The best part is that current tax code means Apple earning investment income through AOI is actually legal. Apple has paid their taxes and is playing by the rules - yet Levin is still upset.
Edit: I would appreciate it if someone told me what I said was incorrect or wrong in anyway.
Guess conveying sarcasm over the internet is not one of my strengths. I suppose I meant more of a "your tax code allows this type of activity, yet you are still surprised it happens" type message.
Not at all. Just poe's law in action http://en.wikipedia.org/wiki/Poes_law. If any of the discourse team are reading this - sarcasm/intention tag will be much appreciated.
Sounds like this for me.
They make profit in different countries, pay there taxes there and then put the whole money where it doesn't cost taxes. Why not?
In my opinion they should spend the money as they get it, but if they didn't I don't care HOW they didn't...
It won't be long now until the large multi-national corporation will be a kind of nation-state in its own right. Distributing assets all around the planet making them inaccesible to any single government is the ultimate defense against nationalization. Without that threat hanging over them, they begin to act like sovereign nations.
That is the dystopian future we will live in , Corporations replacing states. Everything will be private and own by corporations , like everything used to be owned by kings,royal families and the "blue blood".
This is amusing and sad at the same time. International companies play the national egoisms of countries against each other. If all countries agreed to one framework for taxing (yeah, purely hypothetical) all could profit. But every one of them fears to get "less" in such an agreement. So, in the end nothing happens and no country gets anything - all money stays with the companies. Divide and conquer.
I doubt, if the framework was same current full or semi tax havens such as The Bahamas, Ireland wouldn't profit, as big companies wouldn't setup their Europe HQ to Ireland it would be in the UK.
Hence smaller (lean?) countries will exploit this, it only makes sense to exploit this.
How do we profit from taking money out of the hands of people proven to make things people want and putting it in the hands of people proven to murder civilians?
You seem to think that governments do nothing but "murder civilians", so here is a list for you to choose your next place of living (all places have more or less no government or the government has no power): http://en.wikipedia.org/wiki/List_of_countries_by_Failed_Sta...
Ah, so I must choose between funding murder or being murdered. Seems reasonable. I can't just, say, move to and support with taxes a country that doesn't attack others?
If everywhere had the same tax levels, why would anyone bother to be resident anywhere other than the London/New York/Tokyo. A tax cartel probably won't happen - it is against many governments' interests.
> A tax cartel probably won't happen - it is against many governments' interests.
This is a variant of my argument. I may add: It is against many governments' _perceived_ interests. I do not think that a race to the bottom (Come here, 15% tax! No, here 10%! No, here 5%! ...) will help any government in the long term. So far, I seem to be correct.
No, it's against their actual interests. As I said above, if all countries charged the same tax level, no one would bother to reside in the ROI for tax purposes. Ireland has a strong interest in tax competition. Whatever money they gain from Apple is money they wouldn't have otherwise.
> If everywhere had the same tax levels, why would anyone bother to be resident anywhere other than the London/New York/Tokyo.
My question is, why would I ever want to be resident in any of those places? Never in my life have I ever considered living there. I barely tolerated San Jose for 9 months before I moved to Santa Clara.
There are plenty of reasons to live outside megacities, taxes are way down on the list.
And perhaps the Congress of the USA can accept that the US has no right to expect a share of profits from sales made in Australia of goods made in China, shipped by an airline registered in Singapore.
That's not the same as being taxed on the dollars you get each week though. With Job' scenario, what portion of his wealth hasn't been taxed yet? Sure it will get hit at some point but that's not the point.
Most people get taxed every time they get paid. I'm not saying his situation was/is wrong, or that he has done something immoral. I'm just saying it's very different.
Well, corporations use resources that cannot be pinned to a single individual. The example that comes to mind would be putting out trash for the city to collect[1].
[1] I realize that companies pay separately, or use private collection in many cases. It's just an example of a company using a resource that can be (and in some cases is) paid for by taxes.
How would this work? 20% every time you buy or something? Or targeted on things that are scarce or a limited (eg higher tax on oil than lettuce)? It seems to me that targeted taxes end up encouraging elaborate workarounds - this is a problem.
