Apple’s $350bn pledge is all smoke and mirrors

Apple is bringing a pile of cash home to roost, to the tune of $38 billion – in a sizable victory for President Trump’s tax reforms implemented last year. This one-off tax payment is part of a larger projected contribution of $350 billion by Apple to the US economy over the next five years, whereby smoothing over its shady tax practices of the past could assist Apple in completing a major home soil acquisition. Netflix, perhaps? Don’t hold your breath.

Apple plans to build a monster new campus in the US to create 20,000 jobs at data and tech support centers, costing around $30 billion, and has promised to increase its innovation fund for manufacturers from $1 billion to $5 billion.

Reading between the lines shows that, despite the $350 billion headline-stealing figure, Apple is largely carrying on with business as usual. It will continue to buy from domestic suppliers at the current rate and has chucked in a few extras to sugarcoat its consumer image, such as awarding $2,500 in bonuses to everyone on its US pay roll.

Financial analysts criticize, mentioning Apple would have contributed this sum regardless of the tax reform, and the company’s growth rate depends on new data centers, so this infrastructure would have been built anyway. “These are probably many capital expenditure initiatives and new site build-outs that Apple was already planning on doing regardless of repatriation,” an analyst from US investment banking firm Piper Jaffray, Michael Olson, told Bloomberg.

The tax payment will deplete Apple’s offshore balance from around $252 billion to $214 billion, but at a lower tax rate than Apple would have had to cough up prior to Trump’s signing of the new tax law. Apple’s share price jumped 1.65% to $179.10 following the announcement.

Trump is yet to follow through on his initial promise of forcing Apple to manufacture its devices in the US may, but the $38 billion payment is still a win-win situation for Apple and the Trump administration, as a reduced cash holding tax rate from 21% to 15.5% has saved Apple $43 billion in tax payments, while Trump’s persistent pressure on Apple throughout his campaign has been rewarded not just in cash but also in positive publicity.

“We have a deep sense of responsibility to give back to our country and the people who help make our success possible,” said Apple CEO Tim Cook.

“I promised that my policies would allow companies like Apple to bring massive amounts of money back to the United States. Great to see Apple follow through as a result of TAX CUTS. Huge win for American workers and the USA!,” declared President Trump on Twitter.

Last month, Facebook announced a big change to its tax structure, shifting from its Irish tax haven to a local selling model, meaning taxes will be paid in the country where sales are made.

Offshore cash piles belonging to the likes of Alphabet and Microsoft are likely to be the text targets in the President’s crosshair.