Apple Plans to Invest Repatriated Cash in New Jobs, Capital Improvements

Apple Plans to Invest Repatriated Cash in New Jobs, Capital Improvements

Apple announced on Wednesday that it was bringing hundreds of billions of dollars back to the US that the company had previously held overseas to take advantage of a loophole in the US tax code that has now been closed. In doing so, Bloomberg’s Alex Webb and Mark Gurman report, the company will incur a tax bill of around $38 billion, but it also plans to spend $30 billion over the next five years on capital expenditures, with which it expects to create 20,000 new jobs and open a new campus:

“We are focusing our investments in areas where we can have a direct impact on job creation and job preparedness,” Chief Executive Officer Tim Cook said in a statement Wednesday, which also alluded to unspecified plans by the company to accelerate education programs. Apple also told employees Wednesday that it’s issuing stock-based bonuses worth $2,500 each following the new U.S. tax law, according to people familiar with the matter.

These moves came in response to the tax reform package passed by the US Congress in December, which reformed the international tax system for corporations by removing a rule that let American companies defer paying taxes on foreign income until they repatriated those earnings, incentivizing companies to stockpile some $3.1 trillion in cash overseas. Apple was among the companies best known for taking advantage of the deferral provision and faced extensive criticism for doing so, including from President Donald Trump.

Other major US companies, including Walmart, have announced raises, bonuses, and other investments in their workforce in light of the major corporate tax cut enacted last month.

Under the new system, corporations’ foreign income will be taxed going forward at 15.5 percent for cash and 8 percent for less liquid assets. Companies have eight years to pay their tax bills on accumulated assets held overseas. While this aspect of December’s tax bill was widely reported as a tax holiday on repatriated assets, like the one the government pursued in 2004 to encourage companies to bring cash back into the US, it’s actually just a tax cut from the previous rate of 35 percent, as these new rates apply to foreign earnings whether or not they are repatriated.

Instead of another tax holiday, Congress simply removed the tax incentive for companies to park their money abroad. Daniel Ives, head of technology research at GBH Insights, expects US technology companies to repatriate between $300 billion and $400 billion of the $550–$600 billion they currently hold overseas this year, with Apple accounting for some $200 billion of that figure, according to CNBC.

In any case, Apple’s plans to invest in its US workforce and capital improvements will likely have a bigger economic impact than the taxes it pays on these assets, Mark Sullivan writes at Fast Company—and provide a bigger benefit to Apple’s reputation as well:

Apple may have felt now is the time to inoculate itself against criticism over how its repatriated money will be spent. The money from repatriation tax breaks in the past have gone mostly to white-collar benefits like stock buy-backs, investor dividends, and maybe some executive benefits. Some of Apple’s repatriated cash will very likely go to such expenses.

During the 2016 presidential campaign, Donald Trump criticized Apple for sourcing and manufacturing its products mostly overseas. … Trump was not the first to criticize Apple for lack of investment in U.S. plants, but the company—like other U.S. tech giants—remains unlikely to bring large-scale manufacturing back to this country. Still, adding a significant number of new U.S. jobs, even if they don’t involve manufacturing, is a good way to deflect at least some of those criticisms.