How do you efficiently administer a road tax[1]? How do you measure a company's use of the military defense of a nation? The police protection that makes their locality safe for business in the first place? What about the nearby public park that attracts families who frequently go to a nearby ice cream shop? What about the fact that the local bar attracts people who get into fights on the sidewalk?
its interesting that during the senate hearing, one senator asked this exact question to the panel members who were experts in tax law. there reply was that some shareholders are foreigners. so therefore they wouldnt be taxed in the US at all on the earnings from corp
They pay taxes in the US on US profits (along with payroll taxes, etc)
They pay local taxes on profits earned overseas. Then they gather up those profits in an Irish subsidiary, where they get the most most favourable tax treatment available to them.
Why would they, as a multinational company, not do that? Why would they repatriate those profits, not earned in the US to the US and take a second tax hit?
If the contention is that they are somehow hiding US profits by misrepresenting them as overseas profits to avoid taxes, then that would obviously seem rather sleazy. But if that's not the case, what's the moral or legal argument against what they're doing? Or are they misrepresenting what they're doing? It's hard to get a handle on the underlying issue with all the congressional posturing.
I agree with you, but playing devil's advocate, American Citizens pay US taxes on their income, regardless of where they live (http://americansabroad.org/issues/taxation/us-taxes-while-li...) - so why shouldn't US Corporations be required to Pay US Taxes on their income, wherever they make it?
Note - my answer to that is very, very quickly you would find that successful US companies re-incorporating in other countries, in much the same way wealthy Americans will sometimes give up their US citizenship.
That is actually a good point. I wondered why the US is so adamant about its citizens paying taxes while living abroad. Theoretically - you are not taking advantage of any of the US infrastructure like roads and parks while you're abroad. I kind of think a citizen living abroad should be taxed, but much less (because the cost is not zero - think embassy expenses).
You are only taxed for the difference between your US taxrate and your place of residency's taxrate, this means for many citizens the tax paid to the US is very little or even $0 (but they still have to go through the trouble of filing).
> why shouldn't US Corporations be required to Pay US Taxes on their income, wherever they make it?
Because the law doesn't say they have to. That's enough for me.
I'm a left-wing, pro-high-tax guy, but I can never understand people who get angry at corporations for obeying the law. Besides being nonsensical, it's actively counter-productive. So long as people are focusing their attention on the corporations, nobody is pressuring the politicians to fix the actual problem.
I think one naive answer is that US citizens living abroad get credits or deductions for local taxes they may have paid. A more general one is that we already accept the idea that corporations and individuals are governed by different tax laws so "Why shouldn't one be exactly like the other?" has a somewhat flippant reply in "They don't, already, for various reasons, so why should they be?"
But I don't think the objections (or counter-arguments) to Apple's behaviour as simplistic as that - it's just I don't quite understand what the source of the controversy is and was hoping that someone else did.
Regarding tax credits - that's fine, let's say Ireland taxes at 12.5%, and US at 35%, then all companies would be required to pay would be the difference, 22.5%.
Pay it to whom, though? Ireland? The US? Does the country with the highest tax rate get to set the global corporate tax rate?
I don't think any developing economy could possibly agree to such a scheme - it eliminates a less-developed economy's ability to compete for investment against established incumbents by offering tax incentives - I think this ends up translating to unacceptable protectionism for any non-economically-dominant country looking to attract investment and compete in the global marketplace. There'd never be a 'Celtic Tiger' economy under such a scheme.
US States, incidentally, compete for business on a similar basis.
First of all, when Apple pays income tax in most countries, they will receive tax offset credit in USA so they don't have to pay tax twice on same profit.
But Apple doesn't even do this. The whole point of having Irish subsidiary is to give it intellectual property which is the real money maker here.
What happens then is quite simple. Subsidiary company in Ireland is charging Apple in other countries huge licensing fees. In fact, so huge that it amounts to 100 billion dollars. Licensing fees are tax deductible so Apple is basically avoiding paying corporate tax all over the world because licensing fees and royalties eat up all the profit.
Of course, Apple as a group of entities is making billions in profit but as far as overseas tax authorities (Australian Tax Office, UK Revenue & Customs etc) are concerned, Apple is barely breaking even therefore is not paying its fair share of tax.
Obviously this whole scheme comes at cost. All these billions are basically stuck somewhere in Ireland and can't be used. They just sit there and earn interest.
