By using proceeds from its monumental $17 billion bond issue this week to pay shareholders instead of dipping into its $100 billion in cash overseas, Apple Inc (NASDAQ:AAPL) will duck a potential tax bill of up to $9 billion.
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According to accountants and lawyers, the technology titan would have paid as much as 35% in taxes to bring that cash amount into the U.S., according to lawyers and accountants, the Financial Times reports.
Last month, Apple -- which has $100 billion worth of cash abroard yet only $45 billion in the U.S. -- announced it would partly fund a record-breaking $55 billion share buyback program by using money raised in the corporate bond market. From using the debt rather than straight cash, Apple will save about $100 million a year.
The $17 billion the iPad and iPhone maker borrowed from the corporate bond market will cost it about $310 million a year in interest payments, but Apple will regain about a third of that due to tax deductions, the Financial Times notes.
“There is a huge tax saving for Apple in borrowing the money rather than bringing it back to the U.S.,” said Kevin Phillips, international tax partner at Baker Tilly. “The company will keep getting that $100m or so tax credit every single year.”
Gerald Granovsky, an analyst at Moody’s, noted: “If you assume the statutory 35% 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.
“That is less attractive than paying the $300 million in interest attached to this bond sale,” Granovsky added.