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Tax Havens and Apple’s Offshore $60 billion

by Bob Morris, published


In a move many viewed as tone-deaf, Apple said recently they will keep $60 billion of their $100 billion reserve parked offshore until taxes on the money are greatly lowered. Big Silicon Valley corporations often get bashed for doing what other large US corporations routinely do. For example, Google’s informal motto is “do no evil”. Thus people may get more upset with Google for doing something they perceive as dicey than they would at, say, a coal company.

Many other corporations also have large sums of money offshore and the amount has been growing, perhaps in anticipation of a tax holiday. In quite legal transactions, large corporations are able to move profits made in the US to offshore entities, thus avoiding paying taxes on the profits in the US. Again, it should be stressed that this is completely legal. One shouldn’t be surprised, however, to learn these same large corporations have armies of lobbyists working to get favorable tax laws written, in addition to battalions of lawyers and CPAs looking for every advantage and loophole. In 2008, Goldman Sachs paid $14 million in federal tax on profits over $2 billion by using 29 tax haven subsidiaries. General Electric paid no federal tax at all in 2010. These profits are still more than likely overseas.

Of course, some of the profits may have been earned entirely overseas where they are subject to foreign tax until the money returns to the US. Here it is taxable at the corporate rate of 35%. However, as we’ve seen, large corporations often already pay nowhere near that same rate for their federal taxes. The Win America Campaign is a consortium of mostly tech companies including Apple that are pushing for a tax holiday so offshore money can be repatriated with a tax rate as low as 5.25%. They say this would greatly boost the economy as the money would be reinvested and thus create more jobs. The Obama Administration says a 2004 tax holiday did little to boost help the economy and opposes it unless it is part of overall tax reform.

The amount of money currently held offshore could be $1 trillion. If it came back here and was used mainly for stock dividends and stock buybacks, then it wouldn't help the economy at large. This is what Karl Marx referred to as “fictitious capital”, which is money making money with little or no benefit to real production. (Before someone calls me a commie, I should note that the venerable Alan Abelson of Barron’s once said Karl Marx had the best understanding of capitalism that he’d ever read.)

However, if $1 trillion came back to the US and was invested directly into businesses, then it could greatly boost the economy. Perhaps a good compromise would be that corporations get a tax holiday on repatriated money as long as it is used to directly build their businesses.

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