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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 valuabl

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.

bcheung 10y ago
There's something called an Arms Length Test. Basically the criterion is that a business can not set up an arrangement purely for tax benefits if they wouldn't be willing to make the same arrangement with another company they didn't own. It is designed to prevent abusive income shifting practices. They might be able to make this case for Apple but it's really a subjective call. Apple can argue that any other company would agree to the same Ireland IP licensing because they can make a profit. It really comes down to a subjective argument of how much profit is needed to make it attractive to 3rd parties at arms length.
danudey 10y ago
I think the best known example for this is Hollywood Accounting, which is how a $19m movie with $150m worldwide can 'lose money'. https://www.techdirt.com/articles/20121018/01054720744/hollywood-accounting-how-19-million-movie-makes-150-million-still-isnt-profitable.shtml https://www.techdirt.com/articles/20121018/01054720744/holly... I've also seen this happen in real estate. You can make a ton of profit, but if your on-paper amortizations outweigh your in-real-life profit then you on-paper lose money even though in the real world you're richer than you were before.

bcheung 10y ago

There's something called an Arms Length Test. Basically the criterion is that a business can not set up an arrangement purely for tax benefits if they wouldn't be willing to make the same arrangement with another company they didn't own. It is designed to prevent abusive income shifting practices. They might be able to make this case for Apple but it's really a subjective call. Apple can argue that any other company would agree to the same Ireland IP licensing because they can make a profit. It really comes down to a subjective argument of how much profit is needed to make it attractive to 3rd parties at arms length.

danudey 10y ago

I think the best known example for this is Hollywood Accounting, which is how a $19m movie with $150m worldwide can 'lose money'. https://www.techdirt.com/articles/20121018/01054720744/hollywood-accounting-how-19-million-movie-makes-150-million-still-isnt-profitable.shtml https://www.techdirt.com/articles/20121018/01054720744/holly... I've also seen this happen in real estate. You can make a ton of profit, but if your on-paper amortizations outweigh your in-real-life profit then you on-paper lose money even though in the real world you're richer than you were before.