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Trump’s Tax Cut Could Persuade Apple to Repatriate Overseas Cash

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Apple glad to bring back cash

A Donald Trump presidency could signal a tax reprieve for companies like Apple (AAPL) that have hundreds of billions of dollars in overseas accounts. Apple’s CEO, Tim Cook, said earlier in 2016 that the company would gladly repatriate its more than $200 billion in offshore accounts if the government would agree to a fairer tax rate.

Trump’s win, combined with the Republicans retaining control of Congress, could deliver a favorable tax rate to encourage Apple, Alphabet (GOOGL), Microsoft (MSFT), Cisco (CSCO), and others with billions of dollars abroad to bring them home. On the campaign trail, Trump proposed a reduction of the corporate tax, including a one-time tax holiday, that would ease the tax rate to 10% on repatriated assets.

That would be a huge reprieve for companies repatriating cash, considering that under the existing tax rules, assets repatriated into the US are slapped with an ~40% penalty. The huge tax burden explains why Apple and its peers have avoided bringing their overseas money home to invest.

Trump believes that reducing the costs of repatriating overseas assets to the US would spur growth, as the companies would be have an incentive to use the cash for M&A and R&D, as well as to boost returns to shareholders.

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Apple boosts shareholder returns

If Apple (AAPL) gets a tax amnesty, the company would not need to borrow to pay dividends and buy back stock as it has been doing. Instead, it would use its billions for its capital return programs. In early 2016, Apple raised its capital return plan to $250 billion, adding $35 billion to its existing stock repurchase plan of $175 billion and increasing its dividend 10% at the same time.

However, Apple won’t find a Trump presidency sweet everywhere if he pursues his other policy proposals, especially about free trade. Trump has repeatedly criticized companies for moving jobs overseas at the expense of American citizens. Apple is one of the major US companies using offshore labor as the company’s most important product, the iPhone, is manufactured in China (FXI) (MCHI).

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