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The Resource for the Global Finance Profession

Stay or Go? eBay Repatriates Cash, Apple Keeps it Abroad

  • By Andrew Deichler
  • Published: 2014-04-30

Online auction site eBay defied conventional wisdom Tuesday when it announced it would repatriate $9 billion in cash held overseas—incurring a $3-billion tax bill in the process.

U.S. multinationals have overwhelmingly held cash overseas in recent years to avoid the 35 percent tax rate that federal government charges on repatriated earnings. AFP has long advocated lowering the corporate tax rate to one that is more comparable to other developed nations. Moody’s estimates that $950 billion is being held offshore by U.S. corporations—about 60 percent of total corporate cash holdings.

John Donahoe, chief executive of eBay, said the move will allow the e-commerce giant easier access to funds for potential acquisitions stateside. “If you look at our last 15 acquisitions, my guess is 10 have been inside the U.S., maybe 11,” he said. “Just looking at that versus where our cash is located, you just say, ‘Alright, it would make more sense to have more cash in the U.S. for mergers and acquisitions.’”

According to eBay CFO Bob Swan, eBay is an “acquisitive company” that needs to have the resources at its disposal to capitalize on targets that become available. “While we have a strong balance sheet and our cash balance continues to grow, the opportunities in the U.S. are even bigger,” he said.

Donohoe added that eBay is not planning to announce any major acquisitions at this time. Right now, the company appears to be focused on making an even bigger investment in its payments processing arm, PayPal. Donohoe said that eBay is working to get PayPal “out where the action is,” in brick-and-mortar stores.

Apple keeps hoarding

In contrast to eBay, Apple recently raised $12 billion in a bond sale to finance shareholder rewards instead of bringing its overseas cash back to the U.S. This is the second time in a year that the iPhone maker has tapped debt markets rather than repatriate earnings.

Borrowing costs in the bond market are much lower than the tax on repatriated cash. Fully 88 percent of its $151 billion in cash and marketable securities are held offshore, Apple said in a recent earnings call.

“To repatriate our foreign cash under current U.S. tax law, we would incur significant tax consequences and we don’t believe this would be in the best interest of our shareholders,” said Luca Maestri, soon to be Apple’s CFO, on the earnings call.

Copyright © 2015 Association for Financial Professionals, Inc.
All rights reserved.

Copyright © 2015 Association for Financial Professionals, Inc. - All rights reserved.
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