NEW YORK (TheStreet) -- U.S. multinationals like Apple (AAPL) , Cisco (CSCO) , Microsoft (MSFT) and Oracle (ORCL) have found a unique way to use some of the estimated $2 trillion in cash that is "trapped" overseas because of U.S. tax laws.
Instead of bringing that money back to the U.S., which would make it subject to tax, companies are issuing debt to get the funds they need.
"It's an overstatement to say that it's trapped," said Edward Kleinbard, a law professor at USC.
Here's how it works:
Apple has $124 billion in overseas cash, according to a Citigroup report last month. While it can leave the money overseas tax free, it is required to pay taxes on whatever interest it earns on that $124 billion The IRS refers to this money as "passive income." Because it is paying taxes on the interest income, Apple is allowed to bring it back to the U.S.
Except that it doesn't pay taxes on that interest income either.
Instead, it issues bonds in the U.S. As part of one offering last year, it paid an interest rate of 3.45% to borrow $2.5 billion over 10 years.
Those 3.45% payments are tax deductible, so if Apple can earn an equivalent 3.45% on $2.5 billion of that overseas cash it can repatriate it tax-free.
In other words, Apple has the same $2.5 billion it could have withdrawn from an overseas account, except it issued bonds to get it. But the bond issue was essentially free, because the 3.45% it pays is offset with 3.45% coming in tax-free from $2.5 billion invested overseas.
It isn't just Apple. Microsoft, which has $76 billion in cash overseas, just sold $10.75 billion in bonds this month in the U.S. Oracle, with $31 billion in cash, raised $10 billion in bonds last year. Cisco, with $44 billion stashed abroad, sold $8 billion in bonds last year.