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> Apple pays a 2.3% effective tax rate on its $181bn in cash held offshore... > ...shield themselves off from the theoretically 35% federal corporate tax rate

by apeace 10y ago

> Apple pays a 2.3% effective tax rate on its $181bn in cash held offshore... > ...shield themselves off from the theoretically 35% federal corporate tax rate Something seems wrong here. I don't think companies are expected to pay 35% yearly on cash reserves. Am I confused, or is the article? If anyone is knowledgable about this I'd be interested to know the deal!

mdasen 10y ago
Basically all countries tax companies on income earned in that country. So, if you're a UK company and you earn $1B in the UK and $500M in France, you pay tax on $1B to the UK government and tax on $500M to the French government. The US taxes companies on their worldwide income when they re-patriate that money to the US. So, if you earned $500M in France and want to bring that money back into the US, you owe US taxes on it (in addition to the French taxes already paid). If you don't bring the money back to the US, you just pay the French taxes. People have called the ability to hold the money overseas a loophole, but given that basically no other country taxes companies on their worldwide income, it seems more that the US is the outlier. Let's put it this way. A UK-based firm earns $1B in the US and $1B in the UK and has to pay the American tax authorities on $1B and UK tax authorities on $1B and it can then bring the profit back from the US. That seems fair. By contrast, a US-based firm earns the same amount in each country and must pay the US tax on $1B, the UK tax on $1B, and then the US tax on whatever they bring back from the UK (which has already had UK tax paid on it). This encourages companies to reinvest their profits overseas rather than bring the money back to the US where it would get taxed again. It's partly because the US is so large and has been more isolated than most countries. Likewise, it's basically the only country that taxes individuals based on citizenship rather than residency.
- seanmcdirmid 10y ago
  This isn't entirely accurate. First, You can deduct foreign taxes paid, so $1B earned in the UK could would come back only in paying the difference of higher US and UK taxes. But tax systems in different countries are different, deductions are different, as are fees and such....it leads to a huge mess. The other hard thing to reason about is where the value was added. If the IP was developed in the states, technically, it has to be sold through, so profits on it are still taxed here, to the foreign branch, where only retail profits are taxed...or something like that. It gets really messy when you are also doing R&D abroad...and you can see why tax games are possible and even necessary.
  - afarrell 10y ago
    > You can deduct foreign taxes paid Do you mean deduct, or you get a tax credit? If you mean deduct, then you pay UK taxes on $1B and then US taxes on the $800M (or whatever) that is left over.
    - seanmcdirmid 10y ago
      Ya, tax credit of course. For us expats filing personally, it's the foreign tax credit. You can also deduct if you want, but I don't see how that would ever be useful.
  - snowwrestler 10y ago
    Corporations get a tax credit on taxes paid to foreign countries. This is where the U.S. nominal rate comes in. If it was about the same as other countries', then it would not be an impediment to repatriating profits. But at 35%, it's the highest in the world, so corps repatriating profits will indeed pay additional taxes to the U.S. government, even taking the foreign tax credits into account. That's why corps want the corporate tax rate lowered--so that business purposes can have a bigger role in decisions about moving capital. Right now tax avoidance has a large role in those decisions, at least when it comes to the U.S. It's also why a temporary corporate tax holiday does not really help. It lets companies bring back one big lump sum, but does not change their long-term decision making, and it is long-term decision making that determines where investment goes and where jobs are created.
    - Retric 10y ago
      The 'before deductions' part makes that 35% rate meaningless. A 10% tax on 10 billion is > than a 35% tax on 2 billion. Corporate share of federal tax revenue has dropped by two-thirds in 60 years — from 32% in 1952 to 10% in 2013. General Electric, Boeing, Verizon and 23 other profitable Fortune 500 firms paid no federal income taxes from 2008 to 2012. Our average effective tax rate is 27.1% compared with 27.7% for the other 30 OECD countries, according to CRS. http://staging.americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-corporate-tax-rates/ http://staging.americansfortaxfairness.org/tax-fairness-brie... http://www.fas.org/sgp/crs/misc/R41743.pdf http://www.fas.org/sgp/crs/misc/R41743.pdf
ineptech 10y ago
The article is referring to the tax Apple would have paid on that money back when it was earned, if they had reported it as US profit instead of reporting it as foreign profit.

