While the U.S. tax system does not authorize tax-lowering strategies that lack economic substance, Apple claims that its overseas operations maximize the utility of modern technology to globalize its supply chain. The United States legislative process is intentionally slowed by numerous checks and balances going to the core of our nation’s democratic principles. Human innovation, on the other hand, is not so constrained. This paper examines the impact of the 2017 Tax Cuts and Jobs Act (TCJA) on global corporate structures, using Apple as a case study. It concludes with an exploration of Apple’s use of assets repatriated under the TCJA.
In the past several decades, technological advances have enabled global streams of commerce unimaginable when much of the Internal Revenue Code was drafted. This disparity has, in some cases, yielded opportunities for corporations to lower their tax liability beyond what may have been possible had the IRC been updated as efficiently as had corporate structures. Despite the frequency with which U.S. corporations are condemned for capitalizing on these opportunities, courts have consistently held that “[a]ny one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”
While international commerce has existed since ancient times, technological advances in transportation and communication in the second half of the 20th century spawned an unprecedented increase in global commerce. Formed in the aftermath of WWII, the World Bank has tracked global trade and economic development since the 1950s. Utilizing “trade” as its relevant metric — the sum of imports and exports in relation to gross domestic product (GDP) — the World Bank observes that international commerce has steadily risen relative to (also growing) World GDP. This is generally seen as an efficient progression, as supply chains are able to more efficiently utilize the competitive advantages intrinsic to various parts of the world. The effects of this shift can also be seen in the growing ratio of trade to national GDP in the U.S. In 1962, the sum of U.S. exports (5%) and imports (4%) totaled a mere 9% of our national GDP. As of 2018, foreign trade comprised 27.5% of our national GDP.
While this paper focuses primarily on the impact of tax policy on corporate structuring, the development of physical infrastructure and rising trade in goods and services in the developing world are crucial both to the generation of offshore profits and development of financial systems sophisticated enough to handle corporate cash flows.
Symbiotic with the more efficient flow of goods and services along global supply chains, technological advances have rapidly accelerated economic development in the global south relative to the United States. In 1962, the U.S. economy comprised 38% of world GDP. The U.S. and developed countries overall maintained this position throughout the 20th century, contributing roughly 64% of world GDP as of 2000. Since 2000 however, developing economies have grown rapidly relative to those of developed nations. While comparatively rapid population growth is a factor in the overall world market share held by the global south, per capita GDP has also generally risen, widely attributed to improvements in education and technology.
During the 19th and early 20th centuries, U.S. foreign direct investment in the global south almost exclusively focused on extracting raw materials to be sold, or manufactured domestically into products to sell in the U.S., and to a lesser extent in other advanced economies. While the 20th century brought a rise in the manufacture of goods in the global south, as Multinational Enterprises (MNEs) capitalized on lower costs, the United States remained the dominant end market for finished goods through the early 2000s.
In the last two decades, increased per capita GDP in the developing world has enabled the rise of middle classes in formerly impoverished nations.  These new middle classes have the disposable income to play increasingly significant roles in the demand side of the global economy — rather than merely providing cheap labor and raw materials. Increasing slowly but consistently through the mid 1990s and early 2000s, developing markets’ share of world GDP surpassed that of advanced markets in 2007. Developing markets contribute 57.51% of world GDP as of 2020, which is projected to continue to rise both in absolute terms and relative to that of advanced economies. More specifically, these economies comprise an increasing share of consumer purchases and inflows of capital investment.  For instance, mobile telephone handset sales in emerging markets surpassed those in advanced markets in 2005.
Global Corporate Structures
U.S. headquartered corporations have increasingly developed local presences in target markets, finding the costs associated with such development to be justified by their relative profitability over a pure export model. Local subsidiaries can reduce agency costs compared to contracting with local distributors, limit the U.S. parent’s legal and financial exposure from overseas operations, and, where local subsidiaries manufacture as well as sell, can reduce or avoid import/export costs and associated taxation.
In addition to lower costs, local subsidiaries foster local market presence in ways that export or contract distribution models cannot. Operating a local subsidiary shows a serious long term investment in the market, facilitating more efficient relationships with local customers, suppliers, and regulatory/law enforcement entities. Physical offices with local officers and employees give the company legitimacy among local residents and officials, who enjoy a more familiar experience than dealing with operators in the U.S. More controversially, local management may be able to influence local legislation and enforcement via techniques that would be illegal for U.S. citizens who are easier targets for U.S. anti-bribery enforcement.
Growing consumer markets in developing nations as well as global advances in education have prompted many U.S. headquartered MNEs to invest in local R&D for target markets. Local R&D centers cost less than their domestic equivalents, and employ locals who are better equipped to tune products for local use. For example, while consumer tech in the U.S. and other advanced economies requires a high level of compatibility between the many devices an individual will use, similar products aimed at developing markets require a higher degree of versatility as consumers are more likely to use a mobile phone as their only computer.
Aside from the operational and economic benefits they offer, many jurisdictions require foreign corporations to establish local partnerships as a requirement of doing business in their country, narrowing the MNE’s organizational options for their overseas operations.
In recent decades, a location’s most attractive features are often found in their advantageous corporate law and tax policy.  Just as countries with rich mineral reserves may proactively work to attract foreign customers, legislators around the world intentionally craft tax codes to suit foreign demand. These jurisdictions offer low tax rates and in many cases minimal reporting in exchange for corporate tax revenue and jobs. In 2008, U.S. MNEs reported earning 43% of their overseas profits in Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland, while only 4% of their employees were located in those countries.
