What Apple owes is clear to me: pay the standard U.S. corporate tax on the standard U.S. profits. Do the same for all countries.
The Apple problem is that its lawyers are deliberately avoiding using current tax codes, and instead essentially claiming that Apple is based in Ireland, then playing shell games with what counts as U.S. sales, U.S. profits, and also U.S. property. Apple ends up paying ~10% U.S. tax, rather than ~35%.
Where Apple is located is clear to me: Apple products say Cupertino and there's a gigantic new Cupertino headquarters in progress. Apple also has many subsidiary locations worldwide, and occupies real property, and hires real people; these locations should pay their respective country taxes.
Tim Cook and Apple have an opportunity and moral responsibility to help close these tax loopholes that are siphoning money out of the U.S., California, and Silicon Valley-- then do similarly with the EU and worldwide.
Specifically, the goal is to streamline tax codes to be more clear, more consistent, and more algorithmic. This would be unpopular with stockholders but it's the right thing to do for employees, customers, and countries.
No! No! No!
What you legally owe in taxes, in a reasonable tax structure, has NOTHING to do with your moral compass. You should be able to plug numbers into a spreadsheet and get it.
I'm not saying that taxes are bad. We need tax revenue. I get that. But there should NEVER, EVER, be two legally correct answers to how much you owe.
The fact that you had to spend paragraphs making your case, makes mine -- when you resort to emotional appeal to try to get people to pay their taxes, the system is completely broken.
Edit: the original comment said that this was clear to anyone with a "moral compass"
People pay their taxes, generally. Corporations on the other hand... Well many pay their taxes as well, if I'm being fair.
Very few corporations in the US can dance around jurisdictions to avoid high tax rates like Apple & Co can. To be fair, most American corporations pay very high tax rates compared to the rest of the world, and almost none of them as a percentage are able to avoid paying those high rates.
The median corporate income tax rate, is higher than the median individual income tax rate.
It's a bit meaningless to talk about the corporate tax rate when there are so many deductions available to businesses.
Yes. The current situation heavily favors multinationals over wholly domestic corporations. In almost every country, but particularly in the US. That's why "inversions" are all the rage - if you aren't a subsidiary of a corporation in a low-tax country you almost have to become one.
But people try and minimise their taxes as much as possible.
Taxes that corporations pay are more complicated and they have more legal avenues to minimise tax payable.
I would love for you to explain why Apples shouldn't be paying taxes in the US instead of Ireland I simply don't get it.
Until we have a One World Order with no nations, what do you propose?
OK, I'll add another 'no' to you both. If a company is operating in a certain country offering goods and services to the population of that country then that country has the right to levy taxes upon the sales of those goods, and upon the operating profits of that company operating within that country.
Global corporations fiddle this by moving money around so it appears that they don't make a corporate profit in that country, hence they pay no corporation tax. For example, companies like Vodafone continuously buy other companies that are making losses deliberately to offset their profit making mobile operators.
A simple way to solve the problem is to levy an internet sales tax, which is the same percentage as the corporation tax that these companies should have paid if they were operating solely in that country in the first place.
This would have some added advantages to companies that have bricks and mortar stores, who currently struggle to survive and compete with online competition. They provide the customers advice and the ability to try on their goods and then the customer price compares and buys cheaper online.
Whilst customers are benefiting from lower prices in the model we have today, we face the real risk that in twenty years you will only be able to buy a book from Amazon. There won't be any other book store.
> A simple way to solve the problem is to levy an internet sales tax, which is the same percentage as the corporation tax that these companies should have paid if they were operating solely in that country in the first place.
Ah, but how does something like Google work, then? They don't sell a product to people all over the world (where tax can be collected); people all over the world are the product, and they sell that product to advertisers mostly from the US. Google uses the population of a country to make money without actually receiving any money from anyone in that country.
> You should be able to plug numbers into a spreadsheet and get it.
But we have that. Take profits and multiply by 0.35. Done.*
The fact that Apple effectively pays less than %10 corporate tax rate in the US is, I think, what the parent poster was referring to.
