Apple Corporation Sitting on Pile of Cash It Has No Use For

by on February 5, 2015 · 2 comments

in Economy, Media

apple cashBy John Lawrence

Apple Corporation is sitting on $178 billion in cash, and it literally doesn’t know what to do with it. But it knows one thing: it doesn’t want to give any of it to Uncle Sam or any other taxing jurisdictions around the world. That much is clear.

If it divided that money up, Apple could give $550 to every man, woman and child in the US. It’s enough money to buy Ford, General Motors and Tesla combined and still have $41 billion left over.

They could even buy a couple of small countries, but it doesn’t want to do that. Why bother? It’s literally an embarrassment of riches.

Apple sold an amazing 74.5 million iPhones in the last quarter of 2014, (the first fiscal quarter of 2015). This was an average of 34,000 iPhones an hour for every hour of the quarter! It brought in over $74 billion in revenue for the quarter.

This was higher in quarterly revenue than Microsoft and Google combined, the largest quarterly revenue ever to be recorded by a publicly traded company. Profits for the quarter were over a quarter billion dollars a day.

iphone-6-concept-2Investors, the supposed “owners” of the company, want that money given back to them, but it’s not happening. They could give all their employees a raise, but that’s not happening either. They could buy back their stock thus raising the price of it, and they have done some of that.

The problem is most of that $178 billion is sitting outside the country, so rather than “repatriate” the money which would cost them a hefty amount of taxes, they borrow money instead to do their meager stock buy backs in order to get investors off their backs, AND they lobby Congress for a “tax holiday” which would let them bring the money home without paying tax on it.

They could reduce the prices on their iPhones, or build a factory and set up a production line in the US. This would create American production jobs instead of all those kind of jobs being created in China. Of course, it would cut into their profit margins slightly so it is out of the question.

Besides, you can’t wake up American workers at one o’clock in the morning and put them on the production line for 12 hours like their production company in China, Foxconn, does on Apple’s behalf.

Apple is in business to make money even if they have no other use for it than to sit atop a shitpile of it. This kind of massive anal-retentiveness which hoards money rather than utilizing it for life sustaining and enriching purposes amounts to the worship of “filthy lucre.”

Norman O Brown, author of the book, Life Against Death, has said, “… money is seen to be nothing other than deodorized, dehydrated shit that has been made to shine.” Meanwhile, millions of homeless people around the world go hungry.

With so much money at their disposal that they don’t know what to do with, the question is begged, “Why not pay the taxes on it and help out their fellow Americans and their country?” But that’s not the way corporations work. They assiduously seek out every possible tax break their lawyers can dream up.

When asked why this is necessary, given that they don’t even need the money, CEO Tim Cook replies words to the effect that paying taxes on this money would give his competitors an unfair advantage.

For every iPhone Apple sells, it makes a phenomenal 40% in profit.

Well, it might do that if it meant that Apple would not be able to invest in new plants or equipment, but that is surely not the case. Apple is lacking for absolutely nothing so it is hogwash that not spending or giving back money it doesn’t need is putting them at a disadvantage with respect to their competitors.

apple campusIn fact it is building a new headquarters in Cupertino, CA that will cost $5 billion and feature 40-foot panes of curved glass from Germany that will form the exterior. They plan to move in in 2016. It is nothing less than an over the top display of ostentatious wealth and conspicuous consumption.

In the fourth quarter of 2014 Apple made $18 billion in profits, the most money an American corporation has ever made in one quarter.

By comparison Exxon corporation made slightly more than half of that – $9.45 billion; Chevron made $7.25 billion. Campbell Soup Corporation, which has been a fixture in American households for over 100 years, made a paltry in comparison $8.3 billion in total revenues in 2014 and out of that only $800 million in profits for the whole year. That figures out to be a profit margin of 9.6%. Apple’s quarterly profits were 22.5 times bigger than Campbell Soup’s yearly profits. For Apple’s full fiscal year of 2014, profit was $39.5 billion on revenue of $182.8 billion.

Most of this came from the tremendous sales of the iPhone 6. In a conference call with financial analysts, CEO Tim Cook, said that demand for iPhones was “staggering”. For every iPhone Apple sells, it makes a phenomenal 40% in profit. That’s an impressive profit margin. But lowering prices or creating American jobs which would entail accepting a more modest profit margin is not in Apple’s DNA or for that matter in any other red-blooded American corporation’s DNA.

Apple implemented an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean.

Apple goes to elaborate lengths to avoid not only Federal taxes but California state taxes as well. Most of its intellectual work is done in California, but for accounting purposes it has moved much of its financial operations to a subsidiary in Nevada called Braeburn Capital where there is a zero tax rate. With a small number of employees in Reno, Apple has avoided millions of dollars in taxes in California and 20 other states.

California’s tax rate is 8.84% while Nevada’s is zero. By having an office 200 miles east of its Cupertino, California headquarters to collect and invest its profits, Apple avoids millions of dollars in California taxes.

Apple also saves billions by setting up offices in low tax jurisdictions throughout the world such as Ireland and the Netherlands. Apple implemented an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean.

Apple’s creativity and innovativeness in avoiding taxes has been replicated by other corporations which have gone to great lengths to avoid taxes too. They look up to Apple as their teacher in tax avoidance.

If it weren’t for such tactics, Uncle Sam would have collected about $2.5 billion more from Apple last year. This means that average Joes, who do not have the benefits of overseas low tax jurisdictions and an army of accountants and lawyers to help them figure their taxes, have to make up the difference.

Last year Apple paid a tax rate of less than 10% considering taxes paid around the world. By comparison, Wal-Mart last year paid worldwide cash taxes of $5.9 billion on profits of $24.4 billion, a tax rate of 24 percent, which is about average for non-tech companies.

