Apple wins with US tax bill but faces foreign patents snag
The US Republican tax overhaul passed by Congress this week will allow Apple to bring its $252.3bn foreign cash pile back to the US without a major tax hit - a long-standing company goal.
Other provisions of the bill championed by US President Donald Trump, namely the cut in the US corporate tax rate from 35pc to 21pc, are also a big boon for Apple.
But not everything went the company's way. A critical difference between the Senate version of the bill and the final version could actually raise the amount of cash taxes that Apple pays on profits from patents held abroad, tax experts said.
The treatment of foreign patent profits is important to Apple because shifting those profits overseas was a cornerstone of its tax practices for decades.
In effect, the company attributes a large portion of the value of its products to patents and other intellectual property such as trademarks.
Apple then assigns some of that IP, proportional to overseas sales, to subsidiaries in countries with low-tax rates and assesses substantial patent royalties on sales. Those royalties then flow back to those low-tax locations, like Ireland.
The bill has a pair of provisions designed to make that manoeuvre less alluring. One creates a minimum tax on foreign patent income that is expected to come to about 13pc, said Gavin Ekins, a research economist with the Tax Foundation.
At the same time, a tax break for patents held in the United States will lower the tax on licensing income from the standard corporate rate of 21pc to 13.1pc - about the same as if the patents were held abroad.
Congressional Republicans "don't want the tax rate to be a consideration in where you put your intellectual property", Mr Ekins said. "The whole intention (of the measures) is to bring back that intellectual property to the United States."
Parts of the scheme are similar "patent boxes" employed in countries like the UK to encourage firms to generate and keep their innovations at home.
But the final bill omits any explicit way for patents held overseas to be returned to the United States without being taxed. (Reuters)