Yes. Thanks for posting this. I've edited my original post to add your information.
* except that's not really true
For it to be this simple, you're declaring that every company paying less than 35% tax is in breach of the law. Which is obviously not the case in the eyes of the IRS -- there is totally legitimate foreign income, deductions, etc etc.
Whether you think those things are a GOOD idea doesn't matter, there are plenty of companies paying way less than 35% which are not going to get prosecuted, and the IRS would declare in the clear.
> The fact that Apple effectively pays less than %10 corporate tax rate in the US is, I think, what the parent poster was referring to.
Can you source this claim, please?
The only sources I've seen that make this claim arrive at this number by treating Apple's worldwide sales as if they were entirely US sales, which is an absurd basis for this calculation.
Yea, I'm with you, but don't expect the United States to fight/do anything for that money/employees if we have some calamity.
Basically, if someone decides to take that money overseas--don't throw up you hands, and expect U.S. Soldiers to save the day.
So we live in this new world economy. Fine. If things go haywire; your company is on its own. Don't use our military. Don't use our government, and courts. Don't complain. You're on your own.
The problem , I see, is even if these companies didn't expect any favors from the United States in times of crisis; the United States would still try to rectify the problem. Tim Cook knows his money is safe anywhere. Why not pay close to nothing on profits? I wish we weren't the ambasitors of right/wrong, or the world's police.
Even accountants don't just plug numbers into a spreadsheet and get an answer. There are judgment calls and a range of reasonableness even within the Accounting rules.
I agree with you and I'm updating my post to show that your position and mine are similar.
We both want a reasonable tax structure. But Apple is exploiting the unreasonableness of the tax structure, e.g. by using outdated codes, shell games, tax havens, etc.
Apple leaders have the opportunity and moral responsibility to stop exploiting, and start helping.
You may not realize this, but there is a similiar argument happening in the Accounting world. You are basically arguing for Rules (Clear, Bright Lines) instead of Principles: There is already a current debate about this in the accounting world in GAAP vs IFRS and it has nothing to do with morality.
One of the advantages of GAAP, as you seem to be arguing is the reduction of risk since the rules are clear, unfortunately, the downside is the ability to circumvent them.
it is also funny how investors feel about accounting standards when it is THEIR money at risk and not the governments.
https://ifrsusa.wordpress.com/2011/04/05/which-is-better-%E2%80%93-principles-or-rules/ https://ifrsusa.wordpress.com/2011/04/05/which-is-better-%E2...
Excellent point. I strongly prefer IFRS over US GAAP, for exactly your reasons. IFRS tends to favor principles, GAAP tends to favor rules.
The ideal (IMHO) is to improve the principles and rules together, and Apple is in a unique leadership position to do this.
I get the spreadsheet. I get that there should not be two answers. What I'd ask you is where is your moral compass? Where do you think the taxes should be?
Tax is 100% a moral issue. Just as all laws are. There can be multiple legally correct answers because there are different circumstances, that's why we have courts, and not Judge Dredd.
You are preaching utopian idealism, but a high school ethics assignment of "stealing medicine to save your mum" undoes your "one set of rules to apply to everything" point.
I wish it were that simple, but it isn't. Whether it is New York trying to collect income tax from people who didn't live in the state or California trying to get everyone to pay 'use' tax (the equivalent of sales tax) on anything they bought outside of California, there are plenty of examples of tax law where morality never enters the picture.
What you can do is insure that you follow all applicable laws, and within that simple admonishion are two "get out of jail free" cards, one "Does this law actually apply?" and the other "What does this law actually say?". And after paying cash to the IRS on gains which you didn't actually get (looking at AMT here) you start wondering, what is the law here trying to do, other than suck as much money as possible into the government? And once you enter into an adversarial mindset it is you vs the government over whether or not you need to pony up the money.
It's not somehow patriotic to pay more in taxes than you legally owe.
