I find it a little mystifying when people act as if revenue earned overseas ought to be contributed to US tax revenue. In the end, that kind of policy would hurt the US at a time when America needs more winners like Apple and less businesses that rely on the tax base to keep their failing concerns afloat.
it's still the law of the land. an individual U.S. citizen that earns income abroad still owes U.S. federal income taxes. corporations are granted legal personhood and so are responsible for their taxes in the same way an individual person is.
An individual that owns shares in a foreign corporation does not owe taxes on any income the corporation generates, unless the income is distributed as a dividend or through capital gains recognized when selling the shares.
It's the same for Apple, it's just more convenient for them to structure their overseas activity as an overseas corporation, than it is for most natural persons. (And they got a sweet tax deal from Ireland)
It would actually be like if I started an overseas corporation, gave it my laptop, and rented myself my work computer for 90% of my income each year, then wrote that off my taxes as a business expense.
Or maybe you should consider the flip side, this law is fundamentally abusive and immoral, and should neither apply to corporations, nor individual citizens...
I think the argument is that a lot of it is only technically overseas revenue because Apple structured itself to avoid taxes: "The company could repatriate its vast offshore holdings — which it’s accumulated deliberately, through years of byzantine tax-dodging schemes..."
The rub comes from all of the effort they go through to make domestic income look like foreign income. It's one thing to argue local income should be taxed in the jurisdiction that it's earned in, but when you look at all the transfer pricing games these companies play in every jurisdiction, it's clear that they just wouldn't pay taxes anywhere.
Edited to add example:
E.g. when Apple sells an iPhone in New Zealand for say $800, they are meant to pay taxes on the difference between what the phone cost and the sales price. Except, all Apple products sold internationally need to pay Apple Sales International for their IP. This amount happens to eliminate the tax liability in every country that they sell products.
So okay, then Apple Sales International should pay taxes on all of that IP licensing cash, right? Well Apple negotiated an agreement with Ireland such that all profits earned outside of Ireland are attributed to a "head office" that literally doesn't exist. So the only taxes that Apple Sales International pay are from sales in Ireland.
So they can make tens of billions in profit, pay a few million in taxes and wait for a repatriation holiday to capture that money basically tax free.
> Well Apple negotiated an agreement with Ireland such that all profits earned outside of Ireland are attributed to a "head office" that literally doesn't exist
the point your parent post is making is that creating jobs for 5500 relatively well paid people is likely worth the tax deal. Especially given if not Ireland, Apple would have stuck the deal elsewhere.
Ireland is basically selling the ability to tax arbitrage. The risk they are taking is other countries might apply penalties. However going by the fact that no one has really taken any effective action, it's been a pretty smart risk.
>So okay, then Apple Sales International should pay taxes on all of that IP licensing cash, right? Well Apple negotiated an agreement with Ireland such that all profits earned outside of Ireland are attributed to a "head office" that literally doesn't exist. So the only taxes that Apple Sales International pay are from sales in Ireland.
Why does it matter to New Zealand whether or not Apple pays taxes in Ireland?
New Zealand (or any other country) would like to say that you pay tax equal to some percentage of the profit on iPhones sold in New Zealand (or whatever country is trying to tax them). Apple would like to route the money around between its subsidiaries in order to say "well, we actually made zero dollars of profit from selling iPhones in New Zealand this year, so we won't be paying you any tax".
The fact that the money ends up in places where Apple pays very little tax or even zero tax on the profit is just rubbing salt in the wound.
This is the kernel of usefulness in the border adjustment tax Trump has tried to propose a few times. His version of it is way off from the original idea, but the original idea -- to replace "tax profit made here" with "tax sales made here" -- is sound. You can hide the existence of profit all sorts of ways, but it's much harder to hide the existence of a sale, and bordering on impossible to hide the existence of millions of sales.
That's opening quite a can of worms, though, isn't it? If I were selling a product that was barely breaking even, would you have the government tax me into a loss?
Many countries already have VAT. And in the US, state and local governments levy taxes on a percentage of sales, which are paid by the buyer. If this were going to massacre gigantic numbers of businesses, or cause the number of people willing to go into business to drop to zero, it would have already and we'd have noticed.
