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Comment by cwyers | Hacker News Reader

This is so, so dumb. The cash hoard is going to sit overseas where it has until the tax situation changes. Apple will continue to take over companies that help it control its supply chain, which are mostly companies you haven't heard of, and not do any of these big acquisitions that Wall Street loves to speculate about (a month or so ago it was Disney) but that Apple has never done.

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> Until the tax situation changes

Do you mean in the country the cash is sitting in?

Because in the article it says:

> With over 90 percent of its cash sitting overseas, a one-time 10 percent repatriation tax would give Apple $220 billion for acquisitions or buybacks, Citigroup analyst Jim Suva said in a note to clients.

> U.S. President Donald Trump's tax blueprint, which was unveiled last month, proposes allowing multinationals to bring in overseas profits at a tax rate of 10 percent versus 35 percent now.

The US. Until the tax holiday is law it's a "what if."

> Apple will continue to take over companies that help it control its supply change, which are mostly companies you haven't heard of

This. Was surprised to not see any hardware manufacturers on this list.

But many of those companies face limitations on forgien ownership (china). I also think apple enjoys not having low-paid workers directly on its payroll.

Most of the parts are not made in China. That's where assembly is, but very little of the value added content of an iPhone is from China (<5%).

assembly will probably go robotic.. at least if I was Apple that's what I would do.

Buying a company might help them double or quadruple their services revenue as they have stated that's a goal. I would love it if they bought Twitter and made it a public service. I know there could be some synergies (sic) there as the engineers could certainly help bolster the stability of Apples cloud offerings in terms of uptime and such.

To me, Twitter goes against anything stands for. Twitter is like the wild wild west. I really can't imagine how they would fit in with Apples very polished M.O.

I agree. As soon as Apple bought Twitter people would want to hold Apple liable for some of the more unsavory things that happen on there. Apple will want to nip those complains in the bud quickly, else risk their brand reputation. Quick changes to appease the loud minority would likely overreach, frustrate the majority, and most of the user base just move on to some other service and think less of Apple at the same time. All while they'll be making no money off of it. It's a no win proposition for them.

Recent deal aside, I've long thought that Bloomberg would be a good place for Twitter - they already fund their excellent news services on the back of their financial services products. Twitter would fit well into that and also matches their "real time" approach.

I keep hearing this argument that companies won't repatriate offshore cash until they can do so at an arbitrarily low tax rate. What I don't understand is why they wouldn't continue to do what they have been doing:

- borrow in the US, potentially by issuing low-rate bonds - use the cash to fund dividends or acquisitions - OR using stock to fund acquisitions

It seems this gameplan would hold up until effective interest rates on blue-chip corporate debt are higher than the proposed repatriation tax. Apple offered 3.25% on its most recent bond issue, so it would seem that a 10% tax on repatriation would not be attractive.

What am I missing?

There's no magic trick I know to borrow indefinitely at a low accumulated interest rate. If they borrow money with the overseas cash as collateral, how do they repay it? If they do it by borrowing more money, they need to cover the initial debt + the interest. That way the interest cumulates, and eventually the accumulated interest rate dwarfs the original interest rate as well as the tax rate on overseas cash repatriation.

Let me also ask: what am I missing?

> how do they repay it?

Out of cash flow in the US. The companies in question have no problem generating cash in all their markets.

> the accumulated interest rate dwarfs the original interest rate as well as the tax rate on overseas cash repatriation

See a post down thread about this, but I'm assuming the offshore cash is held in e.g. Treasuries earning ~2%+/-, or roughly 100 basis points below where they can issue debt.

This math also neglects the fact that the interest on the debt reduces US tax liability, plus any sweeteners other jurisdictions may offer for keeping piles of cash stored there. Depending on where the cash is stored, it also may be subject to lower tax rates on earned interest than it would be in the US after repatriation.

3.25% is the annual interest rate, it compounds and will cost considerably more than a one-time 10% tax would.

Thank you. I was confused.

But surely much of that overseas cash is invested and earning enough that 3.25% interest is erased or at least mostly offset?

Doesn't the word "cash" imply that the money is not invested? If they bought factories or something else productive, we'd usually refer to that as "capital".

IIRC the term is typically "cash and equivalents." [1] There is definitely not the expectation that Apple has $200B+ sitting in checking accounts unable to earn any interest.

Treasuries and certain other government securities count as "cash" in most cases.

Edit: Apple reports most of the amount bandied about as their "cash" as being in "long-term marketable securities." [2]. So it's a mix that is definitely not designed to all be instantly convertible to USD with no penalty. I'd guess most other large companies manage their cash similarly.

1 - https://en.wikipedia.org/wiki/Cash_and_cash_equivalents#Comp...

2 - https://www.apple.com/newsroom/pdfs/Q2FY17ConsolidatedFinanc...

The interest is tax-deductible in the US, which further reduces their US tax liability.

Also, as ryonwaggoner points out, they are free to buy e.g. Treasuries with the offshore cash so that the effective interest rate closer to 1% (before the effect of the reduction in tax liability).

You're missing nothing.

Saying "waiting for a lower tax rate" is just a nice way of saying "never". There is no good reason a corporation would bring offshore cash back unless they absolutely have to. The whole point of putting it there in the first place is to isolate it.

Unless something changes dramatically that makes the current practice really unfavourable to them, there should be no expectation that corporations are actively looking to use this money and are simply waiting for the "best time".

If the government really cared, wouldn't/couldn't they just force banks to forbid transactions with known tax havens?

This isn't about tax havens, it's about the fact that US law levies taxes on corporate income earned anywhere in the world.

So iPhones sold in Sweden or France (not tax havens) generate tax liability in the US. This tax is only due when the profits of those sales are brought back to the US. Companies like Apple therefore have an incentive to keep overseas profits generated outside the US.

Apple could issue more bonds and use that cash domestically for buyouts if they wanted.

Their last bond sale was just 8 billion. They can do whatever they want.

You're right, they can do whatever they want. And they have been able to do so for several years now. So the best predictor of what they will do is look at what they have done and figure out what they want.

Here's Apple's acquisitions:

https://en.wikipedia.org/wiki/List_of_mergers_and_acquisitio...

They have never done the sort of acquisition that Citi is positing here. Why is that? The most straightforward explanation is that they don't want to. And yet financial "analysts" constantly make up these Apple merger rumors... Netflix, Twitter, Tesla, Disney, Blackberry, TimeWarner, Yelp, Tidal, those are just once I came up with looking at a Bing search for "apple merger rumors." They never happen. Yet people still keep responding to them like they're not total bullshit.

People have to come to that realization on their own.

There's a new sucker born every minute, and the way you target those suckers has to adapt to regulations.

The way I realized it was when I went through ten year old yahoo finance message boards, and compared consensus arguments on stocks with what happened in those stocks. It was 100% uncorrelated.

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