There is nothing moral about paying taxes. What Apple has earned belongs to Apple and in ideal world it should pay nothing to US government. US government should probably think of simplifying and lowering the tax to the extent that avoiding it becomes more expensive than paying it.
Keep in mind that Apple does owe the US government a significant amount, so your statement is inaccurate. Apple would not function without the infrastructure provided by the government, would not be able to protect its IP without US patents, relies on the US for its workforce in Cupertino, etc.
So while I agree with your first claim, and do think Apple should "not" be taxed (tax people, not corporations), I don't agree with your second statement.
Thanks for saying this. I don't understand how people can forget that everyone relies on public roads, the power grid, police and armed forces, and a plethora of other expensive infrastructure items without which it would be nearly impossible to make a penny.
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I said in "ideal case" and not in general case and I was only emphasizing why the government attitude that Apple owes US government something is wrong.
As far as public infrastructure etc. is concerned only a minuscule portion of over taxes get spent on actual government functions such as protection of property rights and Liberty. Most of the money is currently going in wars we cant win or end, military junk and welfare. If I had a choice I would pay government to run a police force and courts but not for these things.
US gov already gets sufficient tax money to run its basic business. I would appreciate if the cut their spending instead of stealing money from me and Apple.
When Apple designs a phone in CA, buys supplies from companies located in a dozen different countries, assembles it in China and sells it in Australia what tax should be paid and to whom?
These aren't "tax loopholes." They're legitimate rules to answer this fairly complicated question.
When the income ends up on the books and taxed only in Ireland, after expensing most of it as licensing fees to a shell company in Bermuda, despite none of those things (design, sourcing, manufacturing, assembly, sales) occurring in either country, it starts looking more like a loophole than legitimate rules around taxing an international business.
None of the profits from selling things in the US goes on the Irish books. Only profits from selling things outside the US. This is done because the US (almost uniquely so) taxes worldwide earnings for companies based in the US.
What about all the other countries that they have property, employees and sales in? It's a loophole if it lets them pay nothing to any of those nations, despite being as much a corporate citizen of those nations as whatever office is next door to theirs.
> When the income ends up on the books and taxed only in Ireland, after expensing most of it as licensing fees to a shell company in Bermuda, despite none of those things (design, sourcing, manufacturing, assembly, sales) occurring in either country, it starts looking more like a loophole than legitimate rules around taxing an international business.
That's because it's a tax on profit, not a tax on design, sourcing, manufacturing, assembly, or sales.
Suppose I have an idea for a piece of hardware. So I hire one of these body shops in India to design the hardware. They make hardly any profit. Then I pay a Chinese company to manufacture it. They make hardly any profit. Then I sell the hardware through some retailer in Germany. They make hardly any profit.
But the enterprise is very successful for me and I'm sitting at home in my mansion driving my Ferrari because I've made all this profit. And you don't have any idea what country I live in because it doesn't matter -- if I move to a different country because it has lower taxes then the profits are still mine. Which is what international corporations do.
Stop trying to tax profits. They have no physical presence which means they just disappear into whichever jurisdiction has the lowest taxes. Tax something that physically exists in your jurisdiction and be done with it.
Also... that was a really low, shameless edit:
> Specifically, the goal is to streamline tax codes to be more clear, more consistent, and more algorithmic.
Your original post said (I don't have it saved), that the goal was to make all income from US companies taxed as US income. COMPLETELY different.
It is very dishonest to completely change your post after there's a whole comment tree under you.
I see your point. What I wrote originally was misunderstood by one of the repliers, so I edited to clarify, and commented on his reply that I was doing it.
> that the goal was to make all income from US companies taxed as US income. COMPLETELY different.
I'll explain more detail so my goal is better-understood. My goal is to have Apple, the U.S., and Ireland come to an agreement about the the U.S. Senate report "Offshore Profit Shifting and the U.S. Tax Code (Apple Inc.)". Here is a specific paragraph that introduces one of the important issues.
