11 ms·

The Story of Apple's $14B Tax Bill

49 points by antimuon 10y ago

ooqr 10y ago
I don't think it's fair for Apple to evade taxes even if it's legal. I don't think it's fair for the EU to claim those taxes from an American company. But I also don't want the taxes to go to a Trump administration, just to be blown on a wall. What am I supposed to feel?
- szx 10y ago
  The financial system does not recognize fairness as a factor. Apple is playing the game to make money for its shareholders. It would be noble of them to behave otherwise, but I certainly don't expect it.
  - gtirloni 10y ago
    Small and medium-sized companies everywhere pay their taxes just fine without feeling "noble". They're not the exception, Apple and other giants are.
- matwood 10y ago
  Feelings should not be any part of this nor should the concept of 'fair'ness. Either Apple/Ireland followed the law or they didn't.
  - vladd 10y ago
    I agree that fairness has no place when looking whether someone obeyed the law or not. Fairness however should be of interest for the people that make these laws.
    - matwood 10y ago
      Define fair. Fair for who? The problem with using fairness as any sort of qualification is that it does not work. That's how the US ended up in the current situation with a high top rate and mountains of loopholes attempting to make it fair.
  - SixSigma 10y ago
    Well, Apple followed the law. But the law was changed in their favour by Luxembourg in a deal to deprive other EU countries of tax by creating sweetheart deals. Jean-Claude Juncker, the current president of the European Commission, who was prime minister of Luxembourg admitted after the “Lux Leaks” publications that the system was “not always in line with fiscal fairness” and may have breached “ethical and moral standards.” http://www.bbc.com/news/world-europe-36662636 http://www.bbc.com/news/world-europe-36662636 The only people who suffered directly as a consequence were the leakers > Former PricewaterhouseCoopers employees Antoine Deltour and Raphael Halet received 12 and nine-month sentences respectively for leaking documents.
- edblarney 10y ago
  1) 'Tax evasion' is illegal - it implies you're doing something like hiding money offshore, and not declaring it. Apple is doing nothing more than not paying the taxes they are not supposed to. If you claim your 'moving expenses' on your tax form, are you 'evading taxes'? No - you're just playing by the rules. Apple basically played by the rules. Nothing they did was illegal until the EU change their laws 25 years retroactively. 2) Europe definitely has a right to tax business activity in Europe. 3) The US does have a right to also tax business overseas, but it needs to be reasonable. Today, the laws are whack and US companies are double-taxed. If they weren't all that money would be coming back. Your comment about Trump are unfortunate, I don't like him either, but he was elected. Also, the bureaucracy has not changed. But consider this: Trump is actually going to change the repatriation laws, and you'll likely see a Trillion dollars parked overseas come back to the US. A good chunk of it will go to investors as dividends, but still, even that money will circulate back into the economy, and that's not all of it. It's surprising Obama did not do this - if he made repatriation laws consistent with the rest of the world ... it could have been a big bump to the economy when the US needed it the most. Edit: to be clear (thanks to Marzan, below) 'double-taxation' is not quite the appropriate term, as US companies are given credit for taxes overseas.
  - Marazan 10y ago
    US companies are not double taxed. Any corporation tax they pay in a foreign jurasdicuon is deducted from their us tax bill.
    - ChrisBland 10y ago
      I think OP is referring to places that have tax % lower than the US. Say Country A had a rate of 10%, you get the deduction of the 10% but you still owe 25% more due to the US 35% tax rate when you repatriate the $.
      - amitdeshwar 10y ago
        How is that "double taxation"?
- avar 10y ago
  You shouldn't feel sympathetic to the crocodile tears of legal jurisdictions like the EU who are fully capable of simply changing the rules, but instead choose to complain about individual companies following their own rules.
- rattray 10y ago
  I think you're supposed to feel like our current setup of democracy is failing us: 1. Governments fail to prevent evasion of taxes. 2. Governments make unfair claims on taxes when public outrage allows. 3. Trump got elected. 4. Most money spent by governments is blown. I think many people seek a "one good guy, one bad guy" storyline. I'm not sure whether that's cultural, a part of our mythology, or biological. But it's probably something to avoid.
- briandear 10y ago
  Evading taxes is illegal. Tax avoidance is legal and it's a fiduciary duty of corporate officers. They would actually be violation their fiduciary duties if they paid more tax than was required.
