Cash Repatriation | US Tech Giants Absorb Impact Of Tax Reforms


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 $252.3 billion, or how much was previously planned.

Apple announced in January that it would make a one-time mandatory tax payment of $38 billion under the new US tax law. That would 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 untaxed 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 its 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 funds 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.

S&P Global Ratings says it expects tax reform to facilitate the repatriation of approximately $1.1 trillion in cash held offshore. This would likely spur a wave of share repurchases, leading to lower cash balances and potentially weaker credit ratings, it says. The depletion of cash, if not offset by some debt repayments, could increase leverage and weigh on companies’ credit metrics, the ratings agency says.

The technology sector stands to be affected most by repatriation, according to S&P. It expects borrowing by large technology companies to slow once cash is repatriated. Five technology companies—Apple, Microsoft, Alphabet, Cisco Systems and Oracle—collectively held $594 billion in overseas cash at the end of 2016, according to Moody’s Investors Service. Other sectors with large cash stockpiles include healthcare and pharmaceuticals, consumer products and energy.

US corporations got most of what they wanted in the new tax law. The corporate tax rate was lowered to 21% from 35%.

Banks will benefit in the long run from the lower corporate tax rate, although they are currently taking large accounting charges because of the new tax law. Citi took a $22 billion accounting hit and reported an $18.3 billion loss for the fourth quarter of 2017, reflecting a reduction in the value of deferred tax assets. Goldman Sachs reported a nearly $2 billion quarterly loss in the quarter, due to a hit from the new tax law and a decline in trading revenue.