Apple's tax dodge

It's no secret that Apple has an impressive $144 billion in cash. But more than $100 billion of that is overseas.

Instead of using its own cash hoard to reward shareholders, Apple plans to go into debt for the first time ever.

Apple CEO Tim Cook said late Tuesday that the company will double the amount it returns to shareholders through share buybacks and dividends by 2015, but will "access the debt market" to pay for it.

Borrowing money seems odd for a company like Apple (AAPL), which has $144 billion in cash. But more than $100 billion of that is overseas. If Apple were to try to bring that cash back to the United States, it could be taxed at the top corporate tax rate of 35%.

And that doesn't sit well with Apple.

"We are continuing to generate significant cash offshore and repatriating this cash would result in significant tax consequences under current U.S. tax law," said Apple finance chief Peter Oppenheimer during an analyst call Tuesday.

Related: Apple's profit problem

Oppenheimer has been very vocal about wanting the current tax laws changed. Just last month, he said those laws "provide a considerable economic disincentive" for U.S. companies that might otherwise consider bringing back substantial amounts of cash.

But Apple also recognized the need to respond to growing calls from its investors (including David Einhorn), who want to see more shareholder reward programs. Many have been disgruntled by the company's cash hoard and the fact that Apple's stock has tumbled more than 40% from its all-time high last September.

"We remain firmly committed to our objective of delivering attractive returns to shareholders through both our business performance and return of capital," said Cook during Tuesday's conference call.

Related: Pressure builds on Apple to make a move

Apple's decision to tap the debt market comes at a time when borrowing is cheap. The Federal Reserve is holding interest rates near record lows and the average yield on investment grade U.S. corporate debt is around 2.6%, according to RBS credit strategist Edward Marrinan, who said companies with a AA-rating like Apple's can borrow at a rate of less than 2%.

Apple is not the first company to voice concern about the repatriation tax. Fellow tech giants Google (GOOG), Microsoft (MSFT) and Cisco (CSCO) were all part of a lobbying effort in Washington last year to push lawmakers to at least temporarily lower the repatriation tax rate to about 5% from 35%, as they had previously done under the 2004 tax holiday.

Posted in: Apple, bonds, Cisco, debt, dividend, einhorn, Google, interest rates, investors, Microsoft, share buyback, stock buyback, tax, yields

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