The fate of the huge cash stockpiles held by Apple Inc. (NASDAQ:AAPL), Cisco Systems, Inc. (NASDAQ:CSCO) and Microsoft Corporation (NASDAQ:MSFT) abroad, lie in the hands of Donald Trump Administration. The trio is currently holding more than $400 billion overseas as the 35% tax rate back at home continues to hinder any repatriation.
Trump’s One-Off Tax Holiday
However, the current administration is willing to play ball a move that many observers believe could avert the negative consequences of repatriating money to the U.S. The U.S president has proposed a one-off tax holiday that will allow companies with operations overseas to bring their vast offshore cash piles at 10%, rather than the statutory 35% rate.
A 10% tax rate, even though higher than the 5.25% onetime repatriation rate offered by President George W. Bush in 2004, would be highly welcomed in the industry. The `10% rate would entice the 50 biggest U.S companies to repatriate profits held overseas given that they will be able to save at least $300 billion.
10% Tax Rare Fate
However, it is still in early days for the likes of Microsoft, Apple Cisco and other U.S companies to start rejoicing about the proposed Trump administration tax plan. There is already growing concerns whether the proposed tax plan will sail through Congress in the current form. Fuelling the concerns is the fact that Republicans have failed to repeal the Affordable Health Care Act even though they have the numbers in Senate.
The fact that the 5.25% one-time rate in 2004 failed to have the desired impact on American job growth is another headwind that could hinder the proposed 10% rate from coming into effect. The Trump administration will have to come up with a way of preventing the likes of Apple, Microsoft, Cisco, and Apple from returning repatriated cash to shareholders if the proposed tax plan is to see the light of day.
“I think that the lesson of the last repatriation holiday is that it’s virtually impossible to prevent companies from doing what they want with repatriated cash in hand,” said Matthew Gardner, a senior fellow at Institute on Taxation and Economic Policy.
Years of gigantic profits saw Apple cash balance rise to highs of a quarter a trillion dollars in the first half of the year. Microsoft on its part had a total of $131.2 billion most of which is abroad just like the iPhone makers. Cisco on its part had a total of $71.8 billion with Alphabet having a total of $86.3 billion.
Apple was up by 1.39% in Friday’s trading session to end the week at $157.48 a share.