Eventually money will have to come to America. How? Irish subsidiary will pay dividends to parent company Apple Inc. At that point all these billions in profits will get finally taxed at ~35% by IRS.
Congress is just asking Apple when they are going to bring to USA all those profits and what's the point of deferring it. Apple is saying, we will bring it when you lower our tax rate. They are basically blackmailing the government.
edit: I was wrong by saying Apple doesn't pay corporate tax in USA. I modified my comment to reflect what I have learned from comments bellow.
> Subsidiary company in Ireland is charging parent company Apple Inc. huge licensing fees.
Cook explicitly denied this in his testimony. Are you simply assuming Apple is doing the same thing some other companies have done, or do you have evidence they have done this?
I believe the details are in the committee report released before the hearing. The claim is that the IP deal is not something that would be done with a third party it is far too cheap.
Among various other points it says Apple paid 6 billion in taxes last year which sounds unlikely if they were 'barely breaking even'.
I don't have any trouble believing that a large multinational has the means, opportunity and incentive to exploit every bit of every tax code it is subject to in order to minimize its tax liability. I'm just finding it difficult to get a handle on the basic issues between the 'zomg corporations, our evil overlords' and 'leave Britney/Apple/the free global market alone' rhetoric. My vain hope is to somehow summon up some grellas-like entity who is knowledgable in these matters and will provide a bit of level-headed insight.
You are actually right. They pay corporate tax in USA on profits generated in USA.
What they really do is that they don't pay their rightful share in other countries such as Australia and UK where they transfer profits to Ireland through phony IP claims.
For example, their net profit margin in Australia was less than 2% in last financial year which means they paid only $40 million in tax on revenue of $6 billion.
All that profit which should have been taxed in Australia and in other countries now sits somewhere currently untaxed in Ireland.
Let's just take that as a given, but Apple's tax status in other countries is not why their CEO gets called to testify before the US Senate - my questions were specifically about that.
Not that we're going to get much further in this, though, given that the submission dropped off the front page and into the dark recesses of HN a few minutes ago.
They pay almost no tax in Australia. The Australian government is madly going around closing loopholes, mainly because Apple made close to a billion dollars this year and made almost nothing (comparatively) in taxes in Australia.
The problem is that multinational companies are allowed to place IP in low income countries, set the royalty payment themselves (only subject to transfer pricing rules) and then deduct royalty payments from the earnings in all the high tax countries.
Any royalty for patent, trademark, design and copyright licenses should be deducted in the country where the patent is awarded, not where the owner of the patent happens to be situated. This way all the shenanigans would come to an end.
Apple is competing with European businesses for customers and through European patent and trademark rights Apple is awarded competitive advantages in the European market. Not paying tax is another advantage. So what if the research is done in America? The European patents and trademarks apply in Europe. Let them pay tax income tax on American profits in America, on Irish profits in Ireland, German profits in Germany.
Are you suggesting that Apple, by selling products in foreign territories and profiting from this, are somehow stealing from the US Government? IMHO, that is backwards. The USA have absolutely no entitlement to money any business (or for that matter, any individual) makes outside of it's borders.
Let's just admit that what these companies are doing is pretty sneaky, and unfair. If they actually made $5 billion with their business in Ireland, then I'd be fine if they only paid 1% in taxes or whatever are the taxes in Ireland. Same for their businesses in any other country. Maybe they pay 5% in some, 15% in others, 30% in others and so on.
They should abide by local laws, and pay taxes on whatever they are making there. They are doing business there, so clearly they believed that market is worth it for them, and it should be worth to pay the taxes there, too - after all if they do pay a lot in taxes, most of that will be transferred to the consumers in those local markets anyway. But what they're doing is taking their cake and eat it, too. Making those customers pay more, but then avoiding paying the taxes that were most likely already included in the price the consumers paid there.
Then taking virtually all the profit from all the countries and transferring it to Ireland so they pay the absolute minimum, while pretending they are barely making anything in all the other countries, because they get their Ireland subsidiary to take all the money, so there's "barely anything left" to tax in other countries - is not okay at all.
Some may say that it's Apple's "duty" to do this, but it's their duty in the same way it's their "duty" to sue many other companies for infringing on "slide to unlock" and other such trivial patents, by (legally) abusing the patent system.