So if a tax on money made from selling products is what's desired, this -- rather than an avoidable tax on profit -- is a way to do it.
Having a limited liability corporation isn't a natural right, so part of the deal when Apple sets up a subsidiary in a country like New Zealand is that they'll follow the local laws. When they so transparently avoid their tax obligations, the New Zealanders have every right to be annoyed.
If Apple New Zealand shirks their tax responsibility by taking advantage of a backdoor negotiation with Ireland, I would fully expect the local authorities to take action. If Apple's not happy with that outcome, Tim Cook can accept financial and criminal liability for anything that goes awry with Apple products in New Zealand and avoid the use of the local subsidiary.
It's amazing how far people go to defend these supranational corporations who are clearly in the wrong but I'll bite. Nearly every country on earth has a law on the books that voids transactions that only exist to avoid tax. Usually with penalties. It's 2am or else I'd reference the specific law in New Zealand, but the relevant case law in the US is from Gregory vs Helvering: https://en.m.wikipedia.org/wiki/Gregory_v._Helvering
It's transparently obvious that Apple's subsidiaries in Ireland and the Netherlands exist purely to evade taxes. However their lobbying and economic power have protected them for years, which may have broken recently when the EU determined that they owe $14 billion for illegal benefits (http://www.cnbc.com/2017/01/31/apple-misses-deadline-to-pay-...).
So to answer your question, New Zealand has an agreement with all of the companies that they recognize their revenue and expenses and pay tax on the difference. When Apple New Zealand says that they owe their Irish counterpart hundreds of dollars per phone for licensing, and the New Zeaand authorities see that it's an obvious tax dodge shell company, they can and should question whether those hundreds of dollars fall into form vs substance. There is no actual business purpose to pay licensing fees to an Irish subsidiary that was gifted huge amounts of Apple IP.
>It's transparently obvious that Apple's subsidiaries in Ireland and the Netherlands exist purely to evade taxes.
To avoid taxes? Sure. Tax evasion is a crime, though, and they haven't even been accused, let alone convicted.
>However their lobbying and economic power have protected them for years, which may have broken recently when the EU determined that they owe $14 billion for illegal benefits...
The issue for the EU revolved around whether Ireland must tax Apple under EU law, not whether the profits Apple is recognizing in Ireland can legitimately be recognized in Ireland.
>So to answer your question, New Zealand has an agreement with all of the companies that they recognize their revenue and expenses and pay tax on the difference. When Apple New Zealand says that they owe their Irish counterpart hundreds of dollars per phone for licensing, and the New Zeaand authorities see that it's an obvious tax dodge shell company, they can and should question whether those hundreds of dollars fall into form vs substance. There is no actual business purpose to pay licensing fees to an Irish subsidiary that was gifted huge amounts of Apple IP.
You're still sidestepping the question. I didn't ask whether tax authorities in New Zealand have an interest in making sure Apple pays what it owes in New Zealand. The question was why would New Zealand care whether or not Apple pays Irish taxes in Ireland.
>It's almost like you're just making shit up, since the EU did exactly that with Apple's Ireland tax scheme already...
It's almost like you have no idea what you're talking about. The issue in that order was whether or not Ireland had to charge Apple the normal EU rates, not whether Apple had done anything illegal.
Like the other comment says, there's a lot of "Hollywood accounting" style misdirection going on with subsidiaries in one country paying subsidiaries in another country paying subsidiaries in another country paying subsidiaries in another country... until finally the money ends up in the Caymans and Apple can claim they didn't realize a profit in any jurisdiction that charges tax on profit.
Could you explain how Apples cash abroad makes them "winners" in a practical sense for the country
In an alternative universe, Apples profit would have been taxed, and everything would have been the same, except that they would have 2/3rd of the amount in bank than they do now. But the US govt would have a bit more resources to help build the infra/research to build more companies like Apple.
Apple pays lots of taxes in the US. It doesn't pay US taxes on money earned elsewhere. Can you articulate a sound policy for why any global company should be required to pay taxes in the US on revenues earned elsewhere? Why shouldn't the U.K., Germany, France, Japan, Korea, and China do the same?
One of the core arguments for comprehensive corporate tax reform is that multinationals play accounting games in order to reduce it's taxable income, in ways completely detached from reality.
