Who the hell is buying billions in long-term low-yield debt instruments?
I'm no financial whiz, so can someone tell me why that sounds like a good idea?
I see the true moral of the story being that the government should not be giving money to companies, especially at super low interest rates. At two something percent, their interest rate is less than inflation, so it's essentially free money.
This is their problem and it's something they need to handle themselves, but that's hard to do when Apple is buying our politicians like packs of cigarettes.
Who the hell is buying billions in long-term low-yield debt instruments?
I'm no financial whiz, so can someone tell me why that sounds like a good idea?
The answer has a lot to do with the frenzied state of the bond markets. Companies are issuing hundreds of billions of dollars in debt to exploit historically low interest rates. They are also feeding strong investor demand for high-quality corporate bonds as an alternative to money market funds and Treasury bills, which are paying virtually nothing.
Because they don't pay taxes on debt. They do pay taxes on profit.
If I had $100 Million offshore, if I take $10 Million of it into the USA, it is $10 Million profit. If I borrow $10 Million - using the $100 Million as the surety, I pay no tax. Thus, if the interest I am paying on the debt is lower than the taxes I would pay on the income, I come out way ahead. The interest Apple is paying ranges from less than 1% to about 3%. The average is 2.4%
The tax rate on corporate income is 26% and 25% for dividends.
Do the math. That is an approximate 23% savings. On 17 Billion dollars, that avoids $3.9 BILLION in taxes.
A tad over-simplified, but that's the idea of it.
Do you understand it now? Apple claimed nearly all it's income was from it's offshore companies in tax havens. Due to crashing stock values, they have to get money to stockholders. They do not want to pay taxes on the income. So they borrow the money super cheap, call it a debt, and pay off stockholders that way. "Debt" isn't "income" so they pay no taxes. That is the new way corporations get their offshore money into the USA tax free. They take out loans against the offshore money. This interest is 1/8th to 1/10th what the taxes would be.
Apple is debt free and has $145 BILLION in cash. $103 BILLION of it is in offshore accounts.
Stockholders were increasingly becoming frustrated at lack of dividends reflecting that profit and stock was falling fast - from $700 a share to $400 a share...
SO... Apple came up with a great idea. It would borrow super cheap government bond money - $17 Billion - and give that to the stockholders - thus avoiding any income taxes whatsoever.
Clever, huh? But damn that 60 year old Mom & Pop hardware store owner making $300,000 a year pre-tax not willing to pay 39% of it just in federal taxes.
"
company has to execute. This is no substitute for that.”
By raising cheap debt for the shareholder payout, Apple also avoids a potentially big tax hit. About two-thirds of Apple’s cash — about $102 billion — sits overseas in lower-tax jurisdictions. If it returned some of that cash to the United States to reward its investors, it could have significant tax consequences for the company. In some ways, the bond issue is a response to that tax situation.
“They have been so successful with their tax planning that they’ve created a new problem,” said Martin A. Sullivan, chief economist at Tax Analysts, a publisher of tax information. “They’ve got so much money offshore.”
The $17 billion debt sale by Apple is the largest corporate issuance on record, surpassing a $16.5 billion deal from the drug maker Roche Holding in 2009, according to Dealogic.
Apple joins a parade of large companies issuing debt with astonishingly low yields. Last week, Nike sold bonds that mature in 10 years that yielded only 2.27 percent. In November, Microsoft set the record for the lowest yield on a five-year bond, issuing the debt at 0.99 percent. In comparison, the yield on the 10-year Treasury on Tuesday was 1.67 percent, while the five-year note yielded 0.68 percent.
“If you look at these big companies like Apple and Microsoft doing these big, low-cost bond offerings, it’s a way for them to raise money in an effort to create better returns for their shareholders,” said Steven Miller, a credit analyst with Standard & Poor’s Capital IQ. “The bond markets are practically begging these corporations to issue debt because of how cheap it is to raise money.”
On Tuesday, Apple issued six different securities, with maturities ranging from a three-year note yielding 0.45 percent to a 30-year bond that yields 3.85 percent. The largest piece, a $5.5 billion issue, is a 10-year yielding 2.4 percent. While good for the company, longer-term bonds with yields this low can fall steeply in price if interest rates go up, hurting investors who hold them. Still, $3 billion of the Apple debt are notes whose interest rates are periodically reset."
