Apple's Money Problem (& Why It Won't Buy Netflix)

Summary

This video explores Apple's immense profitability, generating $1,444 per second, and its complex tax strategies that allow it to minimize tax liabilities by utilizing subsidiaries in countries like Ireland and Jersey. While Apple holds $285 billion overseas, American tax laws complicate access to this wealth, forcing the company to take loans for domestic operations. As U.S. corporate tax rates decline, Apple faces decisions on how to reinvest this cash, raising speculation about potential acquisitions. However, Apple's approach emphasizes maintaining its unique culture and focus, often prioritizing talent acquisition over large-scale purchases.

Takeaways

• 😀 Apple generates an impressive $1,444 in profit every second, more than any other company.
• 😀 The company's total bank account balance of $285 billion positions it as more of a country than a corporation.
• 😀 While many companies seek to avoid taxes, countries compete to avoid taxing Apple due to its immense wealth.
• 😀 Apple employs complex tax strategies, including utilizing subsidiaries in tax-friendly countries like Ireland to minimize tax liabilities.
• 😀 The pricing of Apple's products varies significantly between countries, influenced by local tax laws and import duties.
• 😀 The U.S. is unique in taxing citizens on worldwide income, compelling American companies like Apple to find ways to manage their tax burdens.
• 😀 Apple transfers patents to its Irish subsidiary, allowing it to reduce reported profits in the U.S. for tax purposes.
• 😀 Despite its wealth, Apple faces challenges accessing its cash reserves for reinvestment in the U.S. market.
• 😀 The reduction of U.S. corporate tax rates could allow Apple to repatriate its profits for research, acquisitions, or stock buybacks.
• 😀 Apple's cautious approach to acquisitions focuses on maintaining its corporate culture and innovation rather than rapid expansion.

Q & A

What is the average profit Apple makes every second?

$1,444.

How does Apple's profit compare to other companies?

Apple's profit exceeds that of any other company and is almost equivalent to the combined profits of Alphabet, Microsoft, and Facebook.

Why do countries hesitate to tax Apple?

Countries beg not to tax Apple because of its significant economic impact and the jobs it creates, making it a desirable entity to have within their borders.

How does the U.S. tax system uniquely affect American companies?

The U.S. is the only country that taxes its citizens based on citizenship, meaning American companies must pay taxes on profits made abroad, leading them to seek ways to minimize these taxes.

What strategies does Apple use to minimize its tax liabilities?

Apple uses subsidiaries in countries like Ireland and Jersey with favorable tax laws, transferring patents to these entities to reduce taxable income in the U.S.

What is the significance of patents in Apple's tax strategy?

Patents have no precise value, allowing Apple to assign their patents to its Irish subsidiary and 'rent' them back, reducing reported profits in the U.S.

How does Apple manage its offshore cash reserves?

Despite holding a significant amount of cash overseas, Apple takes loans to finance operations in the U.S., effectively making its offshore cash unavailable for American investments.

What changes could allow Apple to repatriate its offshore funds?

If the U.S. lowers its corporate tax rate, Apple could bring back its money and consider investing it in research, acquisitions, or stock buybacks.

What are some potential acquisition targets for Apple?

Speculative targets include companies like Tesla, Activision, and Netflix, although Apple is known for its cautious and strategic acquisition approach.

What is Apple's corporate philosophy regarding acquisitions?

Apple focuses on acquiring talent and technology rather than large companies, maintaining extreme focus and minimalism in its product design and corporate culture.