Unlike reorganizing corporate structures to take advantage of mineral deposits, however, reorganization for tax purposes can often be accomplished without physically relocating any actual business operations. Instead, profits are shifted to advantageous jurisdictions by pricing assets exchanged between related entities in such a way as to transfer funds unreflective of the underlying asset’s value (“Transfer Pricing”). Congress has made various attempts to regulate transfer pricing by requiring price reporting to reflect “arm’s length” pricing (i.e. pricing that would have been reached by unrelated parties). These regulations significantly reduced the use of transfer pricing for assets with readily ascertainable market value. Many intangible assets, however, most notably complex cost-sharing agreements, do not have comparable equivalents by which to ascertain arm’s length pricing. As a result, in the last two decades an increasing majority of the intellectual property and other intangible assets of U.S. headquartered MNEs are held offshore in low-tax (or otherwise tax favorable) jurisdictions.
Taxing a Global Economy
While globalization has made global supply chains more efficient, the rapid decline in geographic obstacles to trade poses new challenges for nation-states, whose borders are increasingly irrelevant as demarcations of commercial markets. Legislators aiming to maximize their tax base must strike a delicate balance between keeping rates competitive in the global market (both in the taxes directly imposed and mechanisms to avoid double taxation) while, at the same time, generating sufficient revenue for their jurisdiction to operate.
International tax policies can be generally categorized as either territorial or worldwide. The vast majority of countries today utilize a territorial approach, which limits taxation to income earned within their borders. Under a worldwide approach, a jurisdiction taxes the worldwide income of its permanent residents and domestic corporations. As multinational taxpayers will also be subject to foreign taxes on the portion of their income earned abroad, foreign tax credits are used to mitigate double taxation under the worldwide approach.
Pre-TCJA U.S. Taxation of Worldwide Income
Prior to 2018, the United States was unusual in its utilization of a worldwide system of taxation. The IRC determined the taxability of income based on the “source” of the income (where the income is earned) as well as the residence of the taxpayer at the time that the income was earned. These methodologies date back to a 1923 League of Nations report which proposed international norms of sovereign right to tax based loosely on common law principles of personal jurisdiction.
Under the pre-TCJA system, corporations incorporated in the U.S. were theoretically subject to U.S. corporate tax on their worldwide income. In reality, however, sophisticated U.S. headquartered MNEs were able to defer or exclude the vast majority of their overseas income through the use of foreign headquartered subsidiaries. In contrast to a branch, which is an overseas extension of the U.S. headquarters, a subsidiary is a distinct legal entity with its own articles of incorporation. Though often irrelevant in terms of business operations, this distinction is crucial for tax purposes. As the IRC determined taxability based on the corporate taxpayer’s country of incorporation, the foreign earned income of overseas subsidiaries fell largely outside the scope of the pre-TCJA IRC, while branches of U.S. MNEs would be subject to U.S. tax by virtue of their domestic incorporation. 
In 1962, Congress adopted a series of anti-deferral policies known as “Subpart F Income Rules,” aimed at mitigating the preferential treatment of CFC income which was “inherently mobile, substantially unrelated to the foreign CFC’s business, or shown to have already been repatriated in the U.S.” The Subpart F income rules stipulated that U.S. shareholders of CFCs holding 10% or more of the outstanding stock of the CFC were required to include in their income their pro rata share of designated types of income earned by the CFC. “Shareholders” here includes individuals who are U.S. citizens or permanent residents, as well as U.S. based corporations, partnerships, and trusts.” While these regulations reduced the tax benefits to overseas subsidiaries, they excluded many unrepatriated cash flows ensuring the continued use of overseas subsidiaries by U.S. corporations.
Additional benefits to foreign subsidiaries derive from their treatment under the Generally Accepted Accounting Principles (GAAP). While a U.S. parent corporation could defer taxation on the foreign sourced income of their subsidiaries, when repatriated back to the U.S., that income would be subject to U.S. corporate tax. While the parent corporation would be eligible for a Foreign Tax Credit for taxes paid on that income to the jurisdiction in which it was earned, the U.S. parent would pay the same rate on repatriation as if the income had been earned in the U.S., limiting the benefits to the time value of the deferral.
Under GAAP on the other hand, U.S. parent corporations are directed to file consolidated financial statements reflecting the income of their majority owned overseas subsidiaries. This discrepancy enabled U.S. parent corporations to increase the basis in their foreign subsidiary stock, while excluding their income for tax purposes.
Normally, the resulting excess in book basis over tax basis would be recorded as a deferred tax liability, with a corresponding debit to deferred tax expense. A strikingly preferential exception, however, allows corporations to avoid recording such a liability if they can furnish evidence that the foreign subsidiary plans to invest its undistributed earnings indefinitely. This is known as an “APB 23 Assertion.”
To illustrate, suppose a U.S. corporation wholly owns a foreign subsidiary in a no-tax jurisdiction. The U.S. parent’s basis in that subsidiary is $1 million for book and tax purposes. The U.S. parent has a pretax income of $40 million in 2008, while the subsidiary has pretax financial income of $20 million in the same year. For financial accounting purposes, the U.S. parent will consolidate its income with that of its wholly owned subsidiary, resulting in $60 million of pretax financial income (while the $20 million is not included for tax purposes due to APB 23). Had the parent company been required to record the standard deferred tax liability for the excess of its book basis over its tax basis, it would have recorded a $7 million deferred tax expense (based on the pre-TCJA 35% corporate tax rate). This would reduce the parent’s net income (after expenses and deductions) from $46 million ($40 million of U.S. sourced income taxed at 35% yields a tax liability of $14 million while the $20 million of foreign sourced income is excluded) to $39 million. Because Earnings Per Share (EPS) are calculated based on financial records (not tax returns), APB 23 yields a significant windfall to corporate executives whose compensation is tied to their company’s EPS.