FULL STORY HERE:
http://dealbook.nytimes.com/2013/04/30/apple-raises-17-billion-in-record-debt-sale/?hpw
It has all to do with US corporate tax law and more importantly international tax law and tax havens. As long as countries allow tax havens to exist, then we will have this problem. Even if the US corporate tax law is changed and companies would have to pay less in difference between US tax rate and that of the country where the money is coming from.. it wont change anything since the companies will still stay registered in the tax haven and still pay nothing in tax to the US (or UK or France or Germany and so on).
For example.. lets say the US corporate tax rate is lowered to say 15%. That would mean Apple if it wanted to get the money back to the US it has overseas, would have to pay 2%- 15%.. aka 13% in taxes of the money stored in Ireland. I think Apple would rather let it rot in Ireland than pay that. Rather take out massive loans to pay dividends, since those loans can be moved across borders and hence paid back outside the US..
Then the right would say.. lower the tax rate even more!.. Only way you would get close to having that money back in the US, would be to lower it to the lowest rate out there in tax haven land.. and that is from 0% to 2% when it comes to Apple. Which means the US taxpayer would get nothing at all, while loosing out massive amount of tax revenue because of the massively lowered tax rate.
So basically you are going to have to give corporations a total tax break to get Apple to take its 120 billion back home, so it can give it to its shareholders.. not like it is going to invest that money LOL!
So one has to ask.. is that what you want?
Basically countries need to hit down hard on tax havens, who are causing most of the problems. Allowing Ireland, Gibraltar, the Channel Islands, Dutch Antillies and so on, to be tax havens for the biggest companies on the planet.. not only gives these companies a massive advantage over companies that are not big enough to take advantage of these havens, but also screws over the tax payer big time.
That's the fundamental flaw in logic: We don't have a right to their money.
If they earned it, it's theirs.
Our taxes are exponentially higher than they need to be to run a proper government.
Simply closing the loophole doesn't fix the fundamental problem in the first place.
Besides, Apple could just as easily become an Irish company that sells things to the US.
Disagree... there is no flaw in the logic. All people and companies have to pay taxes as mandated by the law. That is how modern society works and saying that we as a society dont have a right to "their" money is utter bull****.. yes we as a society do.. we all have agreed on taxes and a burden sharing. Without that, we would have no society and no country. The question is how much of "their" money that society is expected to have access too.. that is the real question and can change over time.
Yes, minus the taxes they are suppose to pay... the amount of % that everyone else pays of course. Which is not what actually happens.. hence the problem.
No they are not. The US has a massive deficit going on and always has. Yes it is spending too much, but it is also not collecting anywhere near what it should. They are in fact too low and full of loopholes that allow the wealthy to get away with not paying their share of the burden. Your tax system is in fact favourable to big business over small and medium business and that is a massive problem. You are stifling innovation and growth by allowing big corporations to get away with paying next to no taxes vs their smaller competition who can not avoid paying the full burden. For example, a small chain of local dinners pays the full burden of US corporate tax law, where as McDonalds and Burger King do not.. because McD can hire expensive lawyers and tax consultants to move around their sales to avoid paying taxes.
Getting rid of off shore tax havens would fix a large part of the problem, not all problems, but a large part. Fixing that loophole would also mean that you could lower the tax rate for all.
Err that is what it already does.. Apple is not an American company and has not been for decades. They might be officially registered in the US but its main taxable parts are registered in tax havens overseas and even locally in the US and all sales are funnelled through those areas regardless of where they happen. Even in the US, Apple funnels most of its sales through a P.O.Box in Nevada (or is it California) to avoid most US taxes (local, state and federal). In Europe, all Apple sales are sales officially done in Ireland despite 99% of sales being outside of Ireland. Same for Amazon who's official sales are in Luxembourg despite me buying it in Spain and it being shipped from France or Germany. The problem is the ability to move sales and money from one country (or region) to another and hence move the tax burden.
And that leads us back the fundamental problem with the tax code in most countries and off shore havens.. the ability of the wealthy and big corporations to move and hide their wealth and hence avoid paying their true share of the tax burden is the fundamental problem of todays society.
What should be done, is that the point of sale is the taxable country. So if Apple sells an iPhone in New York, or Athens or Berlin, then the taxes on the profit on that sale must be taken in said country... not in Ireland, or Barbados or X off shore tax haven. That small change would kill off most tax havens for big business in an instant. Then the only problem would be the wealthy who are registered in one country for taxes and actually live in another with high taxes... /wave Gibraltar.
