Apple, leverage and tax avoidance Tax makes companies do strange things. And at first glance few seem stranger than Apple's decision to borrow $17bn to fund, in part, a $60bn special dividend. This should be unnecessary. The technology company is one of America's most liquid companies. Its cash pile - worth about $145bn - easily covers even the huge payout it is proposing. Borrowing billions makes sense in one respect, however. It saves Apple from writing a fat tax cheque to bring that cash back from overseas, where it currently resides. That this should be so speaks volumes about the US tax code and the invitation it extends to legal tax avoidance through its differing treatment of foreign-source and domestic earnings. Editorial Kinks in the rules introduced in the 1990s make it easy for multinationals such as Apple to pile up lightly taxed foreign profits outside the US. There they sit beyond the reach of the taxman until the group repatriates them. In Apple's case, it holds roughly $100bn overseas in this way. The maths, however, argue against repatriation. In the case of Apple's dividend, borrowing $17bn onshore costs about $300m a year, on which it gets a tax deduction worth about $100m that can be offset against domestic profits. Bringing that amount back could cost up to $9bn in tax. Moreover, the equation increasingly favours overseas accumulation as US corporate taxes stay high while they tumble elsewhere. The skewed rules that permit this are unfair and inefficient. They discriminate against smaller companies, which do not have the scale to take advantage of such techniques. And they also deter domestic investment, encouraging US multinationals to pile up cash in low-risk assets abroad. At last count, US companies held a staggering $1.7tn overseas. While President Barack Obama has toyed listlessly with the idea of reforming the tax rules on foreign earnings since his first term, he has been too easily discouraged by the battalion of lobbyists sent by the multinationals to thwart it. Apple's decision to return cash to shareholders - even if funded by debt - is better than leaving funds stranded offshore. But that is no excuse for inertia. This newspaper favours comprehensive international tax reform, with countries agreeing how to divide the corporate tax base according to where economic activity takes place. This will not be easy to reach, however. In the near term, the US should remove the incentives to hoard foreign earnings and reduce rates.