It is well established that Apple holds $181B in cash overseas. This appears to be to avoid US Taxes.
Apple has been doing significant stock buy-backs.
My question is: Can Apple use its off-shore cash to do Apple stock buy-backs tax free?
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1 Answer
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To the best of my knowledge - and I'm not an accountant, so I may very well be wrong: buybacks are not profits, but are instead considered as an 'investment' in Apple in its own company. Since they are not profits, they are not taxed.
Apple using its offshore cash to buy back its own stock is changing the accounting balance rather than actually generating any profits.
Consider the following balance sheet:
Assets
Cash 100M
Liabilities
Loans 70M
Equity
C. Stock 22M
R. Earnings 8M
In this balance sheet, the retained earnings (what is taxed) is 8M.
With a buyback of 12M in common stock:
Assets
Cash 88M
Liabilities
Loans 70M
Equity
C. Stock 10M
R. Earnings 8M
Retained earnings have not changed, the company's taxable income has not changed, and thus the company should not have to pay any taxes. This should be true regardless of where the money 'physically' is - in the U.S. or elsewhere.
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1$\begingroup$ I think the problem is that an Apple subsidiary cannot gift the parent company X million dollars. If they transfer the funds home, they are likely taxed before they can be reinvested. I am not sure if the subsidiaries can buy back shares in their respective countries. $\endgroup$– GiskardCommented Jun 28, 2016 at 17:11
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$\begingroup$ Could an Apple subsidiary buy Apple shares and not give them to Apple? $\endgroup$– KontorusCommented Jun 28, 2016 at 17:35
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$\begingroup$ I would think so. There is a concept called cross ownership in which case this would have to happen. $\endgroup$– GiskardCommented Jun 28, 2016 at 21:36