This is a very serious problem and more and more people, both regular joes and politicians are waking up and realizing the total warped tax code we have on this planet that favour the few over the many.. in a massive way.
Apple is debt free and has $145 BILLION in cash. $103 BILLION of it is in offshore accounts.
Stockholders were increasingly becoming frustrated at lack of dividends reflecting that profit and stock was falling fast - from $700 a share to $400 a share...
SO... Apple came up with a great idea. It would borrow super cheap government bond money - $17 Billion - and give that to the stockholders - thus avoiding any income taxes whatsoever.
Clever, huh? But damn that 60 year old Mom & Pop hardware store owner making $300,000 a year pre-tax not willing to pay 39% of it just in federal taxes.
"
company has to execute. This is no substitute for that.”
By raising cheap debt for the shareholder payout, Apple also avoids a potentially big tax hit. About two-thirds of Apple’s cash — about $102 billion — sits overseas in lower-tax jurisdictions. If it returned some of that cash to the United States to reward its investors, it could have significant tax consequences for the company. In some ways, the bond issue is a response to that tax situation.
“They have been so successful with their tax planning that they’ve created a new problem,” said Martin A. Sullivan, chief economist at Tax Analysts, a publisher of tax information. “They’ve got so much money offshore.”
The $17 billion debt sale by Apple is the largest corporate issuance on record, surpassing a $16.5 billion deal from the drug maker Roche Holding in 2009, according to Dealogic.
Apple joins a parade of large companies issuing debt with astonishingly low yields. Last week, Nike sold bonds that mature in 10 years that yielded only 2.27 percent. In November, Microsoft set the record for the lowest yield on a five-year bond, issuing the debt at 0.99 percent. In comparison, the yield on the 10-year Treasury on Tuesday was 1.67 percent, while the five-year note yielded 0.68 percent.
“If you look at these big companies like Apple and Microsoft doing these big, low-cost bond offerings, it’s a way for them to raise money in an effort to create better returns for their shareholders,” said Steven Miller, a credit analyst with Standard & Poor’s Capital IQ. “The bond markets are practically begging these corporations to issue debt because of how cheap it is to raise money.”
On Tuesday, Apple issued six different securities, with maturities ranging from a three-year note yielding 0.45 percent to a 30-year bond that yields 3.85 percent. The largest piece, a $5.5 billion issue, is a 10-year yielding 2.4 percent. While good for the company, longer-term bonds with yields this low can fall steeply in price if interest rates go up, hurting investors who hold them. Still, $3 billion of the Apple debt are notes whose interest rates are periodically reset."
FULL STORY HERE:
http://dealbook.nytimes.com/2013/04/30/apple-raises-17-billion-in-record-debt-sale/?hpw
They aren't tax evaders. They are tax avoiders. There's a significant difference. We should not be blaming companies for taking advantage of the laws as they are written. We should be blaming the people who write the laws.
Apple is debt free and has $145 BILLION in cash. $103 BILLION of it is in offshore accounts.
Stockholders were increasingly becoming frustrated at lack of dividends reflecting that profit and stock was falling fast - from $700 a share to $400 a share...
SO... Apple came up with a great idea. It would borrow super cheap government bond money - $17 Billion - and give that to the stockholders - thus avoiding any income taxes whatsoever.
Clever, huh? But damn that 60 year old Mom & Pop hardware store owner making $300,000 a year pre-tax not willing to pay 39% of it just in federal taxes.
"
company has to execute. This is no substitute for that.”
By raising cheap debt for the shareholder payout, Apple also avoids a potentially big tax hit. About two-thirds of Apple’s cash — about $102 billion — sits overseas in lower-tax jurisdictions. If it returned some of that cash to the United States to reward its investors, it could have significant tax consequences for the company. In some ways, the bond issue is a response to that tax situation.
“They have been so successful with their tax planning that they’ve created a new problem,” said Martin A. Sullivan, chief economist at Tax Analysts, a publisher of tax information. “They’ve got so much money offshore.”
The $17 billion debt sale by Apple is the largest corporate issuance on record, surpassing a $16.5 billion deal from the drug maker Roche Holding in 2009, according to Dealogic.
