Apple has a cash problem. It's not just that Apple has too much cash, $76 billion as of June 30. It's rather that the bulk of that pile, estimated at $41 billion, is held abroad.
Apple does not want to bring it back to the United States for several reasons, primarily because of the tax consequences, but also because of its own growing foreign presence. Apple is not alone - this problem is an increasing one in corporate America. And the answer may not be more big, all-cash acquisitions, like Google's $12.5 billion offer for Motorola Mobility.
In an analyst report in May, JPMorgan Chase estimated that 519 American multinational corporations had $1.375 trillion outside the United States. The problem is particularly acute among technology companies, which historically tend to hoard cash because of the cyclical nature of their business.
A recent Moody's report noted that Microsoft held $42 billion abroad, or more than 80 percent of its cash. Cisco Systems has $38.8 billion, or almost 90 percent of its cash. Google - at least before Monday's deal - had nearly $40 billion in cash, with more than 43 percent of it held abroad
Tax policy is driving much of this trend. For multinational corporations, cash earned abroad cannot easily be remitted to the United States. If it is paid back to the United States, it is subject to a dividend tax that can rise to as much as 35 percent. Companies are loath to pay this tax because while they can offset it with taxes paid abroad, the companies still end up paying a relatively high tax rate.
Yet it is not just a tax issue. Many United States companies want to keep cash abroad to focus on high-growth regions for investments and acquisitions.
A recent Standard & Poor's study found that 50 percent of sales by companies in the S.&P. 500-stock index are outside the United States. Interestingly, the report also found that these companies paid more in foreign taxes than to the United States government. For Apple, 60 percent of its sales are abroad, and like these other companies, its foreign sales are expected to only go higher.
So, for those who expect that a change in tax policy would prompt Apple and other companies to put their cash piles to use in the United States, don't be so sure. Even if there were no dividend tax, a large portion of this cash would stay abroad as these companies focus on higher growth overseas for investment.
David Fuller's view In the global economy, successful multinational companies are close to being autonomies, answerable mainly to their shareholders and employees. Economically, they are similar to semi-independent states, except that they have little land other than the small properties which they own or rent in various countries where they conduct their business.
Consequently, the corporate autonomies can operate in any region where opportunities beckon. Their individual units invest and hire a considerable portion of their personnel locally. It is in their interests to abide by local laws and they pay taxes in the countries where they operate.
Successful corporate autonomies have investments in many different countries. Everything starts somewhere, so they will have mother countries but their main loyalties are most likely to be towards the countries where they manufacture, market and service their customers. Most are free to move their corporate headquarters if they wish to, and some do.
Why should Apple or any other successful corporate autonomy repatriate overseas earnings to the USA if it is not in their commercial interests to do so? I do not think that there should be any tax on the repatriation of capital that has been earned in another country where taxes on it have already been paid.
More importantly, it does not make long-term commercial sense for mother countries to impose double taxation on the repatriation of overseas earnings of corporate autonomies. It is a competitive world and these firms will park their cash where they receive the best return.