Corporate America holds a startling $1.2 trillion offshore or it did until Brussels intervened last week. At long last, will that cash be coming home?
Three years ago, Apple boss Tim Cook was emphatic. Appearing before a US senate committee, the man who runs the worlds largest company told the politicians straight: Apple had no intention of repatriating billions of dollars of profits from its international operations until the US Treasury slashed corporate taxation.
I have no current plan to bring them back at the current tax rate, Cook said.
It was a response one of many that rankled with the committees chair, Carl Levin. Leaning forward, the tough septuagenarian senator from Michigan glared at Cook over the top of this glasses: It is not your intent to bring them home unless we reduce our tax rates? Is that correct?
Cook repeated: I have no current plan to do so at the current tax rates.
It was a charged exchange that laid bare the impasse between corporate America and Washington. At that time, Apple had amassed about $100bn in cash income from its foreign operations all of which was being carefully held outside America, beyond the reach of the US tax authorities.
Since then, every three months, Apple has given Wall Street an update on the size of this cash pile, and each time the figure has grown by several billion. At last count, six weeks ago, the figure stood at $215bn (162bn).
If Apple were to bring that money back to the US, however, it would be taxed at about 40%, one of the highest tax rates in the world. Apple serves its shareholders by keeping these funds overseas, the Californian technology firm told the senators.
By using a long-standing loophole in the tax code, Apple, in common with many other multinationals, can continually defer US taxes on these offshore earnings for as long as they are kept outside America.
This is a quirk of US law that has had a dramatic, and increasingly unsustainable, impact on the corporate world. It has meant that many of the richest firms in the US are amassing huge, untaxed offshore cash piles. In recent, years that trend has been accelerated by Americas booming leading tech firms and their worldwide success.
According to ratings agency Moodys, US companies, excluding banks, had an estimated $1.2 trillion in cash overseas at the end of last year. Just over half of that sum $630bn is estimated to be held by Apple and other tech companies, among them Silicon Valley firms Microsoft ($96bn), Cisco ($57bn), Google ($43bn) and Oracle ($45bn).
Barack Obama promised he would get corporate America to bring profits home, as have both the Republican and Democrat candidates vying to succeed him. Quite how to do so, however, has divided Washington for decades.
And if the result has been intransigence, few have complained very loudly. The impasse has suited corporate America well, allowing its biggest international businesses to enjoy years of ultra-low tax bills.
Last week, however, the dramatic intervention of Europes competition commissioner Margrethe Vestager appeared to steal the reform initiative from Washington.
In a decision that for many years tax experts would have thought unthinkable, she ruled that a significant slice of Apples offshore wealth had been illegally won. The iPhone maker, Vestager found, had been benefiting from a sweetheart tax deal agreed behind closed doors with Ireland a quarter of a century ago. That deal had resulted in Apple avoiding 13bn in taxes over 10 years, she said: those back taxes, plus interest, would have to be repaid.
Cook was furious. He insisted that the income had already been taxed in Europe. The commission is now calling to retroactively change those rules, he protested last Tuesday. Two days later he was still raging calling Vestagers decision invalid and crap but he also had a surprise announcement. During an interview on Irish radio, he started talking about repatriating cash held overseas and paying US tax. Right now, I would forecast that we repatriate next year, he said. We [have] provisioned several billion for the US for payment [of tax bills] as soon as we repatriate.
There has been no further elaboration, but it is a marked change in tone from Cook, who now needs all the support he can muster from allies on Capitol Hill. Hints that Apple might be more willing to pay tax in America might be just the kind of message US politicians wanted to hear.