Apple and other tech firms may have to give away around $10 billion each in cash if the new proposal by Obama is passed
Apple could bear the brunt of President Obama’s proposal to levy a one-time tax of 14% on U.S. companies’ foreign earnings, says a report from USA TODAY, which cites another report issued on Monday by Capital Economics. Other companies such as Pfizer and Microsoft would also be impacted by the tax if implemented.
High corporate tax at home to blame?
Obama, in his 2016 budget plan, mentioned a 14% one–time tax on earnings held by U.S. companies across the world. This will allow the government to earn revenue of around $238 billion to fund infrastructure projects. Additionally, Obama has proposed a new permanent tax of 19% on all future profits earned abroad.
As of now, all the U.S. firms are subjected to a 35% corporate tax on foreign profits only when the funds are sent back to the United States. Therefore, the majority of the U.S. firms do not repatriate the money so they can avoid taxes, as the country levies the highest corporate tax among developed countries.
The report from Capital Economics suggested that U.S. companies have stashed approximately $2.1 trillion in foreign lands, which is a rise of six times from the $340 billion in 2002.
Cash-rich Apple can afford the tax
Apple and other tech companies will not be spared from a bigger tax bill. Capital Economics suggested that individual companies such as Apple, Microsoft and Pfizer would be required to give away as much as $10 billion each in tax. Apple, which is cash-rich with $180 billion in store, could afford to pay extra tax.
Capital Economics notes that the maximum foreign cash is held by only a small group of large U.S. multinationals. By the end of 2013, General Electric had a cash pile of $110 billion in foreign profits abroad, followed by Microsoft with $76 billion and Pfizer with $69 billion.
Technology and healthcare are the two sectors that will see the maximum impact from the one-time tax on the profit held overseas as each of the sectors contributes around 30% of their total earnings held abroad. Both sectors are estimated to give away around $90 billion each in taxes for the profits abroad if the tax is implemented, according to Capital Economics.