Apple Stock News: Tax Reform Bill a Mixed Bag for Apple

Apple Stock News

The good news from the tax reform bill is that Apple’s corporate tax rate will decline by 40%, from the current 35% to 21%.  But that’s not all.  The bill would create a cash repatriation holiday where companies would pay a one-time tax of 15.5% on the overseas cash they bring back to the U.S.  After the repatriation holiday is over, companies would pay at least 10.5% on repatriated cash, but would be able to deduct foreign taxes already paid on the income.  This would effectively lower the repatriation rate to zero in the future.  Apple holds more than $250B in foreign subsidiaries.  It is believed that Apple will repatriate anywhere from half to nearly all of its overseas cash.  Apple would likely use the repatriated cash to pay down its $97B in long term debt as well as to fund stock buybacks and dividends.

Now for the bad news.  There is a key provision in the bill that affects Apple’s decades long practice of holding IP in foreign subsidiaries.  This practice has allowed Apple to significantly reduce its overall tax rate.  What happens is Apple attributes a large portion of the value of its products to IP such as patents and trademarks.  This IP is then left in countries with low tax rates such as Ireland.  The foreign subsidiaries holding the IP then receive substantial patent royalties and licensing fees based on all of Apple’s sales.  These fees and royalties are then taxed at a very low rate.

The key provision in the new tax bill creates a minimum tax of 13% on foreign patent income while creating a tax break on domestic patent income from 21% to 13.1%.  It is meant to discourage companies from holding their patents overseas as the tax benefit is basically eliminated.  The problem is the bill doesn’t include a way for companies to bring back foreign-held patents to the U.S. without being taxed.  However, the truly bad news for Apple is that there’s a very good chance that the 13% tax rate is still notably higher than Apple’s non-U.S. tax rate which could mean Apple’s taxes might actually increase.

In Other News

Apple is reportedly working on a smartwatch heart-monitoring feature.  It is part of Apple’s strategy to turn the Apple Watch into a medical device.  The tech giant also filed a patent for a self-driving navigation system that would anticipate routes via sensors and processors in the vehicle rather than rely on static information like maps.  Health technology and self-driving technology are two potentially huge markets that could help drive Apple’s growth in the future.

Apple acquired popular music discovery app Shazam for an estimated $400M.  Apple will possibly want to integrate the software into Apple Music as well as the HomePod.  Shazam also has Augmented Reality services, an area that Apple is growing in.

Lastly, iPhone owners from multiple states have brought a suit against Apple for not disclosing sooner that it issued software updates deliberately slowing older model phones so aging batteries could last longer.  The silence on Apple’s part led these owners to mistakenly believe that their only option was to buy a newer and more expensive iPhone.  Instead, it is now known that they could have just replaced their batteries to speed up the phones.  The suit alleges that Apple violated consumer fraud laws.  The lawsuit seeks class-action status to represent the thousands of iPhone users across the U.S.  The phones involved are the iPhone 6s, iPhone SE, and the iPhone 7.

For the latest Apple Stock News, AAPL closed at $175.01 per share on December 22nd, 2017. It had no change from its previous close on December 21st, 2017, when it closed at $175.01 per share.

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