Apple Inc. (AAPL) Raises Debt to Avoid Repatriation Tax

Apple Inc. (NASDAQ:AAPL) this week sold bonds worth $6.5 billion to raise cash. The move comes just a few days after the company reported record-breaking quarterly profit of more than $18 billion. That begs the question, why raise debt when Apple has about $178 billion in cash stockpile?

Avoiding hefty taxes

Apple Inc. (NASDAQ:AAPL) took debt so it could avoid paying hefty taxes on its cash held abroad. Most of Apple’s $178 billion cash pile is held in offshore accounts and bringing such money home would attract about 35% corporate taxes. That would wipe out billions of dollars from the company’s cash hoard.

Opportunity to raise debt cheaply

Given the low-interest rate environment in the U.S., it is cheaper for Apple Inc. (NASDAQ:AAPL) to take a debt to meet its current cash needs than repatriating its cash in offshore accounts.

The $6.5 billion debt that Apple raised is expected to help the company fund various projects such as shares repurchases and payment of dividends. The company will also use the debt to settle some other outstanding debts. Apple could keep raising debts to meet its U.S. cash needs as long as the company is worried about the hefty corporate taxes at home.

Tax holiday proposal

A tax holiday for the repatriated cash could be a good way to encourage Apple Inc. (NASDAQ:AAPL) and other U.S. multinational companies to bring home the profits they earned abroad. Some lawmakers in Washington have been trying lower corporate tax on repatriated cash to 6.5% from as much as 35%. Such are efforts to encourage Apple and its peers to bring their money in the offshore accounts into the U.S.

However, the bill to lower cash repatriation cash tax has not yet been introduced. Still, other lawmakers have already expressed skepticism over such a move.

Whether the government decides to lower cash repatriation taxes or not, Apple Inc. (NASDAQ:AAPL) has found a way to raise cheap debt to fund its operations in the U.S., allowing it protect its cash hoard abroad.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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