It is important to note that the tax benefits of an overseas subsidiary (over a branch) appear only when that entity becomes profitable. If the overseas entity operates at a loss, the U.S. parent may be better off classifying it as a branch or foreign partnership (often dictated by local laws, both are “invisible” under the IRC, i.e., not taxed at the entity level). The parent can then deduct the losses, reducing its overall tax liability. The IRS gives most firms flexibility in classifying their foreign entities for U.S. tax purposes. Known as “Check-the-Box Regulations,” Regs. § 301 allows “all eligible entities” to elect to be taxed as a branch, a partnership, or as a corporation. “Eligible entities” here refers to overseas entities not falling under the definition of a “per se corporation.” Many MNEs thus prefer to initially avoid the legal hassles of incorporating a separate legal entity by establishing foreign entities as branches or partnerships, and then converting them to corporations once they start turning a profit.
Apple’s CSA and Irish Sandwich
The use of Cost Sharing Agreements (“CSAs”) between U.S. headquartered MNEs and their overseas subsidiaries has attracted both media and regulatory attention in recent years. Exchanges of intangibles between related entities pose difficulties under the realization-based IRC. IRC § 367 deems an exchange to be a sale where it is made “in exchange for payments which are contingent upon the productivity, use, or disposition of such property.” Section 367 does not apply however, to intangibles created outside of the U.S. U.S. MNEs can thus circumvent § 367 by developing intangibles in conjunction with their foreign subsidiaries. These subsidiaries will then use the software created outside of the U.S. The non-U.S. rights to the intangibles will be deemed created in the foreign jurisdiction where they were intended to be used in accordance with the CSA — allowing derivative income to be excluded under § 367.
U.S. based tech companies famously developed a tax strategy known as the “Double Irish & Dutch Sandwich” (“Double Irish”) which was used to varying degrees by a variety of U.S. based MNEs. Though Google is widely considered to be its inventor, Apple constructed the largest Double Irish mechanism, prompting extensive regulatory action by the European Council.
The first mechanism in the Double Irish consisted of an Irish subsidiary, Apple Sales International (“ASI”), which had Bermudan tax residency (an unusual characteristic allowed under Irish law at the time). Apple’s U.S. headquarters transferred intangible property to ASI in a taxable transfer reflecting arm’s-length pricing. Once the foreign subsidiary took ownership of the intangible property rights, the income generated by them fell outside of the scope of U.S. taxation.
Congress explicitly approved these transfers in a series of Treasury Regulations, which have been regularly updated since their introduction in 1986. These regulations attempt to ensure that prices between related entities correspond to what would have been reached between unrelated parties exchanging similar assets. U.S parties to CSAs must provide the IRS with a method to calculate each related party’s share of intangible development cost based on factors that reflect each party’s share of reasonably anticipated benefits. If the provided methodology checks out, the pricing should withstand IRS scrutiny.
In the event that a pricing scheme furnished to the IRS by a U.S. headquartered MNE is deemed not to represent an arm’s-length price, Section 482 allows the IRS to adjust transfer prices with the benefit of hindsight, to reflect the actual value of the transferred intangible.
While these transfers can (and do) occur all over the world, Ireland became a choice destination due to its low corporate tax rate and (since amended in 2013) bifurcated residency laws. Ireland’s tax code contained a “trading exception” under which Irish subsidiaries which were controlled by managers in EU member states or tax treaty countries — such as the United States — could be treated as a Bermudan company for tax purposes, while maintaining Irish incorporation. This unique setup allowed participating companies to pay low rates on income under Irish law, while enjoying Bermuda’s tax-free treatment of cash flows outside the scope of Ireland’s tax code.
A second Irish Subsidiary comprised the remainder of the “sandwich”. European profits from transferred intangibles were funneled through Apple Operations Europe (“AOE”). AOE utilized Irish tax treaties to funnel profits to Ireland tax-free, where they could then be subject to Bermuda’s corporate tax under the trading exception (via transfer through ASI). The Double Irish enabled Apple to shift $74 billion in worldwide sales income away from the U.S. to Ireland, while conducting around 95% of its (deductible) high-value R&D efforts in the U.S. The Double Irish was eventually shut down by EU regulators.  This was not due to U.S. tax considerations, but in response to allegations that Apple’s preferential tax treatment was reached through negotiations which violated EU corporate law.
Lobbying & Tax Reform
Though U.S. corporations were able to largely defer application of the pre-TCJA 35% tax rate through creative maneuvering of offshore subsidiaries, the resulting lockout frustrated both corporate taxpayers and lawmakers. In 2004, Congress passed the American Jobs Creation Act, which included a one-time tax break for the repatriation of offshore assets. U.S. corporations responded with an unprecedented repatriation of over $312 billion in overseas cash and other assets, which was taxed at a highly competitive 5.25%.
While both corporate taxpayers and politicians agreed that overseas lockout was inefficient and harmful to the U.S. economy, the 2004 repatriation was widely criticized. Critics argued that U.S. MNEs had predicated their substantial lobbying efforts on unfulfilled promises that repatriated cash would be used to increase domestic hiring, growth-oriented R&D, and other domestic investment. A 2009 study by the National Bureau of Economic Research in Cambridge, MA found that the repatriations were not used for growth oriented domestic investment, but instead led to almost dollar for dollar payouts to shareholders. While either would yield an infusion of cash into the U.S. economy, critics felt that the cash flows to shareholders from buybacks result in less of a benefit to the economy overall than the promised creation of new jobs.
In addition to how the repatriated funds were used, some argued that the 2004 tax cut unfairly “rewarded” companies that held profits offshore for decades. Because of its one-time nature, critics worried that the “holiday” would merely reinforce the efficacy of offshoring as a global corporate strategy. Often framing their criticisms in terms of a patriotic duty of U.S. corporations to repatriate overseas profits, these critics attacked offshoring strategies on moral grounds and extended these criticisms to those responsible for the 2004 bill. While the one-time tax holiday led to a substantial one-time repatriation, U.S. headquartered MNEs continued to increase their offshore reserves throughout the first two decades of the 21st century.
In the wake of the 2004 bill during the Obama administration, U.S. MNEs, faced again with unprecedented reserves of offshore funds, lobbied heavily for another chance at tax preferred repatriation. The Tax Cuts and Jobs Act of 2017 provided an attempt at a long-term solution.
