Fortune: “Trump’s Tax Reform could benefit Apple, other Multinationals”

For FY 2016, Apple booked total pre-tax earnings of $61.4 billion. On its income statement, Apple showed a “provision for taxes” of $15.685 billion. That number is an expense that’s deducted straight from pre-tax income of $61.4 billion to yield net income of $45.7 billion. Hence, its reported “effective tax rate” was 25.6% ($15.685 billion divided by $61.4 billion), well below the official 35%, but on the high side for multinationals, many of which are in the teens.

Apple, however, paid a lower number in cash. Apple’s 10K discloses that “cash paid for income taxes” was $10.444 billion for the year.

Shawn Tully

I’ve found this article shared on Daring Fireball – apparently the irony of using an article praising Trump’s tax reform to support Apple’s official position is lost on Gruber.

For someone with basic knowledge in accounting, even the paragraphs above should raise some alarm flags, as people often confuse accrual-basis and cash-basis accounting. A provision for taxes doesn’t mean that Apple effectively paid said amount of $15.685 billion – in fact the author explains immediately that the effective tax payout was only $10.444 billion, making Apple’s tax rate in FY 2016 a much lower 17%, around half the official 35% in the US. What the author doesn’t explicitly say is that the rest of the provision (a mere $5.241 billion) may in fact never be paid out, especially if Trump’s tax exemptions come into effect. In that case, the provision can be dissolved and Apple gets to keep the cash – and, presumably, book it as income.

But wait, it gets better! Further down the article, we have a breakdown of tax payments by country:

Apple generates more foreign income that any other U.S. company. In FY’16, it booked $41.1 billion pre-tax profits outside the U.S., or 67% of the $61.4 billion total.

On those offshore profits, Apple paid $2.138 billion to foreign governments.

In other words, Apple’s tax rate on offshore profits is 5.2%, versus 40.9% on profits generated in the US. It that’s not tax evasion, I don’t know what is!