So just because it's not illegal to do something, and it's their "duty" to maximize profit by any means necessary, doesn't mean we should pretend it's "morally okay". It's also the governments' duty to fix these loopholes, and restrict the companies from doing this as much as possible (some international treaty is going to be necessary). And I also think it's the consumers' duty to not be okay with this, and protest against it.
71 comments
[ 5.7 ms ] story [ 327 ms ] threadDidn't they just answer themselves!
Edit: I would appreciate it if someone told me what I said was incorrect or wrong in anyway.
In my opinion they should spend the money as they get it, but if they didn't I don't care HOW they didn't...
1) For publicity reasons, to make the public believe corporations are held accountable
2) To extort some lobbying money from Apple
http://gigaom.com/2013/05/23/apple-in-political-crosshairs-i...
Hence smaller (lean?) countries will exploit this, it only makes sense to exploit this.
Please tell us of your experiences. Thanks.
This is a variant of my argument. I may add: It is against many governments' _perceived_ interests. I do not think that a race to the bottom (Come here, 15% tax! No, here 10%! No, here 5%! ...) will help any government in the long term. So far, I seem to be correct.
My question is, why would I ever want to be resident in any of those places? Never in my life have I ever considered living there. I barely tolerated San Jose for 9 months before I moved to Santa Clara.
There are plenty of reasons to live outside megacities, taxes are way down on the list.
1) Corporate tax is only about 10% of total budget revenues.
2) Zero corporate tax promotes business growth.
3) Corporate taxes are ultimately paid by individuals.
[1] I realize that companies pay separately, or use private collection in many cases. It's just an example of a company using a resource that can be (and in some cases is) paid for by taxes.
[1]Gas taxes are obviously not the answer.
They pay taxes in the US on US profits (along with payroll taxes, etc)
They pay local taxes on profits earned overseas. Then they gather up those profits in an Irish subsidiary, where they get the most most favourable tax treatment available to them.
Why would they, as a multinational company, not do that? Why would they repatriate those profits, not earned in the US to the US and take a second tax hit?
If the contention is that they are somehow hiding US profits by misrepresenting them as overseas profits to avoid taxes, then that would obviously seem rather sleazy. But if that's not the case, what's the moral or legal argument against what they're doing? Or are they misrepresenting what they're doing? It's hard to get a handle on the underlying issue with all the congressional posturing.
Note - my answer to that is very, very quickly you would find that successful US companies re-incorporating in other countries, in much the same way wealthy Americans will sometimes give up their US citizenship.
Because the law doesn't say they have to. That's enough for me.
I'm a left-wing, pro-high-tax guy, but I can never understand people who get angry at corporations for obeying the law. Besides being nonsensical, it's actively counter-productive. So long as people are focusing their attention on the corporations, nobody is pressuring the politicians to fix the actual problem.
But a corporation obeying a law they helped draft, lobbied for, water down, or prevented from changing is somewhat different in my opinion.
But I don't think the objections (or counter-arguments) to Apple's behaviour as simplistic as that - it's just I don't quite understand what the source of the controversy is and was hoping that someone else did.
I don't think any developing economy could possibly agree to such a scheme - it eliminates a less-developed economy's ability to compete for investment against established incumbents by offering tax incentives - I think this ends up translating to unacceptable protectionism for any non-economically-dominant country looking to attract investment and compete in the global marketplace. There'd never be a 'Celtic Tiger' economy under such a scheme.
US States, incidentally, compete for business on a similar basis.
3. You are a citizen or resident alien of the US whose physical absence from the US constitutes a minimum of 330 days out of any 365.
When I lived overseas I knew US citizens counted the number of days they spent visiting family to make sure they stayed under 30 days each year.
First of all, when Apple pays income tax in most countries, they will receive tax offset credit in USA so they don't have to pay tax twice on same profit.
But Apple doesn't even do this. The whole point of having Irish subsidiary is to give it intellectual property which is the real money maker here.
What happens then is quite simple. Subsidiary company in Ireland is charging Apple in other countries huge licensing fees. In fact, so huge that it amounts to 100 billion dollars. Licensing fees are tax deductible so Apple is basically avoiding paying corporate tax all over the world because licensing fees and royalties eat up all the profit.
Of course, Apple as a group of entities is making billions in profit but as far as overseas tax authorities (Australian Tax Office, UK Revenue & Customs etc) are concerned, Apple is barely breaking even therefore is not paying its fair share of tax.
