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Apple's Cash Repatriation Is a Big Win for Trump

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True that Apple (AAPL - Free Report) hasn’t said how much cash it’s bringing home, but the company has said that it will be paying $38 billion in taxes, or all the tax due on its overseas cash hoard of around $252 billion.

After all, the new tax law doesn’t give it much choice. The law requires companies to pay up their taxes irrespective of whether they are repatriating it or not. But it sweetens things up by lowering the rate from 35% to 15.5% on cash and 8% on less liquid assets. Apple had already provided for over $36 billion in case of this eventuality, so it won’t be a pressure on its financials either.

The new law also taxes income from patents held overseas at 13% and lowers the tax on patent income in the U.S. to 13.1%. Apple followed the practice of transferring some of its U.S. patents to its foreign subsidiaries in low-tax jurisdictions and then attributing substantial royalty income to them to avoid high U.S. taxes on that income. So transferring patents under the new law is no longer beneficial for the company.    

Plus, Apple has been raising a lot of debt, most of which has been returned to investors through share repurchases and dividends. It’s actually advantageous for the company to pay off some or all of this debt and make future payments with cash it generates through the business. 

It isn’t all negative for Apple and others since the new federal corporate tax rate has been lowered to 21% from 35%, so there will be ongoing savings on U.S. taxes.

So what will Apple do with the money? Other than paying its entire workforce a one-time bonus of $2,500 (which of course doesn’t make much of a dent in the cash pile), the company has said it will invest $350 billion in the U.S. over five years, a third of which will be on data centers. It will also build another campus, though we don’t know where yet.

The Advanced Manufacturing Fund that Apple created recently, will also see a cash infusion of $5 billion. Apple estimates that these efforts and its focus on creating software developers for the Apple platform will create 20K new U.S jobs (it doesn’t say how many people it will employ itself).

While other technology companies like Microsoft MSFT, Alphabet GOOGL, Amazon AMZN haven’t said how the law will affect them, we should be seeing them make similar payments. But, Apple being first, has made the splash.

All of these technology companies have a Zacks Rank #3 (Hold). But you can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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