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Icahn Could Reap $440 Million In Tax Break From Apple Shares

He’s investing $150 million in a Super PAC to get Congress to create a giant tax break for corporations holding $2.1 trillion in untaxed profits offshore 

Washington, D.C. – Billionaire investor Carl Icahn and his investment firm could get a nearly $440 million tax break if his new Super PAC succeeds in its goal of winning a massive tax cut for multinational corporations holding $2.1 trillion in untaxed profits offshore. This estimate is based on Icahn’s 1% share of Apple stock alone; but his tax windfall could be even larger because Icahn appears to have additional significant investments in companies that have a large number of subsidiaries based in offshore tax havens.

Icahn recently pledged to invest $150 million to form a Super PAC focused on winning a steep cut in the tax rate that would be paid by multinational corporations upon the repatriation of $2.1 trillion in profits that they have booked offshore and that are untaxed in the United States. Specifically, Icahn said he will push Congress to pass “legislation for international tax reform as outlined in the framework put forth by Senators Charles Schumer and Robert Portman.”

A key feature of that framework is known as deemed repatriation, which would require corporations to pay a transition tax on their accumulated offshore profits, as part of an overhaul of the way U.S. corporate offshore profits are taxed. Icahn suggested that “[m]ost of these companies would be willing to pay a 5% to 10% incremental tax on this money upon bringing it back to the United States.”

Icahn ranks number 22 on the Forbes list of richest Americans with a $21.4 billion fortune.

“Carl Icahn’s Super PAC illustrates how the super wealthy are manipulating the political system for their own financial gain at the expense of other American taxpayers,” said Americans for Tax Fairness Executive Director Frank Clemente. “Icahn’s proposal will let some of the worst corporate tax dodgers off the hook for what they owe. Apple will reap the biggest tax break and Icahn, as one of Apple’s largest shareholders, will be handsomely rewarded. Billionaires do not need – nor do they deserve – such a windfall.”

Icahn’s goal is to require U.S. multinationals to pay a small repatriation tax on the $2.1 trillion in profits they have booked offshore. This would represent a huge tax break from the 35% corporate tax rate they now owe upon repatriation, less any foreign taxes paid. U.S. multinationals owe up to $600 billion in U.S. taxes on these offshore profits, according to Citizens for Tax Justice.

Apple alone has nearly 9% of the $2.1 trillion of offshore profits, or $181 billion. It owes about $59 billion in taxes on those profits, assuming a 35% tax rate minus the 2.3% that Apple has paid in taxes to foreign governments, virtually all tax havens, according to Citizens for Tax Justice.

Carl Icahn and his investment firm owned $6.3 billion worth of Apple shares, 0.96% of all stock in the company, as of October 26, 2015. If, as Icahn proposes, Apple and other corporations pay only a 5% or a 10% tax rate on their offshore profits, Icahn could save between $244 million (10% tax rate) and $439 million (5% tax rate) on taxes that would be owed on his share of Apple profits that were repatriated and paid as dividends. A spreadsheet showing the calculations can be found here. Estimates are based on:

  • Apple reported it has offshore profits of $181 billion on which it has paid just 2.3% tax to foreign governments.
  • After deducting for foreign tax credits, the taxes saved by Apple upon repatriation could be as high as $50.8 billion at a 5% tax rate and $42.3 billion at a 10% tax rate.
  • Shareholders might receive between 60 to 90 cents of every dollar in repatriated profits returned as dividends, based on estimates from the 2004 repatriation tax holiday.
  • Dividends that would be payable to Apple shareholders are as high as $45.7 billion (based on the 5% tax rate with 90% of the dividends returned to shareholders) and as low as $25.4 billion (based on the 10% tax rate with 60% of the dividends returned to shareholders).
  • Icahn owns 0.96% of Apple’s repatriated profits. His tax savings would be $439 million at the 5%/90% high-end rate and $244 million at the 10%/60% low-end rate.

Icahn’s investment of $150 million in a Super PAC to secure the legislation he proposes would mean he would net between $289 million at the high end and $94 million at the low end.

Icahn has substantial investments in other companies that appear to have large holdings in tax havens, but for which no data is publicly available to make estimates of how much he would save if his legislative goal is achieved. For instance, Icahn owns 88% of Icahn Enterprises, LLP, valued at $8.6 billion; it has a total of 20 subsidiaries in well-known tax havens such as Bermuda, Cayman Islands, The Netherlands and Switzerland. Icahn owns 3.8% of eBay, valued at nearly $1.3 billion. eBay has 38 subsidiaries located in tax havens, but it is not possible to determine the taxes Icahn could save if eBay paid at the 5% or 10% rate on its offshore profits, rather than at the tax rate it owes.

Icahn made several arguments in his letter to Congress about why it is important to enact legislation providing for this huge tax break to Apple and other multinationals, including that it is necessary to prevent corporate inversions, whereby a U.S. multinational changes its corporate address typically to an offshore tax haven. These arguments have been rebutted in a recent detailed letter to Congress from 24 international tax experts and in a letter from 56 national organizations in July that expressed opposition to the Schumer-Portman framework because it would  “provide huge incentives for corporations to shift profits and jobs offshore at the expense of U.S. workers and communities.”

 

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Americans for Tax Fairness is a diverse coalition of 425 national and state endorsing organizations that collectively represent tens of millions of members. The organization was formed on the belief that the country needs comprehensive, progressive tax reform that results in greater revenue to meet our growing needs. ATF is playing a central role in Washington and in the states on federal tax-reform issues.

 

PRESS CONTACT

Ron Eckstein, Communications Director, Americans for Tax Fairness
reckstein@americansfortaxfairness.org
(202) 454-6198 (o)