The TCJA establishes three momentous changes to the IRC. The Act reduces the corporate tax rate to levels competitive in the global market, generally transitions the U.S. closer to a territorial tax system, and imposes new regulations aimed at combating base erosion by U.S. headquartered MNEs. The Act provides for a 100% deduction for any cash dividends received by a U.S. shareholder of a CFC that is at least 10% controlled by U.S. shareholders (the Dividends Received Deduction or “DRD”). The deduction is paired with an exclusion of such income from the FTC (in order to avoid a double credit) allowing the income of overseas subsidiaries to be repatriated tax free.
Prior to the Act, dividend income from CFCs was subjected to a graduated deduction system, under which a U.S. shareholder of 80% or more of a foreign subsidiary would receive a 100% deduction on dividends from that subsidiary: Those owning 20-80% of foreign subsidiaries were entitled to a 65% deduction, and shareholders of less than 20% were entitled to a 50% deduction. By allowing a 100% deduction at all levels of ownership, the TCJA demonstrates a congressional preference for foreign subsidiaries both relative to their pre-TCJA treatment, as well as to their domestic counterparts (which are still subject to a graduated system).
In addition to dramatically reshaping the U.S. tax system’s treatment of foreign income moving forward, the TCJA included a mechanism for repatriating income earned under the prior system. Under Section 965, effective as of January 1, 2018, all undistributed foreign-sourced earnings and profits are treated as though they were repatriated (though no cash dividends are actually received by U.S. shareholders). These earnings are subject to a tax-rate of 15% if they are held in cash or cash equivalents (stocks, bonds, or marketable securities) or 8% for non-liquid assets (inventory, PP&E, etc.). In addition to a substantial reduction from the pre-TCJA rate of 35%, the tax imposed on this “deemed repatriation” can be paid in installments over eight years.
While significantly expanding the U.S. tax base, this provision also provides for a substantially preferential treatment of nonliquid assets over cash and cash equivalents (up to 7.5%, 27% reduction on nonliquid assets less a 19.5% reduction on liquid assets). The ratio of liquid to nonliquid assets is deemed to be the greater of (1) the liquid assets on average over the past two years or (2) the amount of liquid assets held as of January 1, 2018. While this mechanism does not provide much strategic opportunity post-enactment, the two years in which Congress debated the relevant provisions enabled attentive MNEs to generate significant savings by purchasing non liquid assets prior to 2018. Apple was able to save around $4 billion over the tax liability that would have been imposed had the deemed repatriation taxes been applied to its overseas assets as they existed in 2016.
In response to the TCJA, Apple announced plans to repatriate the majority of its roughly $252 billion in offshore reserves — the largest stockpile of any U.S. company. While this repatriation generated around $38 billion in federal tax revenue, it is widely understood that Apple’s use of the after-tax repatriated funds will have a much greater impact on the U.S. economy.
Apple pledged to invest repatriated cash domestically to create new jobs and increase domestic manufacturing. Specifically, Apple announced a new $30 billion investment in capital expenditures from 2018-2023, the creation of 20,000 new jobs at existing sites, a new U.S. based campus, new U.S. data centers, and additional investments in domestic supply chains. Many of these promises have come to fruition. In 2017 Apple increased its domestic manufacturing fund from $1 billion to $5 billion and invested in Corning, Inc. and Finisar Corp., two domestic manufacturers of iPhone components.
While attempting to discern the efficacy of the TCJA, it is important to understand the difficulties in drawing causal links between Apple’s corporate strategy and the Act’s amendments to the IRC. Many consider the TCJA to represent a bargain between “Big Tech” and the U.S. Congress to increase domestic investment in exchange for reduced tax rates. Some critics argue that Apple’s post-repatriation strategy lacks a sufficient increase to its domestic investments to justify the reduction in its tax obligations. Apple spent millions of dollars over several decades lobbying for the reforms contained in the TCJA. These expenditures coupled with advantageous conversions of liquid to nonliquid assets prior to the passage of the TCJA strongly indicate a familiarity with relevant provisions prior to their enactment.
Spending the Cash
After taxes, Apple is faced with over $200 billion in repatriated cash. While Apple has allocated portions of this stockpile to various uses, the majority remains untouched. Additionally, as it is widely believed that the TCJA will lead to reduced offshoring of overseas income in years to come, domestic cash reserves attributable to TCJA reforms are likely to increase further. As Apple had more than sufficient cash to meet its operational needs prior to 2018, it has significant leeway in the allocation of these new cash flows. Apple can (1) allow cash to sit in reserve, (2) allocate funds to new capital expenditures, or (3) alter its capital structure by paying off debts or distributing funds to shareholders in buybacks or dividends.
The first option does not require much analysis. Cash will necessarily sit in Apple’s reserves until it can be put to more productive use. While certain predictions may support increasing cash reserves for opportunities likely to occur in the future, no one believes that leaving an extra $200 billion in the bank indefinitely (on top of Apple’s record setting pre-repatriation reserves) constitutes good corporate strategy.
Surplus capital is, by definition, capital remaining after productive investments have been made. The tech industry, and Apple in particular, is often criticized for producing few jobs relative to its profits. While the 2017 tax cuts were largely justified by the promise of increased domestic hiring, reducing incentives to offshore profits will only increase domestic investment to the extent that those incentives were restricting domestic investment in the first place. To the contrary, Apple’s unprecedented pre-TCJA cash reserves indicate that Apple’s domestic investing has not been hindered by international lockout.
While the tech industry grew exponentially in the first decades of the 21st century, domestic and worldwide employment growth and domestic investment in has not come close to matching that of revenue. The discrepancy between financial growth and job creation is (non-exhaustively) attributable to external economic realities, the intrinsic nature of the tech industry, and non-tax competitive advantages to offshoring some business functions.