Obviously this whole scheme comes at cost. All these billions are basically stuck somewhere in Ireland and can't be used. They just sit there and earn interest.
Eventually money will have to come to America. How? Irish subsidiary will pay dividends to parent company Apple Inc. At that point all these billions in profits will get finally taxed at ~35% by IRS.
Congress is just asking Apple when they are going to bring to USA all those profits and what's the point of deferring it. Apple is saying, we will bring it when you lower our tax rate. They are basically blackmailing the government.
edit: I was wrong by saying Apple doesn't pay corporate tax in USA. I modified my comment to reflect what I have learned from comments bellow.
Cook explicitly denied this in his testimony. Are you simply assuming Apple is doing the same thing some other companies have done, or do you have evidence they have done this?
See here for references and one view http://blogs.reuters.com/felix-salmon/2013/05/21/tim-cooks-i...
Is this really true, though?
http://www.bloomberg.com/news/2013-05-23/apple-tax-rate-igno...
Among various other points it says Apple paid 6 billion in taxes last year which sounds unlikely if they were 'barely breaking even'.
I don't have any trouble believing that a large multinational has the means, opportunity and incentive to exploit every bit of every tax code it is subject to in order to minimize its tax liability. I'm just finding it difficult to get a handle on the basic issues between the 'zomg corporations, our evil overlords' and 'leave Britney/Apple/the free global market alone' rhetoric. My vain hope is to somehow summon up some grellas-like entity who is knowledgable in these matters and will provide a bit of level-headed insight.
What they really do is that they don't pay their rightful share in other countries such as Australia and UK where they transfer profits to Ireland through phony IP claims.
For example, their net profit margin in Australia was less than 2% in last financial year which means they paid only $40 million in tax on revenue of $6 billion.
All that profit which should have been taxed in Australia and in other countries now sits somewhere currently untaxed in Ireland.
Not that we're going to get much further in this, though, given that the submission dropped off the front page and into the dark recesses of HN a few minutes ago.
Any royalty for patent, trademark, design and copyright licenses should be deducted in the country where the patent is awarded, not where the owner of the patent happens to be situated. This way all the shenanigans would come to an end.
As a European, I am quite appalled that Apple almost doesn't pay tax in Europe either. Apple's European profits are compareable to their American profits, http://investor.apple.com/secfiling.cfm?filingID=1193125-11-....
Apple is competing with European businesses for customers and through European patent and trademark rights Apple is awarded competitive advantages in the European market. Not paying tax is another advantage. So what if the research is done in America? The European patents and trademarks apply in Europe. Let them pay tax income tax on American profits in America, on Irish profits in Ireland, German profits in Germany.
This mentality is also common among thieves, who rationalize their thefts by believing they are taking things that they are somehow owed.
They should abide by local laws, and pay taxes on whatever they are making there. They are doing business there, so clearly they believed that market is worth it for them, and it should be worth to pay the taxes there, too - after all if they do pay a lot in taxes, most of that will be transferred to the consumers in those local markets anyway. But what they're doing is taking their cake and eat it, too. Making those customers pay more, but then avoiding paying the taxes that were most likely already included in the price the consumers paid there.
Then taking virtually all the profit from all the countries and transferring it to Ireland so they pay the absolute minimum, while pretending they are barely making anything in all the other countries, because they get their Ireland subsidiary to take all the money, so there's "barely anything left" to tax in other countries - is not okay at all.
Some may say that it's Apple's "duty" to do this, but it's their duty in the same way it's their "duty" to sue many other companies for infringing on "slide to unlock" and other such trivial patents, by (legally) abusing the patent system.
So just because it's not illegal to do something, and it's their "duty" to maximize profit by any means necessary, doesn't mean we should pretend it's "morally okay". It's also the governments' duty to fix these loopholes, and restrict the companies from doing this as much as possible (some international treaty is going to be necessary). And I also think it's the consumers' duty to not be okay with this, and protest against it.
Since the great depression, corporate shares of taxes has been steadily falling. One can only speculate where it might lead.
2011 USA Taxes:
Total corporate tax: 200.8 Billion.
Personal income tax: 1.1 Trillion.
http://www.npr.org/blogs/money/2012/04/13/150441259/what-ame...