Bloomberg, Apple Could Get a $4 Billion Boost From Tax-Law Quirk:
Companies that stockpiled trillions of dollars offshore free of U.S. income tax may get one last break before paying up -- provided their fiscal years don’t follow the calendar year.
A timing quirk in the tax overhaul that President Donald Trump signed last month may be good news for companies such as Apple Inc., Microsoft Corp. and Cisco Systems Inc., all of which began their fiscal years before Jan. 1. Firms including Alphabet Inc., Amgen Inc. and General Electric Co. -- with fiscal years that began on Jan. 1 -- appear to be shut out of the benefit.
Apple alone, which disclosed an offshore cash hoard of $252 billion as of Sept. 30, may be able to lop more than $4 billion off a future tax bill, according to Stephen Shay, a tax and business law professor at Harvard Law School who wrote about what he called the “potential loophole” last month [Will Treasury Close Loophole In Treatment Of Deferred Foreign Income In The Tax Cuts And Jobs Act?]. He characterized the boon as a side effect of the speed with which congressional Republicans passed their tax bill.
“This bill was passed on a speed train schedule with no time to think,” said Shay, who was a senior Treasury Department official during the administrations of former presidents Barack Obama and Ronald Reagan. It’s up to Treasury and the Internal Revenue Service to create rules to prevent companies from taking advantage, he said.
In passing the most extensive tax-code revisions since 1986, Congress scrapped the previous international tax system for corporations -- an unusual arrangement that allowed companies to defer U.S. income taxes on foreign earnings until they returned the income to the U.S. That “deferral” provision led companies to stockpile an estimated $3.1 trillion offshore.
In switching to a new system that’s designed to focus on domestic economic activity, congressional tax writers also imposed a two-tiered levy on all that accumulated foreign income: Cash will be taxed at 15.5 percent, less liquid assets at 8 percent. Companies can pay over eight years.
The timing issue that Shay surfaced stems from a provision that, in effect, gives a company until the end of its fiscal year to measure what’s cash and what isn’t for tax purposes. Consequently, companies that began new fiscal years before Jan. 1 get an extra chance to reduce foreign cash they’ll accumulate this year -- which they can do by distributing cash dividends to their U.S. parents before tallying up what’s left to be taxed, Shay wrote.
Under separate changes that took effect Jan. 1, any such dividends would be tax-free in the U.S., he noted. ...
The IRS issued some guidance on Dec. 29, but companies are still awaiting additional details on many “pressing questions” related to offshore earnings. ...
The tax bill’s international provisions “were put out in a rush,” and the IRS notice “is prime evidence of this and probably a bellwether for other problems to come,” said Chris Sanchirico, a tax law professor at the University of Pennsylvania Law School. “Are there planning opportunities?” said Sanchirico. “Yes, most likely.”