De Anza College is located a mile and a half from Apple’s Cupertino headquarters. It is struggling to keep its head above water:

[De Anza is] a community college that Steve Wozniak, one of Apple’s founders, attended from 1969 to 1974. Because of California’s state budget crisis, De Anza has cut more than a thousand courses and 8 percent of its faculty since 2008.

Now, De Anza faces a budget gap so large that it is confronting a “death spiral,” the school’s president, Brian Murphy, wrote to the faculty in January. Apple, of course, is not responsible for the state’s financial shortfall, which has numerous causes. But the company’s tax policies are seen by officials like Mr. Murphy as symptomatic of why the crisis exists.

“I just don’t understand it,” he said in an interview. “I’ll bet every person at Apple has a connection to De Anza. Their kids swim in our pool. Their cousins take classes here. They drive past it every day, for Pete’s sake.

“But then they do everything they can to pay as few taxes as possible.”

You’d think that Apple would take De Anza under its wing and keep it alive with some of that pile of cash it’s sitting on. But there is an additional complication: most of that $178 billion shitpile is sitting in overseas banks. Having paid little in taxes on it so far, Apple is reluctant to bring it back to the good ole US because by so doing it would have to pay the US corporate rate of 30% minus whatever taxes it has already paid.

With so much money at its disposal, going ahead and paying US taxes on it is merely the right thing to do. Then it could turn around and help out De Anza College.

Every time someone downloads a song from iTunes, Apple avoids paying taxes on the profit from that download. … [T]he server from which iTunes songs are downloaded, [is located] in Luxembourg where they pay no taxes on the profits.

But these guys could care less. It’s a point of pride to pay as little in taxes as possible no matter what hoops it has to jump through in order to do it including even the Double Irish and Dutch Sandwich. It could help out De Anza with a portion of the money it has made by locating Braeburn Capital in Nevada.

If Braeburn were located in Cupertino, where Apple’s top executives work, a portion of the $2.5 billion in interest and dividend income that has been processed by Braeburn would be taxed at California’s 8.84 percent corporate income tax rate instead of Nevada’s zero percent rate.

Braeburn is only one method that Apple uses to avoid taxes. Every time someone downloads a song from iTunes, Apple avoids paying taxes on the profit from that download. Since it costs no more to download the same tune one time or a million times, those profits are pretty high.

stop luxembourgSo the clever people at Apple, who can locate the server from which iTunes songs are downloaded, anywhere in the world, have decided to locate it in Luxembourg where they pay no taxes on the profits.

“We set up in Luxembourg because of the favorable taxes,” said Robert Hatta, who helped oversee Apple’s iTunes retail marketing and sales for European markets. “Downloads are different from tractors or steel because there’s nothing you can touch, so it doesn’t matter if your computer is in France or England. If you’re buying from Luxembourg, it’s a relationship with Luxembourg.”

Consequently, tax payments are denied to Britain, France and other countries as long as everything is routed through Luxembourg.

Apple’s 1984 Superbowl commercial, in which IBM was dramatized as taking over the world, is now more aptly interpreted with Apple in the role of IBM.

About 70% of Apple’s profits are earned abroad while only 30% are earned in the US, and that’s by design in order to escape paying US corporate taxes. But all of the design and the intellectual heavy lifting is done in the US. Former Treasury Department economist, Martin A. Sullivan said that “given that all of the marketing and products are designed here, and the patents were created in California, that [percentage of profits earned in the US] should probably be at least 50 percent.”

“Apple, like many other multinationals, is using perfectly legal methods to keep a significant portion of their profits out of the hands of the I.R.S.,” Mr. Sullivan said. “And when America’s most profitable companies pay less, the general public has to pay more.”

Other tax experts, like Edward D. Kleinbard, former chief of staff of the Congressional Joint Committee on Taxation, have reached similar conclusions. “This tax avoidance strategy used by Apple and other multinationals doesn’t just minimize the companies’ U.S. taxes,” said Mr. Kleinbard, now a professor of tax law at the University of Southern California. “It’s German tax and French tax and tax in the U.K. and elsewhere.”

1984ad-header1Suffice it to say that Apple has not yet found a viable strategy for investing its $178 billion shitpile of cash whether in terms of building new plants, paying more taxes or in doing good deeds in the US or elsewhere in the world. Whether or not its gargantuan profits are considered obscene, I leave to the eyes of the beholder.

One thing is for sure though: Apple’s 1984 Superbowl commercial, in which IBM was dramatized as taking over the world, is now more aptly interpreted with Apple in the role of IBM. In the same quarter in which Apple posted $18 billion in profits, IBM’s total revenue fell nearly 12 percent to $24.11 billion. Revenue from hardware fell 39 percent to $2.41 billion.

IBM’s revenues may have declined for 11 consecutive quarters and its stock price has fallen, but its CEO, Virginia Rometty, is taking home a performance bonus of $3.5 million. Oh how the mighty have fallen!

{ 2 comments… read them below or add one }

Avatar RB February 5, 2015 at 1:49 pm

Apple will continue to invest overseas because of the regulation and taxes imposed in the US. US tax policy, a strong dollar and crazy trade deals (see Clinton NAFTA and Obama proposed deals) will continue to drive jobs out of the country. There is no good reason that the US should be able to collect taxes on goods made and sold overseas. The US will still collect taxes on Apple’s success through income taxes paid on the gains and dividends by individual shareholders.

I love my Apple stock and hope the next President will focus on jobs rather than politics.

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Avatar dd February 5, 2015 at 3:51 pm

keep going, my apple stock keeps going up!

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