Apple, Returning Overseas Cash, to Pay $38 Billion Tax Bill

Apple Inc. said it will bring hundreds of billions of overseas dollars back to the U.S., pay about $38 billion in taxes on the money and spend tens of billions on domestic jobs, manufacturing and data centers in the coming years.

The iPhone maker plans capital expenditures of $30 billion in the U.S. over five years and will create 20,000 new jobs at existing sites and a new campus it intends to open. The Cupertino, California-based company’s shares rose 1.7 percent to a record closing price of $179.10.

“We are focusing our investments in areas where we can have a direct impact on job creation and job preparedness,” Chief Executive Officer Tim Cook said in a statement Wednesday, which also alluded to unspecified plans by the company to accelerate education programs.

Apple also told employees Wednesday that it’s issuing stock-based bonuses worth $2,500 each following the new U.S. tax law, according to people familiar with the matter.

In its December approval of the most extensive tax-code revisions since 1986, Congress scrapped the previous international tax system for corporations -- an unusual arrangement that allowed companies to defer U.S. income taxes on foreign earnings until they returned the income to the U.S. That “deferral” provision led companies to stockpile an estimated $3.1 trillion offshore and many were criticized for the moves, including Apple.

By switching to a new system that’s designed to focus on domestic economic activity, congressional tax writers also imposed a two-tiered levy on that accumulated foreign income: Cash will be taxed at 15.5 percent, less liquid assets at 8 percent. Companies can pay over eight years.

New Jobs

Apple is the first major U.S. technology company to act on the new tax law and it joins others, such as Intel Corp., in responding to criticism by President Donald Trump and others that corporations have been ignoring American workers and manufacturing. Job creation was a key pillar of Trump’s election campaign. That means the new positions created by Apple are likely to have a more significant political impact than its $38 billion tax payment, according to Erik Gordon, a professor at the University of Michigan’s Ross School of Business.

“The thrust here is American jobs, jobs on American soil, build manufacturing here, don’t build everything in China,” Gordon said. “You can’t have an announcement of a million jobs. But you can have companies like Apple saying that we’re going to have 20,000 new jobs here. If other companies say they’re going to have new jobs too, it does add up.”

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Later Wednesday, Trump tweeted a response lauding Apple’s announcement. “I promised that my policies would allow companies like Apple to bring massive amounts of money back to the United States,” he wrote. “Great to see Apple follow through as a result of TAX CUTS. Huge win for American workers and the USA!”

Apple has the largest offshore cash reserves of any U.S. company, with about $252 billion at the end of September, the most recently reported fiscal quarter. The tax rate indicates that Apple is likely bringing back a majority of its overseas cash back to the U.S., leaving only a small portion for international investments like retail stores.

“They’re going to have well over $200 billion by the end of this year that will be available for incremental investments, capital returns and M&A,” said Matthew Kanterman, a New York-based Bloomberg Intelligence analyst. The new tax law lets U.S. companies bring overseas cash reserves back home in one year and pay the resulting tax bill over eight years. “And Apple hasn’t historically done big M&A,” he said.

Five-Year Spending Plan

The $30 billion in capital expenditures will come as part of $350 billion that Apple expects to spend in the U.S. over the next five years. The 20,000 new jobs include additional Apple employees at its campuses, data centers, and retail stores, but not third-party developers for iPhone and Mac apps, an economy Apple has touted in the past.

Apple said that part of the $30 billion in capital expenditures will go toward a new U.S.-based campus, new data centers and additional supplier investments. The company, which opened a new headquarters in Cupertino last year, said its new U.S. site initially will be focused on employees who provide technical support to Apple product users. The new location, which Apple said it will announce later this year, will be similar to the company’s existing campus in Austin, Texas, for supply-chain and technical-support employees.

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Apple said it will increase its local manufacturing fund, announced last year, from $1 billion to $5 billion, indicating that it will be sourcing more components for its products domestically. As part of the original fund, Apple invested in Corning Inc. and Finisar Corp., companies that make components for iPhone glass screens and lasers for Face ID and AirPods, respectively.

“These are probably many capital expenditure initiatives and new site build-outs that Apple was already planning on doing regardless of repatriation,” said Michael Olson, an analyst at Piper Jaffray, who has the equivalent of a buy rating on the stock.

“What’s not said in this release is that there is more potential for increased buybacks for shareholders and acquisitions that might not have taken place if it were not for the cash influx from overseas,” Olson said. Apple typically provides updates on its share buyback program when it announces second quarter earnings.

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