  - Marazan 10y ago
    No it isn't. There is no fiduciary duty for corporate directors anywhere in the world, and certainly not anywhere in the USA or Europe, to avoid taxes. Nor is there, I wager, any duty to maximise revenue or profit or anything similar in any jurisdiction on the planet.
    - caminante 10y ago
      Here's a relevant assessment by a UChicago tax professor on this very topic (i.e. the "duty" of APPL execs to avoid taxes) [0]. tl;dr: "Tax avoidance" isn't a "fiduciary duty" per Delaware corporation law. That said, APPL execs may be subject to such standards through its corporate bylaws or through a variation in state law (CA v. DE). [0] http://uchicagolaw.typepad.com/faculty/2015/12/a-duty-to-minimize-taxes.html http://uchicagolaw.typepad.com/faculty/2015/12/a-duty-to-min...
edblarney 10y ago
This is 100% the fault of EU and American legislators. Apple was mostly only doing what's reasonable (aside from, I think a 'special tax deal' - which is unfair). The EU makes the rules. They created the gaping loophole. Then they decide they want to 'change the law retroactively 25 years back' [1] - this is gong-show Chavista banana republic type property theft. Apple should sue them aggressively. What should have happened: A) The EU should have closed the loophole, long ago, and set some harmonization rules. When the closed the loophole, it should not have been retroactive. B) American leegislators are at fault as well. Why? Because insane US tax laws prevents US companies from just bringing the money home. Two problems: i) Corp tax rates are too high in the US 35% Because of this, there's a lot of loopholes in the US tax code, instead, they should close them and just reduce the tax rate to be consistent with the international averages ii) US 'double taxes' foreign profits. A US company that pays 25% corp tax in France, brings the money back - is hit with another 35% tax. US is the only country that does that. Everywhere else, they pay a repatriation fee. The US system is basically designed as though the rest of the world does not exist. US should have a repatriation fee - it can even be commensurate with level of taxes paid in country of origin to be smart about it. Large US companies are not really 'American' - they often have the majority of their staff, majority of sales, possibly majority shareholders overseas. So we need to grasp this new world order. The only thing really sneaky that Apple did was pressure the Irish to give them a special deal, but it's still legal, and rational. The EU is a terrible organization, they're incompetent, ideological, and they work against us as often as they work for us. If there 'was a problem' with Apple's taxes, it was 100% their own fault - Apple was just following the law. You can't change laws and have them apply retroactively for 1/4 century, it's totalitarian. To be clear: I don't think that Apple should have been given a special deal, but it's not their fault for trying, or for having been given it. It's quite common: Ontario just gave a huge subsidy to Cisco to open an office in Toronto. It could have very well been in the form of tax subsidy. EU massively subsidizes Airbus. Auto manufacturing incentives etc. etc. it's all common. Agree or not with them, but they're not nefarious. [1] http://europa.eu/rapid/press-release_IP-16-2923_en.htm http://europa.eu/rapid/press-release_IP-16-2923_en.htm "Following an in-depth state aid investigation launched in June 2014, the European Commission has concluded that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991"
sandstrom 10y ago
It's good that multinationals are forced to pay taxes. Otherwise they get an unfair advantage over small companies (since only large ones can afford to pay lawyers and accountants to help them cheat on taxes). A common scheme is that companies pretend to have 0 profit in a market (using various tricks) and then argue they shouldn't pay any tax on their profit in said country, because they don't have any profit there. But it doesn't make any sense. If Apple actually made 0 profit in Europe for the past 10 years, it wouldn't stick around. But they have opened hundreds of new stores and hired scores of people. Everyone know they make boatloads of money in Europe (just as everywhere else). Of course they should pay taxes on this profit.
- oconnor663 10y ago
  > Everyone know they make boatloads of money in Europe (just as everywhere else). Of course they should pay taxes on this profit. The difference between revenue and profit is really important here. You can have a lot of revenue without any profits if you're reinvesting the money, I think? So even if there are a lot of games you can play in terms of which profits you reinvested, I don't think it's as simple as "doing lots of business = owing lots of taxes".
  - sandstrom 10y ago