In the past decade, investment in PP&E relative to revenue by public corporations has hit a worldwide historic low. While an absolute decline in the U.S. could indicate a causal relationship to lockout (or otherwise restricted cash flows), worldwide declines and domestic declines relative to revenue must have alternate causes. The Federal Reserve tracks capacity utilization, a metric aimed at measuring what portion of American industrial capacity is being used by businesses. This data shows a sharp drop in utilization following the 2008 economic crisis, and a slow and incomplete recovery.
Comparing the utilization data to the U.S. Department of Commerce’s statistics on domestic investment reveals a close correlation between the two, with reductions in investment following reductions in utilization. The temporality of this correlation coupled with the apparent general independence of investment to revenue points to the recession as a more likely cause of reduced investment. To the extent that investment in PP&E would be unproductive due to the underutilization of existing PP&E post TCJA inflows would not independently justify increased investment. However, a causal relationship between low PP&E investment and the depressed economy could justify a long term strategy of retaining some cash for future investment as the economy recovers.
Data on capital investment worldwide further supports a cause of decline other than U.S. tax policy. If lockout attributable to the worldwide approach to U.S. taxation was a substantial contributor to reduced investment, the decline and continued depression should be more extreme in the U.S. than in other countries. To the contrary, data compiled by the Organization for Economic Co-Operation and Development (“OECD”) indicates that among advanced economies, capital expenditures declined less in the U.S. than in all but two of the OECD thirty-seven member states both in absolute terms and relative to revenue.
The effects of economic depression on job creation are compounded in the tech industry by its core objectives. As Bloomberg analyst Anurag Rana put it, the tech industry has a “non-linear relationship between revenue growth and head count.” As more roles can be automated, technological advances have decreased demand for less skilled labor. Domestically, while low priced overseas labor has advantaged the offshoring of manufacturing and extractive industries for over a century, technological advances in communication and transportation coupled with growing rates of higher education in developing countries (all largely attributable to technological advances) have lowered worldwide market rates for many types of skilled work below cut offs set by U.S. labor laws, cost of living and education, etc. As with reduced investment in PP&E, to the extent that the tech industry’s employment strategies reflect worldwide supply and demand, inflows of cash attributable to the TCJA cannot productively be used to increase hiring.
Debt Repayment, Buybacks, and Dividends
While experts vary in their opinion of Apple’s capital expenditure strategy, it is almost universally accepted that a large surplus will exist after all strategic investments have been made. While a young company generally has no alternative to taking on debt to finance its operations, well established, cash rich companies like Apple intentionally craft their debt-to-equity ratio based on its impact on cost of capital.
Apple has spent billions since 2017 on stock buybacks and dividends. Though the overall legality of buybacks has generally gone uncontested in recent years, they are often criticized as diverting from growth-oriented investments in favor of wealthy shareholders — enriching corporate executives in the process, at the expense of the company’s long term interests and those of the economy at large.
Share buybacks consolidate corporate ownership, leaving fewer shareholders splitting the corporate “pie.” While it is often assumed that buybacks increase Earnings Per Share and shareholder value by simply dividing the same earnings among fewer shareholders — this oversimplification ignores the cost of repurchase. Assuming that the corporation’s operations do not change, a buyback will reduce earnings either by the interest opportunity cost of the cash used to repurchase the shares, or by the interest owed if the buyback is financed. While these opportunity costs accompany both buybacks and dividends, they are important to consider in comparisons to capital expenditures and debt repayment. Additionally, while opportunity costs associated with both dividends and buybacks reduce share value, they are offset in the case of buybacks by an increase in share value derived from consolidation of ownership.
Often, the greatest advantages to shareholder distributions derive from their tax treatment and, to a more controversial extent, the signals that they send to investors on the market. Depending on how they are financed, distributions (whether dividends or buybacks) will either reduce cash, increase debt, or both. Thus, independent of any other effects, distributions can increase share value by increasing the corporation’s debt to equity ratio and corresponding cost of capital. Because interest payments are deductible, while dividend and interest income are not, the cost of capital is lower when debt is used to finance buybacks. In this sense, buybacks create value by improving the tax treatment of the corporation’s capital structure, though there is no change to the business operations. These gains can be substantial, at current (2020) rates, a corporation’s value can rise by as much as $0.21 for every $1 of equity exchanged for $1 of debt.
The most controversial value added from distributions comes from how they are interpreted by capital markets. Small share repurchase programs (less than 15% of outstanding shares) tend to yield a 2-3% increase in share price on the day that the program is announced. Larger buybacks (more than 15% of outstanding shares) tend to increase share price by an average of 16%. These increases are controversial because of their independence from any productive changes to business operations. While the issuance of dividends may make a given stock attractive to certain investors, the value added is harder to quantify due to the variety of factors which can motivate stock purchases.
In addition to their impact on share values, differing tax treatment of buybacks and dividends is a key factor in distribution strategy. Dividends are not deductible to the corporation and are taxable in their entirety to non-corporate recipients. Corporate shareholders, however, may deduct a portion of dividend income relative to their ownership in the issuing corporation. Corporate shareholders tend to prefer dividends over buybacks for this reason.
Non-corporate shareholders’ preference will vary based on their reasons for holding the stock, as well as their overall tax sensitivity. Young shareholders with regular income from other sources tend to be more growth oriented and may prefer the value increase from buybacks. Stocks known for regular dividends on the other hand tend to be attractive retirement investments, making them attractive to middle aged investors. Elderly investors purchasing stock for the next generation face dueling considerations: On one hand, dividend issuing stock can provide descendants with dependable income without requiring any financial acumen on their part; while on the other hand, their descendants will receive the stock with a stepped up basis, avoiding taxation on the growth generated in their lifetime.
