A Republican President Could Change Apple And Google's Tax Picture, Expert Says

Equity markets tend to overreact to the potential for major political policy changes, but a new report by UBS analyst Steven Milunovich indicates that some of the biggest U.S. companies could be facing a real possibility of major tax bills if a Republican is elected president in 2016.

According to Shane Lieberman, Federal Affairs Manager in the U.S. Office of Public Policy for UBS Americas, companies with large hordes of cash overseas, such as Apple Inc. AAPL and Alphabet Inc (NASDAQ; GOOGL) may have a lot more riding on the election than investors realize.

“Tax legislation is important to tech investors because (1) a lower tax rate incenting repatriation of overseas cash would be significant for companies such as Apple that have over 90% of cash outside the US—that cash can be returned to shareholders or reinvested in the business, and (2) the European Commission is questioning the tax rates in Europe of leading tech companies like Apple and Google,” Milunovich explains.

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Lieberman tells Milunovich that repatriation legislation is unlikely in 2016, but the election of a Republican president would put the chances of 2017 repatriation legislation as high as 50 percent. Lieberman anticipates that any such legislation would likely include a high single-digit rate for liquid assets and lower rates for non-liquid assets.

Disclosure: the author holds no position in the stocks mentioned.