For example, I (a Dropbox user in Japan) am somehow paying Dropbox Ireland for my services.
Apple Ireland did not make Macbook Pros, so why should they be the one cashing in the revenue, when the "real" sellers are Apple US?
I realize that laws are complicated, so you might want national entities or something... but in that case, given there's Apple branches in many countries, shouldn't the respective national branches collect?
Part of a complication about this is that EU has a common market but far from a unified fiscal approach... but the EU paradox is not the source of all tax manipulation.
If Japan wanted to tax Dropbox for sales to Irish businesses that are transacted in Japan, it can do so. The classic Double Irish with Dutch Sandwich is about avoiding taxes on non-US revenue in jurisdictions outside the US. That's an issue between Ireland, Holland, and the rest of the world. In no way is it able to shield a multinational from paying taxes to the IRS on revenue generated in the US. You have a similar dynamic within the US between one state's tax code and another's. I've yet to hear anyone articulate a sound case for "repatriation" (doublespeak alert) of overseas profits to the US that didn't amount to US exceptionalism.
> In the end, that kind of policy would hurt the US at a time when America needs more winners like Apple
How does it hurt the US if the policy is changed to remove tax on foreign earnings? Total change on inbound money = $0.
Frankly, screw Apple. They play fast and loose with tax law, and so what if other companies do it, it's not an excuse. Particularly given their target demographic. And here in Australia, Apple makes us pay proportionately more anyway; I'd rather that extra money go to the US citizens than Apple's $250B "let' not do anything with this" money. The US budget is in dire straits, and Apple could take a 35% haircut on its ready cash and not change its behaviour a jot. They could be doing so much with that money, from tangible Gates-style global philanthropy to re-investment a la Amazon. Nope, just throw it in a bucket and crowd around saying "ooh, that's a lot!"
The other big American 'winner' of this kind is Wal-mart. Amazingly explosive growth and armloads of cash, yet plenty of their employees rely on government food stamps to make ends meet. The US needs fewer of these kinds of 'winners', not more.
Eh, if the US somehow forced Apple to repatriate all its international revenue, the US still wouldn't benefit from that because then there's much less incentive for Apple to reduce how much they pay in local foreign taxes. So the US would get less tax revenue from that than a repatriation holiday every decade or so.
Really, the only winners would be foreign countries. I don't see why the US should change its policies to benefit Australia; aren't your own politicians capable of closing loopholes in your own laws?
Generally what people propose is some type of VAT or border-adjustment tax, which taxes on the value of goods sold in a jurisdiction rather than on profits realized from the sale.
The problem is many companies have gotten too used to being able to avoid taxation essentially at will, and would not take kindly to either having their products get more expensive (if they pass the entire cost on to the customer), which decreases their profits through reduced sales, or having their profits directly reduced by paying tax on sales. The tax rate they want is zero, and they've shown they'll go to extraordinary lengths trying to achieve it.
I tried to follow your logic but I got lost. My point was that forcing global enterprises to pay tax in the US on revenues raised elsewhere creates a long term drag on US-based businesses, gives foreign-based businesses a huge competitive advantage, and at the end of the day, AAPL shareholders lose value, the US economy is depositioned relative to those who don't have to discount their profits by N%. You seem upset but you also seem to believe that successful businesses should pay up just because they can afford it.
To quote Bill Gates as portrayed on The Simpsons: "I didn't get rich by writing checks".
How can you blame them? They're playing by the rules, the same rules their competitors play by (Google also uses the double Irish). In that context, isn't it far better to pay single digit interest rates on money when you're backstopping it with overseas cash rather than taking a 35% haircut to repatriate the same? Finally, what odds do you place on the one time transfer of $88B to the US government with a love note ACTUALLY resulting in a better quality of life for US citizens? It seems to me that regardless of regressive policies and hero projects like walls and Mars trips, monetary policy is still trying to get people and companies to reinvest to spur growth vs. sitting on savings.
Also, let's not forget that the offshore pile of money has already been taxed in jurisdictions where it was earned. The world is slightly bigger than US. If Apple sells an iPhone in Germany it pays taxes in Germany. It is a bit silly to then send the money home and pay another huge tax on top of it!
