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Monday, March 11, 2013, 11:43 am PT (02:43 pm ET)

Pressure mounts for Apple repatriate $40B in overseas cash

Apple is avoiding paying $13.8 billion in taxes on overseas earnings by doing what a growing number of large U.S corporations are doing with their foreign cash: keeping it away from U.S. shores.

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An analysis of 60 large U.S. corporations by The Wall Street Journal found that together they held $166 billion in earnings offshore in 2012. U.S. tax law typically allows companies to pay no taxes on profits earned in overseas operations, so long as that money is not brought back to the U.S. As a result, those companies shielded more than 40 percent of their annual profits from U.S. taxes.

Technology and healthcare companies are driving the trend. Collectively, those companies held $120 billion overseas in 2012, nearly three-quarters of the total held offshore by the companies that were examined.

Apple is among those companies, announcing that it held $40.4 billion in untaxed earnings outside of the United States as of September 29, 2012, one-third of the tech and healthcare total and just under a sixth of the analyzed group's total. Should Apple repatriate that cash, the company estimates it would owe $13.8 billion in taxes, just under the federal 35 percent tax rate.

Apple holds the cash in countries with a friendlier tax structure, and foreign income tax expenditures can be credited on U.S. taxes. Taking those factors into account, Apple, according to an expert consulted by the Journal, has paid less than five percent tax on its overseas earnings.

The question of what exactly Apple should do with its cash holdings has drawn a lot of attention of late, with one investor first leading then abandoning a push to get the company to disperse some of its massive earnings to shareholders by way of issuing preferred stock. Keeping so much of its earnings overseas, though, means that a good portion of Apple's cash cannot be given back to investors in the form of dividends or share buybacks.

Spokespersons for some of these large companies claim that the U.S. tax code is out of date, "penalizing" corporations for their "success" outside of the United States. They argue that Congress should encourage repatriation of foreign earnings by instituting a tax holiday, which would, they say, stimulate the U.S. economy. The last such tax holiday went into effect for a time in 2004, prompting the repatriation of some $312 billion in foreign earnings. Studies looking at the tax holiday, though, found no evidence of strong job creation. The companies, instead, used the money to repurchase shares and pay dividends.

The U.S. isn't the only country where Apple and other large companies are accused of ducking taxes. Last April, a report blasted Apple, Google, and Amazon for basing their operations out of Ireland and other countries for tax purposes, thereby avoiding paying about half the taxes they normally would in the United Kingdom.

In late February, another report from El País showed Apple declaring an operating loss in Spain, despite Spanish Apple Stores sales being up 86 percent. Apple accomplished this by routing 99 percent of its Spanish sales through its Irish subsidiary. El País' report estimates that Apple paid about 2.6 million euros in taxes. Spanish tax credits, though, due to the technical operating loss, are estimated to have left Apple with a balance with the Treasury of about four million euros.