Apple Inc. (NASDAQ:AAPL) has smartly escaped paying a whopping $9 billion tax bill by raising a debt of $17 billion, report FT. The debt part looks surprising as the iPhone maker has $145 billion in cash on its balance sheet.
Apple And The Cash
Apple Inc. (NASDAQ:AAPL) has announced that it will pay $100 billion cash to its shareholders in the next few years. The company has as little as $45 billion in cash reserves in the United States. The balance is deposited outside the United States to be safe from the reach of the United States government.
Apple Inc. (NASDAQ:AAPL) needs to withdraw approximately $26 billion in cash from overseas in order to fulfill their vows of distributing cash to shareholders according to estimates. The cash brought in from oversees will be taxed at $9 billion and Apple Inc. (NASDAQ:AAPL) will be left with $17 billion. Thus, Apple Inc. (NASDAQ:AAPL) raised debts last Tuesday, which was welcomed by investors.
There are no words from Apple yet on the debt. The debt for sure will have interest attached to it which Apple will have to pay to the bondholders. Apple will pay $300 million as interest over the debt to its debt holders. However, it can deduct $100 million of interest while filing for tax.
Gerald Granovsky, an analyst at Moody’s, noted: “If you assume the statutory 35 percent corporate tax rate, based on the data available and on a back of the envelope calculation, to generate in the U.S. the equivalent of $17 billion the company would need to repatriate $26 billion.” He said that raising the debt will prove to be more beneficial to the company.
The recent tax avoidance by Apple Inc. (NASDAQ:AAPL) is just one of the many tax breaks by the corporation, which took a toll of $180 billion per year on the United States government according to recent estimates by the Government Accountability office.
Depositing money overseas is more of a loophole than a benefit. This is not permanent, but it would not be any wonder if companies would like to seal it as permanent loophole by clubbing it under tax reforms.
Apple Inc. (NASDAQ:AAPL) is not alone in taking advantage of low interest rates in the United States and low taxes overseas in order to raise money from investors and pay them back. The other blue chip company Microsoft Corporation (NASDAQ:MSFT) collected debt of $2.7 billion last week. The total debt issue will shoot up to $100 billion after the debt offering of Apple Inc. (NASDAQ:AAPL). This is the highest level of debt raised in April since 2008.