"In addition, the hearing will examine how Apple Inc. transferred the economic rights to its intellectual property through a cost sharing agreement with its own offshore affiliates, and was thereby able to shift tens of billions of dollars offshore to a low tax jurisdiction and avoid
U.S. tax. Apple Inc. then utilized U.S. tax loopholes, including the so-called “check-the-box” rules, to avoid U.S. taxes on $44 billion in taxable offshore income over the past four years, or about $10 billion in tax avoidance per year. The hearing will also examine some of the
weaknesses and loopholes in certain U.S. tax code provisions, including transfer pricing, Subpart
F, and related regulations, that enable multinational corporations to avoid U.S. taxes.
> What Apple owes is clear to me: pay the standard U.S. corporate tax on the standard U.S. profits.
This is exactly what they pay currently.
> Do the same for all countries.
This is what they just settled with the Italian government about; previously they thought they were legally in the clear paying Irish corporate taxes for profits from across the EU.
> The Apple problem is that its lawyers are deliberately avoiding using current tax codes, and instead essentially claiming that Apple is based in Ireland, then playing shell games with what counts as U.S. sales, U.S. profits, and also U.S. property. Apple ends up paying ~10% U.S. tax, rather than ~35%.
Apple does pay standard US corporate tax on profit from all US sales, the same 35% as any other company, and makes no claim that Apple, Inc. is located in Ireland. The Irish subsidiaries are money pools that collect Apple’s foreign profits, so that e.g. in Europe Apple pays VAT in each country but only small amounts of corporate taxes. They can then take that money and use it to acquire foreign companies, run their foreign retail/support operations, invest in manufacturing capital, fund overseas R&D offices, et cetera, or just hoard a pile of cash. In the US, Apple has simultaneously taken out big loans (because they currently get ridiculously low interest rates) which money they can use for capital expenditures in the US or dividends or whatever.
But Apple isn’t playing any shell games about US sales, profits, or property, per se. In my opinion you should do some basic research before making such obviously false accusations.
There’s plenty about the Irish tax setup that is questionable, and arguably Apple should repatriate more of its foreign profits back to the US and pay US corporate taxes on them. However, the discussion should be focused on what they currently do vs. what they should be forced to do by an improved tax code, not on some imaginary scenario based on what some other companies do.
> But Apple isn’t playing any shell games about US sales, profits, or property, per se.
> In my opinion you should do some basic research before making such obviously false accusations.
I've done research. Here are examples from news summaries and the U.S. Senate report.
"Apple Inc. transferred the economic rights to
its intellectual property through a cost sharing agreement with its own offshore affiliates, and
was thereby able to shift tens of billions of dollars offshore to a low tax jurisdiction and avoid
U.S. tax. Apple Inc. then utilized U.S. tax loopholes, including the so-called “check-the-box”
rules, to avoid U.S. taxes on $44 billion in taxable offshore income over the past four years, or
about $10 billion in tax avoidance per year. The hearing will also examine some of the
weaknesses and loopholes in certain U.S. tax code provisions, including transfer pricing, Subpart
F, and related regulations, that enable multinational corporations to avoid U.S. taxes."
"In annual reports between 2009 and 2011, the company told investors it was setting aside $13.7 billion to pay federal taxes—but it has actually paid only $5.3 billion. "
"The report alleges more than just the avoidance of US taxes on foreign sales of Apple’s products. It also argues that Apple is effectively sending US profits to its Irish subsidiaries, too. How? Transfer pricing. Apple has set up a cost-sharing agreement with its Irish subsidiaries that gives them a disproportionate share of the profit from research and development that occurs in the United States. From 2009 to 2012, Apple allocated $4 billion in R&D costs to its US unit, which had $38.7 billion in profits, while its Irish subsidiary had $4.9 billion in R&D costs—and $74 billion in profits."
Here's a Forbes summary URLs that may interest you for more specifics that I'm reading-- feel free to provide counter-examples or point to better research if you're aware of it.
http://www.forbes.com/sites/beltway/2013/05/21/the-real-story-about-apples-tax-avoidance-how-ordinary-it-is/ http://www.forbes.com/sites/beltway/2013/05/21/the-real-stor...