    Yes, totally, this is the trick. They come up with bogus costs, usually something vague. "We have to pay our headquarters Y billion to use 'their' very valuable logo". And this amount Y just so happened to match our gross profit X in market A. So X - Y = 0 profit in market A. My point is that this doesn't make any sense. If the company actually didn't make any profit year after year they wouldn't stay. Everyone knows this is true. Any other argument is just PR-bullshit to justify the tax dodging. ––– Another common trick is to buy something with intangible assets, for example software, in a market where you have untaxed profits (as described above). Then you wait a few months and suddenly realize that this was a stupid mistake and that all this software is now worth zero. You make a huge write-down (which is a cost) that can help you reduce your (bookkeeping) profit to 0. You still actually made money though + your 'worthless' asset [the software] is still around, and will keep generating money in the future.
holydude 10y ago
If not anything else the tax avoidance is really dangerous for small countries. I mean how are you going to protect your people from a mega corp like Apple that is so rich and powerful than a country of 5 millions ?
bcheung 10y ago
> I can’t see why the tax liability is in Ireland. Because it's cheaper. Duh. If a company charges too much people don't buy their products and go to a competitor. Likewise if a government charges too much tax businesses change their tax nexus to somewhere else. It's unreasonable to expect a business to operate against its own self-interest. Any system that requires it is bound to fail. Governments must design their tax systems to be competitive if they want revenue. Arguing that companies should opt to pay more in taxes is like arguing that consumers should buy a product that costs more. It makes no sense. It's the reason why Walmart exists and why people don't buy local. It's a matter of practicality. You can make all the moral arguments you want but the facts are that people and companies are going to act in their own self-interest. Until we can be frank and accept this as fact, we can't design moral, legal, and tax systems that work effectively.
- sandstrom 10y ago
  Yes, companies will act in their own self-interest. No-one is denying that. The issue here is that a small hardware startup competing with Apple cannot use shady tax-dodging techniques. Thus they are at a disadvantage. > Likewise if a government charges too much tax businesses change their tax nexus to somewhere else. Apple still want access to European customers. So it's fair that they follow the European law. It would be fair if Apple ceased selling in Europe and also didn't pay taxes there. But they don't want to leave the worlds second largest economy.
  - bcheung 10y ago
    What law are they breaking and what would be a fair solution that works for all parties?
    - lhc- 10y ago
      There's a whole article above about what laws were not followed and a solution that works for both parties: Apple pays the taxes it owes. If it is unhappy with that burden, it can leave Ireland and the EU, but I suspect that will not happen.
module0000 10y ago
Or, the IRS could butt out, and stop shaking down businesses that manage to turn a profit without one bit of government assistance. Would that be so bad? I mean, obviously we'd have to find some other way to fund our wars, state surveillance, and other "think of the children" endeavors - but at least "tax lawyers" would finally be out of a job; the final solution.
- elastic_church 10y ago
  yeah this article has nothing to do with the IRS or the United States. The IRS isn't raising any issue at all. They're pretty cool with it.
wav-part 10y ago
> Though Apple will have to pay its tax bill within weeks, the money will be held in escrow, and the issue will probably take years to be resolved. Am I the only one outraged by this ? There is no guarntee your money is safe. You hire tax advisors. You go as far as to get confirmation from Finance Minister. Its apparently not enough. This level of legal uncertainity is just insane.
- hanso 10y ago
  Is this a joke?? No, of course not outraged like that. Outraged by Apple not paying taxes like every ordinary person
- Whitestrake 10y ago
  Outrage is perhaps not the right term. It's important to keep in mind that Apple, being a business, is doing exactly what the primary function of a business is - making money. Reducing tax burden is effectively making money they otherwise wouldn't have. So while as a consumer and citizen I'm happy that Apple is being held to account, I agree with your concern that not even Apple, having gone to such lengths to ensure that such an approach is ostensibly a legal and legitimate method of doing business, can effectively have the authority turn around and say "We change our mind, you owe us fourteen billion dollars." It creates much uncertainty in the legal and administrative processes. I would prefer to see them simply close the hole for future endeavours.