The debate over buybacks does not cut clean familiar fault lines in American society. In response to Apple’s 2017 buyback announcements, Larry Fink, CEO of BlackRock, warned against strategies which he saw as “deliver[ing]immediate returns to shareholders, such as buybacks . . . while underinvesting in innovation, skilled workforces, or essential capital expenditures necessary to sustain long-term growth.” In contrast, Warren Buffet, widely considered one of the most successful investors of all time, was “delighted” at the announced buybacks. While some were quick to downplay Buffet’s enthusiasm as self-interest, Apple’s 2020 filings with the SEC show that Berkshire Hathaway owns 5.82% of Apple’s outstanding stock, while BlackRock holds 6.77%.
Reactions in legislative circles were similarly unpredictable, though more likely reflective of political pressures than objective economic analysis. While democrats, including Joe Biden and Chuck Schumer, campaigned on plans to restrict buybacks, republicans, including Donald Trump and SEC commissioner Daniel Gallagher, have also condemned buybacks and called for increased regulation. Political condemnation of buybacks stems largely from the predication of executive compensation on shareholder returns. Politicians worry that the tendency of buybacks to increase executive compensation will drive directors to divert funds from productive investment in favor of self serving buybacks. Whether these fears are per se legitimate is beyond the scope of this paper. Apple’s unprecedented stockpile of cash both prior to 2017 and after repatriation establishes that productive investment is not constrained by the availability of cash. Given the unchallenged legitimacy of distributing funds that cannot otherwise be used productively, the fear of buybacks’ potential harms in unrelated circumstances should not guide Apple’s strategy.
 I.R.C. §7701(o).
 Press Release, Apple Newsroom, Josh Rosenstock, The Facts About Apple’s Tax Payments (Nov. 6, 2017)
 See, e.g., U.S. Const. Art. 1.
 Helvering v. Gregory, 69 F.2d 809, 810 (1934).
 Many additionally point to the liberalization of trade policies after WWII as a driver of globalization. While these policies undeniably facilitated global trade, a strong argument can be made that once technology had advanced to the point where global trade was highly profitable, the corporate capture of legislative bodies made enabling policy changes inevitable.
 Who We Are, World Bank Group Archives, https://www.worldbank.org/en/about/archives/history#:~:text=Conceived%20in%201944%20at%20the,1947%20for%20post%2Dwar%20reconstruction (last visited Nov. 2, 2020).
 Note however that while economically efficient, some “competitive advantages” such as lower labor costs have a high human cost to the extent that these prices are attributable to savings from less stringent labor laws, as opposed to, for example, mineral deposits.
Barbara Angus et al., The U.S. International Tax System at A Crossroads, 30 Nw. J. Int’l L. & Bus. 517, 550 (2010). “The 38 percent represents the U.S. share of nominal GDP for 1962, while the 21 percent represents the U.S. share of real GDP in 2007 (data on the share of real GDP for 1962 is not available). Id. Although the U.S. share of world GDP has declined, the United States remains one of the richest countries, with per capita GDP of $47,400 in 2008, compared with a per capita GDP of $43,000 in other advanced countries and $5,500 in developing countries.” Id.
 Ernst & Young LLP, Redrawing the Map: Globalization and the Changing World of Business (2010).
 GDP based on PPP, share of the world, IMF (Oct. 2020), https://www.imf.org/external/datamapper/PPPSH@WEO/ADVEC/WEOWORLD/OEMDC.
 Tarmo Virki, Weak Economy to Sap Handset Market Growth, Reuters (Aug. 27, 2008), https://www.reuters.com/article/us-cellphones-market-gartner/weak-economy-to-sap-handset-market-growth-gartner-idUSLR59584020080827.
 Daniel C. K. Chow & Thomas J. Schoenbaum, International Business Transactions: Problems, Cases and Materials (4th 299-365) (Wolters Kluwer, 4th ed. 2020).
 Id. Note however that U.S. anti-bribery laws do apply to officers and employees of foreign subsidiaries of U.S. corporations, the advantage here lies in enforcement difficulties. See 15 U.S.C. §§ 78dd-1, et seq.
 Mihir A. Desai, The Decentering of the Global Firm, The World Econ., Sept. 1, 2009, at 1274.
 Angus, supra note 11 at 527.
See Chow & Schoenbaum, supra note 22.
 I.R.C. §482.
 See Chow & Schoenbaum, supra note 22.
 Angus, supra note 11 at 535.
 See Scholes & Wolfson, supra note 68 at 10-5.
 Angus, supra note 11 at 535.
 Jacqueline Laínez Flanagan, Holding U.S. Corporations Accountable: Toward A Convergence of U.S. International Tax Policy and International Human Rights, 45 Pepp. L. Rev. 685, 710 (2018).
 Reuven S. Avi-Yonah et al., U.S. International Taxation: Cases and Materials 1 (Found. Press, 3rd ed. 2011); see also Pennoyer v. Neff, 95 U.S. 714 (1878), overruled by, Shaffer v. Heitner, 433 U.S. 186 (1977).
 Avi-Yonah et al., supra note 26, at 1; I.R.C. § 11.
 Laínez Flanagan, supra note 47, at 746.
 Robert F. Hudson, Jr. & Gregg D. Lemein, U.S. Tax Planning for U.S. Companies Doing Business in Latin America, 27 Univ. Mia. Inter-Am. L. Rev. 233, 241 (1996).
 I.R.C. § 951(b) (1995); See also p. 17 for more details on Subpart F Rules.
 Consolidation of All Majority-Owned Subsidiaries, Statement of Financial Accounting Standards No. 94, §§ 1-2, 13 (Fin. Accounting Standards Bd. 1987).
Prior to the TCJA, the Foreign Tax Credit was the primary device by which U.S. corporations could avoid double taxation on their repatriated foreign sourced income. These corporations are credited for tax payments made to foreign jurisdictions for the income earned within their borders, leaving them with a U.S. tax obligation equal to the difference between the foreign jurisdiction’s rate, and that of the U.S. This credit is available to U.S. companies upon a showing (1) that taxes were indeed paid to a foreign jurisdiction, (2) by the company seeking the credit, and (3) that the taxes are creditable.
