Apple Raises $7 Billion in Debt Ahead of Trump’s Proposed Tax Holiday

Apple has raised $7 billion in debt in a six-part bond sale, according the company's final pricing term sheet filed with the Securities and Exchange Commission today. The fixed and floating notes mature between 2020 and 2027.

Apple said it entered 2017 with $256.8 billion in cash and marketable securities, but approximately 93 percent of that amount is held outside of the United States. Those foreign reserves would be subject to up to a 35 percent corporate tax rate if repatriated, so Apple turns to the debt markets to raise money at a cheaper cost.

Apple will use the $7 billion raised to continue funding dividend payments and share buybacks. Apple expanded its share repurchase authorization by an additional $50 billion this week, and the company says it expects to spend a total $300 billion in cash under its capital return program through March 2019.

Apple also typically puts the money towards operational expenses, repayment of earlier debt, and acquisitions of other companies.

Apple may not have to raise as much through debt markets in the future, as U.S. President Donald Trump has expressed his desire for a tax holiday that would allow domestic companies to repatriate foreign cash at a discounted tax rate. Reports have suggested the rate could be as low as 10 percent.

Interestingly, unlike many of Apple's recent bond offerings, today's sale does not include any notes with 30-year maturities. Some analysts believe Apple may be avoiding long-term bonds given the possibility of a tax holiday.

Peter Tchir of Brean Capital in a note to clients obtained by Barron's:
This is the 7th time Apple has come to market with a big slate of bonds. They started in 2013 with no debt and should be at about $100 billion by the end of today. In each of those prior deals they issued 30 year bonds - but not this time. Is it uncertainty over taxes? Talk about an ultra-bond on treasury side? Repatriation? Maybe it means nothing, but I think it is at least mildly curious that they aren't doing a new long bond here.
Apple's financial chief Luca Maestri this week acknowledged "there is a lot that still needs to happen there," in regards to the Trump administration's tax plans. "The program we're announcing today reflects the current tax legislation in this country," he said. "Obviously we will reassess our situation if things change."

The debt raised may also fund Apple's $1 billion advanced manufacturing fund announced by CEO Tim Cook earlier this week.

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Apple: European Commission Made ‘Fundamental Errors’ in Irish Tax Ruling

Apple has claimed that the European Commission made "fundamental errors" when it ruled last year that the company owed Ireland 13 billion euros ($13.7 billion) in unpaid taxes plus interest.

Apple appealed the commission's decision in December, but on Monday the company published a piece in the Official Journal of the European Union detailing 14 pleas in law to support its action, according to The Irish Times.

The European Commission argues that Irish revenue commissioners gave Apple unfair advantage between 1991 and 2007 by allowing the company to move income from the European market through two "non-resident" head office subsidiaries based in Ireland.

Apple and the Irish government, which has also appealed the commission's decision, argue that the bulk of those profits are due in the U.S.
"The Commission made fundamental errors by failing to recognize that the applicants' profit-driving activities, in particular the development and commercialization of the intellectual property (Apple IP), were controlled and managed in the United States," Apple said, according to the Official Journal. "The profits from those activities are attributable to the United States, not Ireland."

Apple maintained that the commission had "failed to recognize that the Irish branches carried out only routine functions and were not involved in the development and commercialization of Apple IP, which drove profits".

Cupertino also said that the commission failed to conduct a diligent and impartial investigation, and "exceeded its competence" as it relates to the Treaty on the Functioning of the European Union, by "attempting to redesign Ireland's corporate tax system".

Apple CEO Tim Cook has called the EC's ruling "total political crap" and described the lower end 0.005% tax rate as a "false number." Ultimately, the Apple CEO believes that the decision will be reversed.

Appeals by Apple and the Irish government have been made to the European Union's General Court, where proceedings may take up to two years to complete, after which the case is likely to go all the way to the European Court of Justice.

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Apple Set to Appeal EU Tax Ruling This Week

EU-apple-taxApple is set to appeal this week against the European Commission's ruling that it must pay up to 13 billion euros ($13.8 billion) to Ireland in back taxes (via Reuters).

EU regulators concluded in August that Apple had received undue tax benefits from Ireland – where the company's European headquarters are located – which allowed it to pay substantially less than other companies.

Apple CEO Tim Cook vowed to appeal the ruling at the time, calling the back tax calculation a "false number" and the EU's judgement "total political crap". The Irish government also rejected the conclusion and said it would fight to reverse it.

On Monday, Apple's General Counsel Bruce Sewell told Reuters that the company's imminent legal challenge will be based on its belief that EU regulators willfully ignored tax experts to come to its conclusions.
"The Irish put in an expert opinion from an incredibly well-respected Irish tax lawyer. The Commission not only didn't attack that - didn't argue with it, as far as we know - they probably didn't even read it. Because there is no reference (in the EU decision) whatsoever."
Sewell also said Apple intends to challenge the EU's basis for its penalty judgement, and will argue that a "crazy notion of non-residency" was chosen on purpose to produce a punitive amount, when other legitimate tax law arguments could have been used that would "produce much lower numbers". As to why the EU had gone down its chosen route, Sewell said he believed regulators had singled out the company because of its success.
"Apple is not an outlier in any sense that matters to the law. Apple is a convenient target because it generates lots of headlines. It allows the commissioner to become Dane of the year for 2016," he said, referring to the title accorded by Danish newspaper Berlingske last month.
Ireland also issued a statement on Monday, saying that the EU commission had "misunderstood the relevant facts and Irish law".
"Ireland did not give favourable tax treatment to Apple - the full amount of tax was paid in this case and no state aid was provided," it said. "Ireland does not do deals with taxpayers."
In addition, Apple says it plans to tell the court that the Commission erred when it ruled that Ireland-based Apple Sales International (ASI) and Apple Operations Europe existed only on paper, with no justification for the billions of euros it posted in untaxed profits. Sewell said that just because a holding company has no employees on its books doesn't mean it is inactive, since it could be actively managed by employees of its parent company:
"When Tim Cook, who is the CEO of our company, makes decisions that impact ASI, the Commission says we don't care because he is not an ASI employee, he is an Apple Inc employee. But to say that somehow Tim Cook can't make decisions for ASI is a complete mis-statement of corporate law, it's a misunderstanding of how corporations operate."
The strongly worded statements from Apple and the Irish government form a two-pronged attack on the European Commission as it readies a more detailed version of its ruling for publication in relation to the coming court case.

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