U.S. Tax Reform Could 'Easily' Boost Apple's EPS

New rules issued recently by the US Department of Treasury have generated a lot of questions regarding their tax impact on Apple Inc. AAPL. JPMorgan’s Rod Hall maintained an Overweight rating for the company, with a price target of $141, saying the US tax reform could have a “positive EPS impact.”

Taxable EBT

Apple currently pays 31 percent tax on its US EBT, which comprises 34 percent of the company’s total EBT. The company pays nothing on 36 percent of its total EBT, and does not report 30 percent of its EBT for tax purposes, analyst Rod Hall noted.

Referring to the EPS impact of the recent tax changes, Hall said that even the two worst case scenarios indicate an impact ranging from +2.0 percent to (2.5) percent.

The Tax Scenarios

The first worst case tax scenario assumes that “the US disallows Apple's Irish structure somehow as part of an overarching reform of US corporate tax,” Hall wrote. He said that in this case, there could be a 2 percent positive impact to Apple’s EPS, assuming a 20 percent effective tax.

The second worst case scenario assumes that “the EU disallows Apple's special tax deal with Ireland and that this results in payment of full Irish statutory tax,” the analyst mentioned. He added that in this case EPS would be negatively impacted by 2.5 percent.

“Interestingly, we believe US tax reform could easily result in a positive EPS impact,” Hall commented.