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What Trump’s Proposed Tax Bill Means for Apple

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Trump has proposed a 20% corporate tax rate

President Donald Trump has unveiled his plans to change the US tax code. Trump wants to slash the corporate tax rate from 35% to 20%, which could encourage companies to repatriate profits. While corporate taxes will not be as low as the 15% Trump initially promised, big tech companies (IYW) (XLK) will still be encouraged to bring some of the billions they have abroad back to the United States.

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Tech companies have billions of cash overseas

As the graph above shows, big tech companies have kept a lot of money abroad to avoid the massive 35% tax rate slapped on repatriated profits. In 2016, Apple (AAPL) had as much as ~$250 billion abroad, according to Moody’s.

The proposed bill will also have a provision that will allow businesses to write off capital expenditure for the next five years. Currently, the government levies taxes on multinational companies on a global basis, meaning that companies have to pay US rates no matter where they generate their income. However, this tax is only levied on repatriated profits.

The bill also proposes a move to a territorial tax system. Under this system, American companies will mainly pay taxes on domestic earnings, which could be a relief for big tech companies. Also, under the territorial system, there would be one-off levy rate on past offshore earnings amassed.

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