49 points by antimuon 10y ago

ooqr 10y ago

I don't think it's fair for Apple to evade taxes even if it's legal. I don't think it's fair for the EU to claim those taxes from an American company. But I also don't want the taxes to go to a Trump administration, just to be blown on a wall. What am I supposed to feel?

szx 10y ago
The financial system does not recognize fairness as a factor. Apple is playing the game to make money for its shareholders. It would be noble of them to behave otherwise, but I certainly don't expect it.
- gtirloni 10y ago
  Small and medium-sized companies everywhere pay their taxes just fine without feeling "noble". They're not the exception, Apple and other giants are.
matwood 10y ago
Feelings should not be any part of this nor should the concept of 'fair'ness. Either Apple/Ireland followed the law or they didn't.
- vladd 10y ago
  I agree that fairness has no place when looking whether someone obeyed the law or not. Fairness however should be of interest for the people that make these laws.
  - matwood 10y ago
    Define fair. Fair for who? The problem with using fairness as any sort of qualification is that it does not work. That's how the US ended up in the current situation with a high top rate and mountains of loopholes attempting to make it fair.
- SixSigma 10y ago
  Well, Apple followed the law. But the law was changed in their favour by Luxembourg in a deal to deprive other EU countries of tax by creating sweetheart deals. Jean-Claude Juncker, the current president of the European Commission, who was prime minister of Luxembourg admitted after the “Lux Leaks” publications that the system was “not always in line with fiscal fairness” and may have breached “ethical and moral standards.” http://www.bbc.com/news/world-europe-36662636 http://www.bbc.com/news/world-europe-36662636 The only people who suffered directly as a consequence were the leakers > Former PricewaterhouseCoopers employees Antoine Deltour and Raphael Halet received 12 and nine-month sentences respectively for leaking documents.
edblarney 10y ago
1) 'Tax evasion' is illegal - it implies you're doing something like hiding money offshore, and not declaring it. Apple is doing nothing more than not paying the taxes they are not supposed to. If you claim your 'moving expenses' on your tax form, are you 'evading taxes'? No - you're just playing by the rules. Apple basically played by the rules. Nothing they did was illegal until the EU change their laws 25 years retroactively. 2) Europe definitely has a right to tax business activity in Europe. 3) The US does have a right to also tax business overseas, but it needs to be reasonable. Today, the laws are whack and US companies are double-taxed. If they weren't all that money would be coming back. Your comment about Trump are unfortunate, I don't like him either, but he was elected. Also, the bureaucracy has not changed. But consider this: Trump is actually going to change the repatriation laws, and you'll likely see a Trillion dollars parked overseas come back to the US. A good chunk of it will go to investors as dividends, but still, even that money will circulate back into the economy, and that's not all of it. It's surprising Obama did not do this - if he made repatriation laws consistent with the rest of the world ... it could have been a big bump to the economy when the US needed it the most. Edit: to be clear (thanks to Marzan, below) 'double-taxation' is not quite the appropriate term, as US companies are given credit for taxes overseas.
- Marazan 10y ago
  US companies are not double taxed. Any corporation tax they pay in a foreign jurasdicuon is deducted from their us tax bill.
  - ChrisBland 10y ago
    I think OP is referring to places that have tax % lower than the US. Say Country A had a rate of 10%, you get the deduction of the 10% but you still owe 25% more due to the US 35% tax rate when you repatriate the $.
    - amitdeshwar 10y ago
      How is that "double taxation"?
avar 10y ago
You shouldn't feel sympathetic to the crocodile tears of legal jurisdictions like the EU who are fully capable of simply changing the rules, but instead choose to complain about individual companies following their own rules.
rattray 10y ago
I think you're supposed to feel like our current setup of democracy is failing us: 1. Governments fail to prevent evasion of taxes. 2. Governments make unfair claims on taxes when public outrage allows. 3. Trump got elected. 4. Most money spent by governments is blown. I think many people seek a "one good guy, one bad guy" storyline. I'm not sure whether that's cultural, a part of our mythology, or biological. But it's probably something to avoid.
briandear 10y ago
Evading taxes is illegal. Tax avoidance is legal and it's a fiduciary duty of corporate officers. They would actually be violation their fiduciary duties if they paid more tax than was required.
- Marazan 10y ago
  No it isn't. There is no fiduciary duty for corporate directors anywhere in the world, and certainly not anywhere in the USA or Europe, to avoid taxes. Nor is there, I wager, any duty to maximise revenue or profit or anything similar in any jurisdiction on the planet.
  - caminante 10y ago
    Here's a relevant assessment by a UChicago tax professor on this very topic (i.e. the "duty" of APPL execs to avoid taxes) [0]. tl;dr: "Tax avoidance" isn't a "fiduciary duty" per Delaware corporation law. That said, APPL execs may be subject to such standards through its corporate bylaws or through a variation in state law (CA v. DE). [0] http://uchicagolaw.typepad.com/faculty/2015/12/a-duty-to-minimize-taxes.html http://uchicagolaw.typepad.com/faculty/2015/12/a-duty-to-min...