I.R.C. § 11 (West 2017).
Consolidation of All Majority-Owned Subsidiaries, Statement of Financial Accounting Standards No. 94, §§ 1-2, 13 (Fin. Accounting Standards Bd. 1987).
Id. §§ 31(a), 288(f); Accounting for Income Taxes, APB Op. No. 23, §12 (Accounting Principles Bd. 1972) (“The presumption that all undistributed earnings will be transferred to the parent company may be overcome, and no income taxes should be accrued by the parent company, if sufficient evidence shows that the subsidiary has invested or will invest the undistributed earnings indefinitely or that the earnings will be remitted in a tax-free liquidation.”).
Christopher H. Hanna, The Real Value of Tax Deferral, 61 Fla. L. Rev. 203, 234 (2009).
 Scholes & Wolfson, supra note 68. at 10-5.
 Id. at 10-6.
 Id. at 10-5.
26 C.F.R. § 301.7701-3(a) (West 2020).
Scholes & Wolfson, supra note 68 at 10-5.
I.R.C. § 367(d)(2).
I.R.C. § 367(d)(1) (providing deemed sale rules for transfers of property outside the U.S., not the creation of property).
 See Loomis, supra note 76.
 See Robin F. Hansen, Taking More Than They Give: MNE Tax Privateering and Apple’s “Ocean” Income, 19 German L.J. 693, 699 (2018).
Lisa O’Carroll, US Investigates Google Tax Strategies, Guardian (Oct. 14, 2011, 7:08 AM), http://www.guardian.co.uk/technology/2011/oct/14/us-investigates-google-tax-strategies (“In 2006, the [IRS] signed off on a 2003 intracompany transaction that moved foreign rights to its search technology to an Irish subsidiary managed in Bermuda called Google Ireland Holdings”).
See OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS, 31-58 (2010), http://www.oecd.org/ctp/transfer-pricing/transfer-pricing-guidelines.htm.
 See id.
 Added in 1986 to mitigate the effects of informational asymmetry between taxpayers and the IRS.
 See Debra Brubaker Burns, Golden Apple of Discord: International Cost-Sharing Arrangements, 15 Hous. Bus. & Tax L. J. 55, 67-68 (2015).
See Loomis, supra note 76, at 837.
 See Hansen, supra note 80, at 700.
 See Loomis, supra note 76, at 837.
 See Offshore Profit Shifting and the U.S. Tax Code-Part 2 (Apple Inc.): Hearing Before the S. Permanent Subcomm. on Investigations, Comm. on Homeland Sec. & Governmental Affairs, 113th Cong. 6, 23 (2013).
 See Burns, supra note 87, at 67.
 Jesse Drucker, How Tax Bills Would Reward Companies That Moved Money Offshore, N.Y. Times, (Nov. 29, 2017), https://www.nytimes.com/2017/11/29/business/taxes-offshore-repatriation.html?_r=0.
 American Jobs Creation Act of 2004, Pub. L. No. 108–357, Oct. 22, 2004, 118 Stat. 1418.
 Floyd Norris, Tax Breaks for Profits Went Awry, N.Y. Times (June 4, 2009), https://www.nytimes.com/2009/06/05/business/05norris.html.
Dhammika Dharmapala et al., Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act(NBER Working Paper No. 15023, 2009).
 Floyd Norris, Tax Breaks for Profits Went Awry, N.Y. Times (June 4, 2009), https://www.nytimes.com/2009/06/05/business/05norris.html.
 Drucker, supra note 95.
 Michael S. Goode & David J. Mittelstadt, New Tax Act Brings Major Changes to U.S. International Taxation System, Tenn. B.J., Aug. 2018, at 18.
 26 U.S.C. § 245A.
 TCJA: WORLDWIDE VS. TERRITORIAL SYSTEM., 29 J. INT’L TAX’N 30, 34, 2018 WL 4358122, 5; see also I.R.C. § 965(h)(1).
 Press Release, Apple Newsroom, Josh Rosenstock & Fred Sainz, Apple Accelerates US Investment and Job Creation (Jan. 17, 2018) https://www.apple.com/newsroom/2018/01/apple-accelerates-us-investment-and-job-creation/.
 Jim Tankersley, Trump’s Tax Cut One Year Later: What Happened?, N.Y. Times, (Dec. 27, 2018), https://www.nytimes.com/2018/12/27/us/politics/trump-tax-cuts-jobs-act.html.
 See Hansen, supra note 80.
 See Drucker, supra note 95.
 See Rosenstock & Sainz, supra note 120 (analyzing Apple’s repatriation tax liabilities). See also Nabila Ahmed et al., Apple Cuts Back on Bond Buying in Advance of Bringing Cash Home, Bloomberg News (Feb. 6, 2018, 6:00 AM), https://www.bloomberg.com/news/articles/2018-02-06/apple-cuts-back-on-bond-buying-in-advance-of-bringing-cash-home.
 See Rosenstock & Sainz, supra note 120.
 Matthew Townsend, How Is Big Business Using the Trump Tax Cut? What We Know, Bloomberg News (Feb. 4, 2018, 7:01 PM), https://www.bloomberg.com/news/articles/2018-02-05/how-is-big-business-using-the-trump-tax-cut-what-we-know-so-far.
 Christine Wang, Apple’s Cash Hoard Swells to $237.6 Billion, a Record, CNBC News (Oct. 25, 2016), https://www.cnbc.com/2016/10/25/apples-cash-hoard-now-nearly-238-billion.html.
 Apple, Annual Report (Form 10-K) (Sept. 28, 2019), https://www.sec.gov/Archives/edgar/data/320193/000032019319000119/a10-k20199282019.htm#sEDE9BAA1C9E05AB4843082ACD6A97FE3.
