Cash, Taxes, And Dividends

More than a few companies are sitting on piles of cash. For example, Apple has more than $117 billion in cash, Microsoft has more than $60 billion, and Google has more than $43 billion. Since these companies are in relatively saturated markets, there is less room for capital investment. So why don't these companies pay larger dividends? One argument is the repatriation of foreign income. Many of the cash piles are in foreign subsidiaries. If the cash is repatriated to the parent, the company must pay a 35 percent tax rate (less any foreign taxes paid) on the repatriated funds. Then shareholders are forced to pay a further 15 percent on the dividend income, a combined tax rate of nearly 50 percent.