edblarney 10y ago

This is 100% the fault of EU and American legislators. Apple was mostly only doing what's reasonable (aside from, I think a 'special tax deal' - which is unfair). The EU makes the rules. They created the gaping loophole. Then they decide they want to 'change the law retroactively 25 years back' [1] - this is gong-show Chavista banana republic type property theft. Apple should sue them aggressively. What should have happened: A) The EU should have closed the loophole, long ago, and set some harmonization rules. When the closed the loophole, it should not have been retroactive. B) American leegislators are at fault as well. Why? Because insane US tax laws prevents US companies from just bringing the money home. Two problems: i) Corp tax rates are too high in the US 35% Because of this, there's a lot of loopholes in the US tax code, instead, they should close them and just reduce the tax rate to be consistent with the international averages ii) US 'double taxes' foreign profits. A US company that pays 25% corp tax in France, brings the money back - is hit with another 35% tax. US is the only country that does that. Everywhere else, they pay a repatriation fee. The US system is basically designed as though the rest of the world does not exist. US should have a repatriation fee - it can even be commensurate with level of taxes paid in country of origin to be smart about it. Large US companies are not really 'American' - they often have the majority of their staff, majority of sales, possibly majority shareholders overseas. So we need to grasp this new world order. The only thing really sneaky that Apple did was pressure the Irish to give them a special deal, but it's still legal, and rational. The EU is a terrible organization, they're incompetent, ideological, and they work against us as often as they work for us. If there 'was a problem' with Apple's taxes, it was 100% their own fault - Apple was just following the law. You can't change laws and have them apply retroactively for 1/4 century, it's totalitarian. To be clear: I don't think that Apple should have been given a special deal, but it's not their fault for trying, or for having been given it. It's quite common: Ontario just gave a huge subsidy to Cisco to open an office in Toronto. It could have very well been in the form of tax subsidy. EU massively subsidizes Airbus. Auto manufacturing incentives etc. etc. it's all common. Agree or not with them, but they're not nefarious. [1] http://europa.eu/rapid/press-release_IP-16-2923_en.htm http://europa.eu/rapid/press-release_IP-16-2923_en.htm "Following an in-depth state aid investigation launched in June 2014, the European Commission has concluded that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991"

sandstrom 10y ago

It's good that multinationals are forced to pay taxes. Otherwise they get an unfair advantage over small companies (since only large ones can afford to pay lawyers and accountants to help them cheat on taxes). A common scheme is that companies pretend to have 0 profit in a market (using various tricks) and then argue they shouldn't pay any tax on their profit in said country, because they don't have any profit there. But it doesn't make any sense. If Apple actually made 0 profit in Europe for the past 10 years, it wouldn't stick around. But they have opened hundreds of new stores and hired scores of people. Everyone know they make boatloads of money in Europe (just as everywhere else). Of course they should pay taxes on this profit.