by apeace 10y ago

mdasen 10y ago

Basically all countries tax companies on income earned in that country. So, if you're a UK company and you earn $1B in the UK and $500M in France, you pay tax on $1B to the UK government and tax on $500M to the French government. The US taxes companies on their worldwide income when they re-patriate that money to the US. So, if you earned $500M in France and want to bring that money back into the US, you owe US taxes on it (in addition to the French taxes already paid). If you don't bring the money back to the US, you just pay the French taxes. People have called the ability to hold the money overseas a loophole, but given that basically no other country taxes companies on their worldwide income, it seems more that the US is the outlier. Let's put it this way. A UK-based firm earns $1B in the US and $1B in the UK and has to pay the American tax authorities on $1B and UK tax authorities on $1B and it can then bring the profit back from the US. That seems fair. By contrast, a US-based firm earns the same amount in each country and must pay the US tax on $1B, the UK tax on $1B, and then the US tax on whatever they bring back from the UK (which has already had UK tax paid on it). This encourages companies to reinvest their profits overseas rather than bring the money back to the US where it would get taxed again. It's partly because the US is so large and has been more isolated than most countries. Likewise, it's basically the only country that taxes individuals based on citizenship rather than residency.

seanmcdirmid 10y ago
This isn't entirely accurate. First, You can deduct foreign taxes paid, so $1B earned in the UK could would come back only in paying the difference of higher US and UK taxes. But tax systems in different countries are different, deductions are different, as are fees and such....it leads to a huge mess. The other hard thing to reason about is where the value was added. If the IP was developed in the states, technically, it has to be sold through, so profits on it are still taxed here, to the foreign branch, where only retail profits are taxed...or something like that. It gets really messy when you are also doing R&D abroad...and you can see why tax games are possible and even necessary.
- afarrell 10y ago
  > You can deduct foreign taxes paid Do you mean deduct, or you get a tax credit? If you mean deduct, then you pay UK taxes on $1B and then US taxes on the $800M (or whatever) that is left over.
  - seanmcdirmid 10y ago
    Ya, tax credit of course. For us expats filing personally, it's the foreign tax credit. You can also deduct if you want, but I don't see how that would ever be useful.
- snowwrestler 10y ago
  Corporations get a tax credit on taxes paid to foreign countries. This is where the U.S. nominal rate comes in. If it was about the same as other countries', then it would not be an impediment to repatriating profits. But at 35%, it's the highest in the world, so corps repatriating profits will indeed pay additional taxes to the U.S. government, even taking the foreign tax credits into account. That's why corps want the corporate tax rate lowered--so that business purposes can have a bigger role in decisions about moving capital. Right now tax avoidance has a large role in those decisions, at least when it comes to the U.S. It's also why a temporary corporate tax holiday does not really help. It lets companies bring back one big lump sum, but does not change their long-term decision making, and it is long-term decision making that determines where investment goes and where jobs are created.
  - Retric 10y ago
    The 'before deductions' part makes that 35% rate meaningless. A 10% tax on 10 billion is > than a 35% tax on 2 billion. Corporate share of federal tax revenue has dropped by two-thirds in 60 years — from 32% in 1952 to 10% in 2013. General Electric, Boeing, Verizon and 23 other profitable Fortune 500 firms paid no federal income taxes from 2008 to 2012. Our average effective tax rate is 27.1% compared with 27.7% for the other 30 OECD countries, according to CRS. http://staging.americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-corporate-tax-rates/ http://staging.americansfortaxfairness.org/tax-fairness-brie... http://www.fas.org/sgp/crs/misc/R41743.pdf http://www.fas.org/sgp/crs/misc/R41743.pdf

ineptech 10y ago

The article is referring to the tax Apple would have paid on that money back when it was earned, if they had reported it as US profit instead of reporting it as foreign profit.