 Charles E. Crouch, The Significance of Capital Surplus to the Investor, 1 Vand. L. Rev. 583 (2019), https://scholarship.law.vanderbilt.edu/vlr/vol1/iss4/7.
 Aditya Chakrabortty, Apple: Why Doesn’t It Employ More US Workers?, The Guardian (Apr. 23, 2012), https://www.theguardian.com/technology/2012/apr/23/bad-apple-employ-more-us-workers.
 Vipal Monga et al., As Activism Rises, U.S. Firms Spend More on Buybacks than Factories, Wall St. J., May 27, 2015, at A1.
 Board of Governors Federal Reserve System, Flow of Funds 54-55 (2017), www.federalreserve.gov/releases/g17/ipdisk/utl_sa.txt.
 Bureau of Econ. Analysis, Table 5.2.5 Gross and Net Domestic Investment, https://www.bea.gov/data/economic-accounts/national.
 Mark J. Roe, Stock Market Short-Termism’s Impact, 167 U. Pa. L. Rev. 71, 89 (2018).
 Org. Econ. Coop. & Dev., Level of GDP Per Capita & Productivity (2021), https://stats.oecd.org/index.aspx?DataSetCode=PDB_LV.
 Anurag Rana, Tech Industry May Struggle to Answer Trump’s Call for Jobs, BL, (Dec.15, 2016), https://www.bloomberglaw.com/product/blaw/document/X9U9JHVS000000?criteria_id=2ae8dcc64410c141286a666de1ae6821&searchGuid=2771eb60-0dd2-4d6e-adf0-420bac0488cb&search32=RimzN7tf3y10UIGJ40xIMA%3D%3DIHEyJ5FUHJpVcqHcssjnnnNFZjwMtbJGI39INHoSObFq6dLQogG0p8BPRtEz1sEs_qQqJS3HzxuZxK96HAaD69qTU9FnYorL81KX6Hm_X2SbgzL-fZS_d_zxdXRJIFBFHDZyv398xKx6SuGliftk1WVsWSxLzkgmTi1pPogGQJ3ghKnV3PpHdSURlK0pp08Xtofhk0A24JgE6Zj4ulx4pKnRl7q8vClgltrI9Wxnml46W88V1IBMlXbmSGpjtkefkPhw0_P8zJgwOihOGb2GpA%3D%3D.
 Jones Chuck, Apple Will Have To Buyback $250 Billion In Stock To Become Cash Neutral, Forbes (Feb. 28, 2021, 8:39 PM) https://www.forbes.com/sites/chuckjones/2021/02/28/apple-will-have-to-buyback-250-billion-in-stock-to-become-cash-neutral/?sh=168e74617d7d.
 Scholes, M. S., & Wolfson, M. A. (1992). Taxes and business strategy: A planning approach. Englewood Cliffs, N.J: Prentice Hall at 6-1.
 Lu Wang, Cash Pouring in From Overseas Does Little to Goose Capex Outlays, Bloomberg News (Sept. 26, 2018), https://www.bloomberg.com/news/articles/2018-09-26/cash-pouring-in-from-overseas-does-little-to-goose-capex-outlays.
 Mark J. Roe, Stock Market Short-Termism’s Impact, 167 U. Pa. L. Rev. 71, 73-74 (2018).
 Richard Dobbs & Werner Rehm, The Value of Share Buybacks, McKinsey Q. (2005), https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-value-of-share-buybacks.
 Scholes & Wolfson, supra note 68 At 6-1.
 Dobbs & Rehm, supra note 148.
 Scholes & Wolfson, supra note 68 at 6-1.
 Dobbs & Rehm, supra note 148.
Scholes & Wolfson, supra note 68 at 5-8.
 Jesse M. Fried & Charles C.Y. Wang, Are Buybacks Really Shortchanging Investment?, Harv. Bus. Rev., Mar.-Apr., 2018, https://hbr.org/2018/03/are-buybacks-really-shortchanging-investment.
 Joe Nocera, Sorry, Warren Buffett, Stock Buybacks Aren’t That Simple, Bloomberg Op. (May 8, 2018), https://www.bloomberg.com/opinion/articles/2018-05-08/apple-s-stock-buyback-isn-t-as-simple-as-warren-buffett-says.
 Jesse M. Fried & Charles C.Y. Wang, Are Buybacks Really Shortchanging Investment?, Harv. Bus. Rev., Mar.-Apr., 2018, https://hbr.org/2018/03/are-buybacks-really-shortchanging-investment; See also Daniel M. Gallagher, Comm’r, U.S. Secs. & Exch. Comm’n, Remarks at the Stanford Directors’ College: Activism, Short-Termism, and the SEC (June 23, 2015) (transcript available at www.sec.gov/news/speech/activism-short-termism-and-the-sec.html [https://perma.cc/ER8Z-SFU7]). Gallagher was an SEC Commissioner from 2011 to 2015.
 Joe Nocera, Sorry, Warren Buffett, Stock Buybacks Aren’t That Simple, Bloomberg Op. (May 8, 2018), https://www.bloomberg.com/opinion/articles/2018-05-08/apple-s-stock-buyback-isn-t-as-simple-as-warren-buffett-says.
 Matthew Townsend, How Is Big Business Using the Trump Tax Cut? What We Know, Bloomberg News (Feb. 4, 2018, 7:01 PM), https://www.bloomberg.com/news/articles/2018-02-05/how-is-big-business-using-the-trump-tax-cut-what-we-know-so-far; See also Webb Alex & Gurman Mark, Apple, Returning Overseas Cash, to Pay $38 Billion Tax Bill, Bloomberg Law (Jan. 17, 2018, 4:36 PM), https://www.bloomberg.com/news/articles/2018-01-17/apple-expects-38-billion-tax-bill-on-overseas-repatriated-cash#:~:text=Apple%20Inc.%20said%20it%20will,centers%20in%20the%20coming%20years.&text=Companies%20can%20pay%20over%20eight%20years.