oconnor663 10y ago
> Everyone know they make boatloads of money in Europe (just as everywhere else). Of course they should pay taxes on this profit. The difference between revenue and profit is really important here. You can have a lot of revenue without any profits if you're reinvesting the money, I think? So even if there are a lot of games you can play in terms of which profits you reinvested, I don't think it's as simple as "doing lots of business = owing lots of taxes".
- sandstrom 10y ago
  Yes, totally, this is the trick. They come up with bogus costs, usually something vague. "We have to pay our headquarters Y billion to use 'their' very valuable logo". And this amount Y just so happened to match our gross profit X in market A. So X - Y = 0 profit in market A. My point is that this doesn't make any sense. If the company actually didn't make any profit year after year they wouldn't stay. Everyone knows this is true. Any other argument is just PR-bullshit to justify the tax dodging. ––– Another common trick is to buy something with intangible assets, for example software, in a market where you have untaxed profits (as described above). Then you wait a few months and suddenly realize that this was a stupid mistake and that all this software is now worth zero. You make a huge write-down (which is a cost) that can help you reduce your (bookkeeping) profit to 0. You still actually made money though + your 'worthless' asset [the software] is still around, and will keep generating money in the future.

holydude 10y ago

If not anything else the tax avoidance is really dangerous for small countries. I mean how are you going to protect your people from a mega corp like Apple that is so rich and powerful than a country of 5 millions ?

bcheung 10y ago

> I can’t see why the tax liability is in Ireland. Because it's cheaper. Duh. If a company charges too much people don't buy their products and go to a competitor. Likewise if a government charges too much tax businesses change their tax nexus to somewhere else. It's unreasonable to expect a business to operate against its own self-interest. Any system that requires it is bound to fail. Governments must design their tax systems to be competitive if they want revenue. Arguing that companies should opt to pay more in taxes is like arguing that consumers should buy a product that costs more. It makes no sense. It's the reason why Walmart exists and why people don't buy local. It's a matter of practicality. You can make all the moral arguments you want but the facts are that people and companies are going to act in their own self-interest. Until we can be frank and accept this as fact, we can't design moral, legal, and tax systems that work effectively.

sandstrom 10y ago
Yes, companies will act in their own self-interest. No-one is denying that. The issue here is that a small hardware startup competing with Apple cannot use shady tax-dodging techniques. Thus they are at a disadvantage. > Likewise if a government charges too much tax businesses change their tax nexus to somewhere else. Apple still want access to European customers. So it's fair that they follow the European law. It would be fair if Apple ceased selling in Europe and also didn't pay taxes there. But they don't want to leave the worlds second largest economy.
- bcheung 10y ago
  What law are they breaking and what would be a fair solution that works for all parties?
  - lhc- 10y ago
    There's a whole article above about what laws were not followed and a solution that works for both parties: Apple pays the taxes it owes. If it is unhappy with that burden, it can leave Ireland and the EU, but I suspect that will not happen.

module0000 10y ago

Or, the IRS could butt out, and stop shaking down businesses that manage to turn a profit without one bit of government assistance. Would that be so bad? I mean, obviously we'd have to find some other way to fund our wars, state surveillance, and other "think of the children" endeavors - but at least "tax lawyers" would finally be out of a job; the final solution.

elastic_church 10y ago
yeah this article has nothing to do with the IRS or the United States. The IRS isn't raising any issue at all. They're pretty cool with it.

wav-part 10y ago

> Though Apple will have to pay its tax bill within weeks, the money will be held in escrow, and the issue will probably take years to be resolved. Am I the only one outraged by this ? There is no guarntee your money is safe. You hire tax advisors. You go as far as to get confirmation from Finance Minister. Its apparently not enough. This level of legal uncertainity is just insane.

hanso 10y ago
Is this a joke?? No, of course not outraged like that. Outraged by Apple not paying taxes like every ordinary person
Whitestrake 10y ago
Outrage is perhaps not the right term. It's important to keep in mind that Apple, being a business, is doing exactly what the primary function of a business is - making money. Reducing tax burden is effectively making money they otherwise wouldn't have. So while as a consumer and citizen I'm happy that Apple is being held to account, I agree with your concern that not even Apple, having gone to such lengths to ensure that such an approach is ostensibly a legal and legitimate method of doing business, can effectively have the authority turn around and say "We change our mind, you owe us fourteen billion dollars." It creates much uncertainty in the legal and administrative processes. I would prefer to see them simply close the hole for future endeavours.