’t even file tax returns for those years.
Hoarding cash before the IRS gets to grab 35% of it doesn’t mean stuffing it under some sort of supersized Irish mattress. The parent company borrows their own subsidiary’s cash, deducts 35% of the interest they pay for it here in the U.S., and pays tax on that interest at just 12.5% in Ireland, shifting even more money out of IRS reach.
Now the Tax Cuts and Jobs Act has cut the rate on Apple’s iProfits to just 21%. It even includes a bonus “get out of jail free” card for companies with cash overseas, letting them pay a one-time 15.5% rate to load those bales of cash on a plane and bring them home. So, Apple is repatriating $252 billion, and writing the IRS a $38 billion check — enough to finance the entire government of Wisconsin for a year, with enough left over to pay for Jacksonville or St. Louis, too. But that’s still $43 billion less than paying the 35% on the full amount.
And what will Apple do with their iSavings? Throw a party, of course! They’ve announced plans to hire 20,000 new employees, build another major domestic campus, and boost R&D to diversify away from the iPhone. They’ll also use billions more for dividends (which put cash in shareholders’ hands) and share buybacks (which also rewards them by pushing prices up).
We realize you don’t have $252 billion to plan for; but that doesn’t mean you can’t profit from planning, too.