Apple joins a parade of large companies issuing debt with astonishingly low yields. Last week, Nike sold bonds that mature in 10 years that yielded only 2.27 percent. In November, Microsoft set the record for the lowest yield on a five-year bond, issuing the debt at 0.99 percent. In comparison, the yield on the 10-year Treasury on Tuesday was 1.67 percent, while the five-year note yielded 0.68 percent.
“If you look at these big companies like Apple and Microsoft doing these big, low-cost bond offerings, it’s a way for them to raise money in an effort to create better returns for their shareholders,” said Steven Miller, a credit analyst with Standard & Poor’s Capital IQ. “The bond markets are practically begging these corporations to issue debt because of how cheap it is to raise money.”
On Tuesday, Apple issued six different securities, with maturities ranging from a three-year note yielding 0.45 percent to a 30-year bond that yields 3.85 percent. The largest piece, a $5.5 billion issue, is a 10-year yielding 2.4 percent. While good for the company, longer-term bonds with yields this low can fall steeply in price if interest rates go up, hurting investors who hold them. Still, $3 billion of the Apple debt are notes whose interest rates are periodically reset."
FULL STORY HERE:
http://dealbook.nytimes.com/2013/04/30/apple-raises-17-billion-in-record-debt-sale/?hpw
Proportionally speaking, Europe isn't in any better shape debt wise than America is
, and they have frighteningly high taxes, especially on the middle class and poor.
Hell, if you're the working poor here in Germany, you'll still be taxed around 25% just on income.
That doesn't include the 100% gas tax, the property taxes, and the millions of other taxes.
A typical middle class worker in Germany has an overall tax burden close to 60-70%.
It's not about income, it's about expenditures. As you mentioned, the US is spending far more than it takes in. We need to reduce spending, because as Europe shows, no amount of tax will cover politicians' desires.
I could get on board with your suggestion about tax at point of sale. That would simplify the tax code a good deal.
I would want it to come with a decrease in taxes though from the top rate.
No reason for companies to pay 30-40%.
I see the true moral of the story being that the government should not be giving money to companies, especially at super low interest rates. At two something percent, their interest rate is less than inflation, so it's essentially free money.
This is their problem and it's something they need to handle themselves, but that's hard to do when Apple is buying our politicians like packs of cigarettes.
Apple is debt free and has $145 BILLION in cash. $103 BILLION of it is in offshore accounts.
Stockholders were increasingly becoming frustrated at lack of dividends reflecting that profit and stock was falling fast - from $700 a share to $400 a share...
SO... Apple came up with a great idea. It would borrow super cheap government bond money - $17 Billion - and give that to the stockholders - thus avoiding any income taxes whatsoever.
Clever, huh? But damn that 60 year old Mom & Pop hardware store owner making $300,000 a year pre-tax not willing to pay 39% of it just in federal taxes.
"
company has to execute. This is no substitute for that.”
By raising cheap debt for the shareholder payout, Apple also avoids a potentially big tax hit. About two-thirds of Apple’s cash — about $102 billion — sits overseas in lower-tax jurisdictions. If it returned some of that cash to the United States to reward its investors, it could have significant tax consequences for the company. In some ways, the bond issue is a response to that tax situation.
“They have been so successful with their tax planning that they’ve created a new problem,” said Martin A. Sullivan, chief economist at Tax Analysts, a publisher of tax information. “They’ve got so much money offshore.”
The $17 billion debt sale by Apple is the largest corporate issuance on record, surpassing a $16.5 billion deal from the drug maker Roche Holding in 2009, according to Dealogic.
Apple joins a parade of large companies issuing debt with astonishingly low yields. Last week, Nike sold bonds that mature in 10 years that yielded only 2.27 percent. In November, Microsoft set the record for the lowest yield on a five-year bond, issuing the debt at 0.99 percent. In comparison, the yield on the 10-year Treasury on Tuesday was 1.67 percent, while the five-year note yielded 0.68 percent.
“If you look at these big companies like Apple and Microsoft doing these big, low-cost bond offerings, it’s a way for them to raise money in an effort to create better returns for their shareholders,” said Steven Miller, a credit analyst with Standard & Poor’s Capital IQ. “The bond markets are practically begging these corporations to issue debt because of how cheap it is to raise money.”
