Dear Professor Dr. ▮▮▮▮▮▮▮▮▮▮▮,

I’m a student from your class TAX 101 and I’m preparing for the second exam. I wish to ask a few questions about the case Apple’s Tax Expenses.
From the income statement of Apple’s annual report 2017, we know that Apple has Income before provision for income taxes 64,089 and provision for income taxes 15,738, from which we get the tax rate of 24.6%. Is this the “Book ETR” you mentioned in the lecture?And, from the notes we see Apple defer 5,966 of the 15,738 provision for income taxes, leaving the current component only 9,772. Is this the actual tax payable? And is the corresponding tax rate 15.2% the so called “Cash ETR”? 

I was trying to figure out what information we can extract out of this reconciliation table. Also, I come up with a paper Henlon (2003) who criticized a lot about this calculation and implied this is wrong and that is also wrong… She was our ZEW guest keynote speaker… I’m so confused and worried about the exam. Could you please help me, professor?

Hanlon, Michelle. “What can we infer about a firm’s taxable income from its financial statements?.” National Tax Journal(2003): 831-863.

Apple	2017
Income before provision for income taxes	64,089
Computed expected tax	22,431	35%
State tax	185	0%
Indefinitely invested earnings of foreign subsidiaries	-6,135	-10%
Domestic production activities deduction	-209	0%
Research and Development credit	-678	-1%
other	144	0%
Provision for income taxes	15,738	24.6%	(1)
of which current	9,772	15.2%	(2)
of which deferred	5,966	9.3%

Best wishes,

Reeyarn

Reeyarn Zhiyang Li

University of Mannheim | Business School
Schloss | 68131 Mannheim | Germany | Phone +49 (0) 621 ▮▮▮ ▮▮▮▮
Email: ▮▮▮▮@uni-mannheim.de

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Dear Reeyarn,

Look at the Statement of Cash Flows and you find a line which reads

Cash paid for income taxes, net: 11,591,

…from which you get the cash ETR of 18.1%.

Best regards,

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