Tax is a system of rules, codified in law. When you have a system of rules, I don't think it's reasonable to hold them accountable to some arbitrary second standard, nor expect them to unnecessarily hand over billions of extra dollars.
Apple, and the rest of them, are following these laws. If governments are unhappy with the the amount of tax Apple pays after following the rules then they should change them.
Unfortunately, tax codes cannot simply be streamlined to be more algorithmic because every company has different facts and circumstances, which ultimately require judgment calls.
If you tried to build an algorithm that accounted for all of the complexities, you'd just send the problem upstream (who writes the algorithm?).
You mention Apple's Ireland operations, and you allude to the "earnings stripping" that is commonly achieved through such foreign companies. In some cases, the subsidiary is a pure tax play. But in other cases, it's simply a matter of having foreign operations that perform services that are charged out to affiliates in various countries. Deciding how much to mark up these services is a classic facts-and-circumstances inquiry. There's no one-size-fits-all rule that can adequately capture the spectrum of activities.
Compounding the problem is the fact that there are multiple taxing authorities involved, and if one gets greedy then others are affected (through foreign tax credits, for example). Sometimes a company just ends up getting stuck in the middle of a turf war between tax agencies in two countries.
Lastly, Tim Cook does have a "moral responsibility" with regard to taxation: maximize shareholder value. Granted, he could reasonably decide to take actions that do not minimize tax liability in the near term, on the grounds that he would generate goodwill with consumers and increase sales. But if he announced that he was going to dismantle Apple's foreign subsidiary structure so that Apple could pay more taxes, you can bet he'd face shareholder lawsuits in no time flat.
> Do the same for all countries.
So here's the specific reason why this is difficult in the case under discussion:
The EU runs as a "single market". It is intended to function such that you do business "in the EU" rather than "individually in every country that is part of the EU". There are no tariffs on moving goods between countries in the EU. Having imported something into the EU, you don't then have to pay more tax to sell it in a different EU country.
Except... the tax rates are not fixed across all EU countries. That was a bridge too far for the politicians when this was being set up. So under the rules as written, it's entirely legitimate - and intentional - to pick which EU country you want to operate in and pay your taxes there. This worked fine until some EU countries realised that they could compete against the other ones to offer more favourable tax regimes and attract businesses to themselves.
This isn't really a fight between companies and governments. The companies are the ball being played. This is a fight between governments over who gets to collect how much of the tax (to call it Germany versus Ireland would be unfair but not entirely imprecise). I do not see a way for it to be settled other than agreeing on tax rates being set by the EU, but that is politically challenging at the moment.
> Tim Cook and Apple have an opportunity and moral responsibility to help close these tax loopholes
I strongly disagree. I do not think that US corporations should be trying to settle arguments between EU governments. That is a level of political involvement which seems grossly inappropriate.
> What Apple owes is clear to me: pay the standard U.S. corporate tax on the standard U.S. profits. Do the same for all countries.
The whole problem is, what are "U.S." profits?
Google pays a bunch of engineer salaries to design Google Docs. Most of the engineers are in the U.S. If they declare that huge expense in the U.S. then it will cancel all the U.S. revenue for Google Docs, which they're happy to do because the U.S. has a high corporate tax rate.
Meanwhile the parent company in Ireland now owns a bunch of valuable new code that can be used world-wide and be licensed to Google UK and Google France etc., creating lots of profits for Google Ireland where taxes are low.
No part of this is doing anything "wrong" -- whichever corporate entity is the one that owns the rights to the code is the one that will make all the profits, because the code generates more revenue than it costs to create. And there is nothing that ties that entity to a particular country, especially when the expenses aren't actually all in the same place. The product is created by huge teams spread all over the world. Which corporate entity in which country "owns" the profits is completely arbitrary. So they choose the one in the country with the lowest taxes. What would you expect?