On Tuesday, Apple issued six different securities, with maturities ranging from a three-year note yielding 0.45 percent to a 30-year bond that yields 3.85 percent. The largest piece, a $5.5 billion issue, is a 10-year yielding 2.4 percent. While good for the company, longer-term bonds with yields this low can fall steeply in price if interest rates go up, hurting investors who hold them. Still, $3 billion of the Apple debt are notes whose interest rates are periodically reset."
FULL STORY HERE:
http://dealbook.nytimes.com/2013/04/30/apple-raises-17-billion-in-record-debt-sale/?hpw
Sounds like a well managed company that has reserves to do a lot of R&D. Great for them!Apple is debt free and has $145 BILLION in cash. $103 BILLION of it is in offshore accounts.
Good companies pay dividends when they cannot put the cash to work themselves. Apple obviously isn't one of these companies. If people wanted dividends, they should have invested in a company that is known for paying them.Stockholders were increasingly becoming frustrated at lack of dividends reflecting that profit and stock was falling fast - from $700 a share to $400 a share...
PERFECT!SO... Apple came up with a great idea. It would borrow super cheap government bond money - $17 Billion - and give that to the stockholders - thus avoiding any income taxes whatsoever.
Don't blame Apple... blame our idiot, overextended, incompetent Socialist government.Clever, huh? But damn that 60 year old Mom & Pop hardware store owner making $300,000 a year pre-tax not willing to pay 39% of it just in federal taxes.
Why don't they reduce the burdens on everyone and unleash the free market?
It has all to do with US corporate tax law and more importantly international tax law and tax havens. As long as countries allow tax havens to exist, then we will have this problem. Even if the US corporate tax law is changed and companies would have to pay less in difference between US tax rate and that of the country where the money is coming from.. it wont change anything since the companies will still stay registered in the tax haven and still pay nothing in tax to the US (or UK or France or Germany and so on).
For example.. lets say the US corporate tax rate is lowered to say 15%. That would mean Apple if it wanted to get the money back to the US it has overseas, would have to pay 2%- 15%.. aka 13% in taxes of the money stored in Ireland. I think Apple would rather let it rot in Ireland than pay that. Rather take out massive loans to pay dividends, since those loans can be moved across borders and hence paid back outside the US..
Then the right would say.. lower the tax rate even more!.. Only way you would get close to having that money back in the US, would be to lower it to the lowest rate out there in tax haven land.. and that is from 0% to 2% when it comes to Apple. Which means the US taxpayer would get nothing at all, while loosing out massive amount of tax revenue because of the massively lowered tax rate.
So basically you are going to have to give corporations a total tax break to get Apple to take its 120 billion back home, so it can give it to its shareholders.. not like it is going to invest that money LOL!
So one has to ask.. is that what you want?
Basically countries need to hit down hard on tax havens, who are causing most of the problems. Allowing Ireland, Gibraltar, the Channel Islands, Dutch Antillies and so on, to be tax havens for the biggest companies on the planet.. not only gives these companies a massive advantage over companies that are not big enough to take advantage of these havens, but also screws over the tax payer big time.
One possible solution would be to have a "value added" tax to tax-haven products sold in the USA. Thus the tax is taken upfront and at least makes sales in the USA fair between foreign and domestic production in relation to sales in the USA.
Sounds like a well managed company that has reserves to do a lot of R&D. Great for them!
Apple dont spend much on R&D.. they rely on others and pretty much always has.
Good companies pay dividends when they cannot put the cash to work themselves. Apple obviously isn't one of these companies. If people wanted dividends, they should have invested in a company that is known for paying them.
Apple pays dividends... they opened the box, and let the genie out. That is why the investors are complaining.
Don't blame Apple... blame our idiot, overextended, incompetent Socialist government.
You mean Reagan, Bush 1, Clinton, and Bush 2? Or just the years of Democratic control..
Why don't they reduce the burdens on everyone and unleash the free market?
Because no company wants that, especially Apple? Had the free market actually existed, then Apple would have died long ago, but government allowed... in fact pretty much forced Microsoft to bail out Apple back in the day.
Sorry but the burdens on ordinary people are far far far far far far far far higher than any burden that has been on Apple or any big corporation the last 30 years... and that is exactly the problem. Big corporations have generated record profits, paid less and less taxes and cut work forces to insure higher profit margins and profits for the shareholder, who mostly also does not pay any where near the taxes of ordinary people..
Your right wing utopia is already here Zimmer, and it is hell on earth..... because it is right wing policies over the last 30+ years, that has allowed this cluster**** to form and exist.
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