Dell’s tax dodge?

February 7, 2013, 1:38 AM UTC

FORTUNE — Dell Inc. has approximately $11 billion of cash “trapped” overseas. And now some folks think that the company’s $24.4 billion buyout will help it bring some of that cash stateside without tax consequences. They are wrong.

Here is the basic argument for claiming the Dell (LNVGY) buyout is, in the words of Slate’s Matt Yglesias, “essentially a large-scale tax-avoidance scheme.”

Dell is going private by leveraging around $15 billion in new bank debt, on which it will need to make large interest payments. But corporate interest payments are 100% tax deductible (at least for now). Yglesias and others believe that Dell will repatriate some of its overseas cash for the purpose of making the interest payments. And, since those payments are tax deductible, the company would be able to skip that pesky 35% repatriation tax.

Sounds elegant, except it ignores that money is fungible. Dell can’t get cash into the U.S. tax-free by explaining that it’s earmarked for interest payments. Instead, multiple tax experts tell me that it first would have to pay the 35% tax and then later take the deduction. And since Dell likely has enough stateside cash to satisfy the interest obligations, all it would be doing is creating needless paperwork. In fact, the machinations likely would be a nominal net negative to Dell in terms of extra man-hours and wire transfer costs.

To be clear, it is entirely possible that Dell’s foreign cash is an integral part of its buyout structure. For example, it could borrow against the stock of the foreign subsidiaries that hold the overseas cash. Or perhaps it will secure some of the loans from foreign banks where Dell already has cash, thus avoiding repatriation altogether. And clearly the existence of the cash — both at home and abroad — helped make banks more comfortable loaning Dell so many billions.

But the idea that the corporate interest deduction will cancel out repatriation taxes is flawed, and should not be further repeated.

Sign up for my daily email newsletter on deals and deal-makers: