Repatriation in Full Swing

As a direct result of the huge reduction in corporate tax rates that went into effect at the beginning of the year, many companies who have long held money overseas are now bringing it back to the United States. The Tax Cuts and Jobs Act that was passed in December of 2017 and became effective on January 1, 2018 provided for a permanent reduction of the corporate tax rate from 35% to 21%. In addition to this whopping 40% decrease, the law also provided for a 15.5 % repatriation tax rate on cash assets. As was to be expected, these newly initiated tax advantages have resulted in a surge of cash being brought back in to the country over the last few months.

Apple, which had previously held over 90% of its total cash assets on foreign soil, was one of the first companies to capitalize on the benefits of the new tax law. Almost as soon as the legislation was in place, they paid a tax bill of more than $38 million to move over $250 billion in foreign earnings back into the United States. Announcing that they would use some of this money to create jobs and build a new campus, CEO Tim Cook said that the company has a “deep sense of responsibility to give back to the country and the people who make our success possible.” Although Apple’s foreign holdings would have been taxed even if they had left them overseas, they saved over $43 billion tax dollars above and beyond what they would have paid if the repatriation taken place before the new tax law became effective.

Although some analysts point out that the financial impact of Apples’ repatriation might not be as much as is expected, few can dispute the idea that bringing oversees dollars back into the country will have a positive effect on the economy. In fact, Daniel Ives, head of technology research at GBH Insights has gone on record saying that he believes over 70 % of all cash brought back into the country as a result of the new tax law will be used for capital returns. Apple alone has promised to create over 20,000 new jobs which is an increase of over 20% from the approximately 84,000 people already in their employ at the end of last year. In addition, they have announced that they will increase capital expenditures over the next five years and have recently added an additional $4 billion dollars to a company-sponsored fund that supports United States manufacturing.

Although the Apple repatriation represents the largest amount by a single entity, other companies have been quick to follow suit. In fact, Daniel Ives of GBH Insights estimates that technology companies alone have approximately $600 billion in overseas holdings with over 50% of that expected to be brought back into the county in 2018 alone. Another estimate by the Macquarie Research Institute suggests the total of $860 will be repatriated across all sectors before the year comes to a close.

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