Are EBay Executives Stupid? Ebay’s Tax Bill High + Makes NO Sense Why
Ebay recently announced a decision to repatriate (ie- bring back 9 billion dollars worth of cash back to the US) and pay an obscenely high tax bill of 3 billion dollars. Billion.
Why? Here must be a reason that I am not considering. Let’s say that Ebay wants to use that cash to make a US based purchase of a company, and here my suspicion is it will be mobile payment player Square, repatriating the money and paying such a high tax rate simply makes no sense.
The Apple Way
You see, now you are giving away 3 bills to Uncle Sam (remember when 3 bills used to be $300, talk about inflation) of shareholder value, and for what? Why not borrow the 9 billion you need at what are still historically low interest rates, and use that to fund your activity. This is what Tim Cook and Apple have done. Borrowing money to fund share repurchases, and avoiding bringing over the massive cash-horde they have overseas, and giving away money to the US Treasury.
There’s Always a Chance
Furthermore, much of the business community has railed for a change in US tax law regarding bringing home money earned overseas. While so far Congress hasn’t budged, and is unlikely to anytime soon, there is always a chance they will. At that time you can bring home the money, pay off the loan if interest rates have dropped, or keep the loan if they have risen, and avoid paying the 33% tax, saving shareholders a ton of value in the process.
Are Ebay Executives Stupid?
Far be it for me to answer this question definitively. They must have a reason that we aren’t thinking of. If not, they simply must be fired.
This much I will bet, in short order we’ll discover the reason behind the move. If not, the move just plain makes no financial sense.