Yes, I'm aware that thanks to various tax shenanigans the offshore tax bill might be artificially low. If that was the case though, Apple would've cheated local governments and not the US government.
As I've mentioned in my comment "thanks to various tax shenanigans the offshore tax bill might be artificially low". It would be up to New Zealand to investigate and make sure Apple pays it's due. But I don't see why US needs a slice of that particular pie.
It's NOT the governments money! Stop acting like the government is entitled to a dime!
Cook is right to do everything possible to avoid paying this over bloated joke of a Constitutional Republic! The founders would be screaming for another revolutions years ago!
Actually many argue that taxes were originally meant only for corporations and not personal income tax since personal income tax was not originally collected. The thought is the profit of those companies are being generated from the efforts of the citizens and corporations are not people. Instead of asking the people to pay more so the fat acts could keep more of the money the corps would fund the govt.
Actually many argue that taxes were originally meant only for corporations and not personal income tax since personal income tax was not originally collected. The thought is the profit of those companies are being generated from the efforts of the citizens and corporations are not people. Instead of asking the people to pay more so the fat acts could keep more of the money the corps would fund the govt.
52 comments
[ 3.1 ms ] story [ 117 ms ] threadIt's the same for Apple, it's just more convenient for them to structure their overseas activity as an overseas corporation, than it is for most natural persons. (And they got a sweet tax deal from Ireland)
the reality right now is that that is the law and corporations based in the U.S. go to great lengths to avoid their legal tax burdens.
Edited to add example:
E.g. when Apple sells an iPhone in New Zealand for say $800, they are meant to pay taxes on the difference between what the phone cost and the sales price. Except, all Apple products sold internationally need to pay Apple Sales International for their IP. This amount happens to eliminate the tax liability in every country that they sell products.
So okay, then Apple Sales International should pay taxes on all of that IP licensing cash, right? Well Apple negotiated an agreement with Ireland such that all profits earned outside of Ireland are attributed to a "head office" that literally doesn't exist. So the only taxes that Apple Sales International pay are from sales in Ireland.
So they can make tens of billions in profit, pay a few million in taxes and wait for a repatriation holiday to capture that money basically tax free.
Apple has 5,500 employees in Ireland.
Ireland is basically selling the ability to tax arbitrage. The risk they are taking is other countries might apply penalties. However going by the fact that no one has really taken any effective action, it's been a pretty smart risk.
Apple has made almost $10 million per employee with those tax savings. Maybe not the fairest of trades?
Why does it matter to New Zealand whether or not Apple pays taxes in Ireland?
The fact that the money ends up in places where Apple pays very little tax or even zero tax on the profit is just rubbing salt in the wound.
This is the kernel of usefulness in the border adjustment tax Trump has tried to propose a few times. His version of it is way off from the original idea, but the original idea -- to replace "tax profit made here" with "tax sales made here" -- is sound. You can hide the existence of profit all sorts of ways, but it's much harder to hide the existence of a sale, and bordering on impossible to hide the existence of millions of sales.
So if a tax on money made from selling products is what's desired, this -- rather than an avoidable tax on profit -- is a way to do it.
If Apple New Zealand shirks their tax responsibility by taking advantage of a backdoor negotiation with Ireland, I would fully expect the local authorities to take action. If Apple's not happy with that outcome, Tim Cook can accept financial and criminal liability for anything that goes awry with Apple products in New Zealand and avoid the use of the local subsidiary.
It's transparently obvious that Apple's subsidiaries in Ireland and the Netherlands exist purely to evade taxes. However their lobbying and economic power have protected them for years, which may have broken recently when the EU determined that they owe $14 billion for illegal benefits (http://www.cnbc.com/2017/01/31/apple-misses-deadline-to-pay-...).
So to answer your question, New Zealand has an agreement with all of the companies that they recognize their revenue and expenses and pay tax on the difference. When Apple New Zealand says that they owe their Irish counterpart hundreds of dollars per phone for licensing, and the New Zeaand authorities see that it's an obvious tax dodge shell company, they can and should question whether those hundreds of dollars fall into form vs substance. There is no actual business purpose to pay licensing fees to an Irish subsidiary that was gifted huge amounts of Apple IP.
