The strategy that both companies used “now looks prescient,” said Robert Willens, a tax and accounting expert in New York. “These companies, unlike most other multinationals, will see substantial benefits from the enactment of a deemed repatriation tax rule.”
Apple Chief Executive Officer Tim Cook said during an exclusive interview with Bloomberg Television last week that he supports the deemed-repatriation approach, and he thinks the resulting tax revenue should be spent on upgrading U.S. infrastructure.
In their public filings, companies often disclose the amount of a deferred tax liability, but not the amount of earnings to which it applies. To estimate different companies’ positions, Bloomberg News assumed that their tax liabilities anticipated a 25 percent tax rate -- that’s the current 35 percent statutory rate, reduced by credits companies can claim on foreign taxes they’ve paid. Willens, Selling and John Robinson, an accounting professor at Texas A&M University, endorsed that approach.
Apple had $109.8 billion of “permanently reinvested” offshore earnings at the end of its 2016 fiscal year. The company also booked a gross deferred tax liability of $31.4 billion -- almost all of it attached to a separate pot of untaxed foreign income, according to regulatory filings.
Company Permanently Reinvested Foreign Earnings Microsoft $124 billion Apple $109.8 billion Pfizer $86 billion General Electric $82 billion IBM $71.4 billion
At a 25 percent rate, Apple’s DTL would cover earnings worth $125.6 billion. Combining that total with the company’s permanently reinvested earnings yields a total estimate of $235.4 billion that would be subject to a deemed repatriation tax.
Applying a 10 percent tax rate to that amount leads to a tax bill of $23.5 billion -- about $7.9 billion less than the deferred tax liability on Apple’s books. For accountants, that amount would morph into a so-called “negative tax expense” and shift from the company’s balance sheet to its income statement, according to Edward Maydew, a tax and accounting professor at the University of North Carolina at Chapel Hill. Functionally, it’s a one-time addition to the company’s after-tax income.
In response to a request for comment, Josh Rosenstock, a spokesman for Apple, said: “We don’t have anything to add.”
‘Something for Nothing’
Pfizer disclosed having $86 billion in permanently reinvested earnings at the end of its 2016 fiscal year, along with a $23.1 billion gross deferred tax liability for a separate chunk of unrepatriated foreign earnings.
Applying a 25 percent rate to that tax liability yields estimated earnings of $92.4 billion. Combined with the permanently reinvested income, the company’s total estimated offshore earnings would reach $178.4 billion -- and a 10 percent repatriation tax on that amount would be about $17.8 billion.