Apple (AAPL) Avoids $9.2 Billion in Taxes by Taking on Debt

The real answer as to why a company as big as Apple (AAPL) and with so much cash would even bother to issue debt instead of dipping into its $100 billion offshore cash pile, is to avoid a potential tax bill of up to $9 billion.

According to a report from The Financial Times, the Cupertino, California-based iPhone maker would have had to pay as much as 35% in taxes to bring that cash amount into the US.

Last month, Apple, which has a cash pile that exceeds $145 billion with only a portion of that available in the US, announced it would finance part of a record-breaking $55 billion stock buyback program with debt rather than offshore cash that would have been billed by the U.S. government. From using the debt rather than straight cash, Apple will be able to save about $100 million a year.

“There is a huge tax saving for Apple in borrowing the money rather than bringing it back to the US,” Kevin Phillips, international tax partner at Baker Tilly was quotes as saying by FT. “The company will keep getting that $100 million or so tax credit every single year.”

The FT report also notes that based on current interest rates, the $17 billion the tech giant sold in bonds Tuesday — its first debt issue since the 1990s — will cost it about $310 million a year in interest payments, but Apple will regain about a third of that due to tax deductions.

Gerald Granovsky, a senior vice president at Moody’s (MCO), said: “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 US 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,” he added.

With interest rates at historically cheap levels — this week, rates on U.S. Treasury securities hit their lowest yields this year, at 1.65% on the 10-year note — it makes sense for Apple to borrow rather than pay a big tax bill.

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