To avoid taxes? Sure. Tax evasion is a crime, though, and they haven't even been accused, let alone convicted.
>However their lobbying and economic power have protected them for years, which may have broken recently when the EU determined that they owe $14 billion for illegal benefits...
The issue for the EU revolved around whether Ireland must tax Apple under EU law, not whether the profits Apple is recognizing in Ireland can legitimately be recognized in Ireland.
>So to answer your question, New Zealand has an agreement with all of the companies that they recognize their revenue and expenses and pay tax on the difference. When Apple New Zealand says that they owe their Irish counterpart hundreds of dollars per phone for licensing, and the New Zeaand authorities see that it's an obvious tax dodge shell company, they can and should question whether those hundreds of dollars fall into form vs substance. There is no actual business purpose to pay licensing fees to an Irish subsidiary that was gifted huge amounts of Apple IP.
You're still sidestepping the question. I didn't ask whether tax authorities in New Zealand have an interest in making sure Apple pays what it owes in New Zealand. The question was why would New Zealand care whether or not Apple pays Irish taxes in Ireland.
It's almost like you're just making shit up, since the EU did exactly that with Apple's Ireland tax scheme already:
Apple tax: Why tech firm has been hit with £11bn bill[0]
Google "apple tax evasion" if you'd like to know more.
[0] http://www.independent.co.uk/news/business/news/apple-ordere...
It's almost like you have no idea what you're talking about. The issue in that order was whether or not Ireland had to charge Apple the normal EU rates, not whether Apple had done anything illegal.
In an alternative universe, Apples profit would have been taxed, and everything would have been the same, except that they would have 2/3rd of the amount in bank than they do now. But the US govt would have a bit more resources to help build the infra/research to build more companies like Apple.
For example, I (a Dropbox user in Japan) am somehow paying Dropbox Ireland for my services.
Apple Ireland did not make Macbook Pros, so why should they be the one cashing in the revenue, when the "real" sellers are Apple US?
I realize that laws are complicated, so you might want national entities or something... but in that case, given there's Apple branches in many countries, shouldn't the respective national branches collect?
Part of a complication about this is that EU has a common market but far from a unified fiscal approach... but the EU paradox is not the source of all tax manipulation.
How does it hurt the US if the policy is changed to remove tax on foreign earnings? Total change on inbound money = $0.
Frankly, screw Apple. They play fast and loose with tax law, and so what if other companies do it, it's not an excuse. Particularly given their target demographic. And here in Australia, Apple makes us pay proportionately more anyway; I'd rather that extra money go to the US citizens than Apple's $250B "let' not do anything with this" money. The US budget is in dire straits, and Apple could take a 35% haircut on its ready cash and not change its behaviour a jot. They could be doing so much with that money, from tangible Gates-style global philanthropy to re-investment a la Amazon. Nope, just throw it in a bucket and crowd around saying "ooh, that's a lot!"
The other big American 'winner' of this kind is Wal-mart. Amazingly explosive growth and armloads of cash, yet plenty of their employees rely on government food stamps to make ends meet. The US needs fewer of these kinds of 'winners', not more.
Really, the only winners would be foreign countries. I don't see why the US should change its policies to benefit Australia; aren't your own politicians capable of closing loopholes in your own laws?
How on earth did you get that out of what I wrote?
The problem is many companies have gotten too used to being able to avoid taxation essentially at will, and would not take kindly to either having their products get more expensive (if they pass the entire cost on to the customer), which decreases their profits through reduced sales, or having their profits directly reduced by paying tax on sales. The tax rate they want is zero, and they've shown they'll go to extraordinary lengths trying to achieve it.
To quote Bill Gates as portrayed on The Simpsons: "I didn't get rich by writing checks".
Yes, I'm aware that thanks to various tax shenanigans the offshore tax bill might be artificially low. If that was the case though, Apple would've cheated local governments and not the US government.
Not necessarily. See a comment above about New Zealand.
No, it hasn't
When Apple (or Google) declare losses in a country like Spain something is very weird
Cook is right to do everything possible to avoid paying this over bloated joke of a Constitutional Republic! The founders would be screaming for another revolutions years ago!