5 ms·
The loophole allows self-dealing transactions to move local profits offshore. Apple US buys iPods for $10 from China and sells in USA for $100. $90 profit, ta
by jellicle 10y ago
The loophole allows self-dealing transactions to move local profits offshore.
Apple US buys iPods for $10 from China and sells in USA for $100. $90 profit, taxable, right? Wrong. Apple US licenses the Apple name from Apple Ireland for $89/iPod. Final tax sheet looks like:
Revenue: $100 cash from Apple store in San Francisco
Expenses: $10 Apple China, $89 Apple Ireland
Taxable profit in USA: $1 (minus labor and such, of course)
Taxes paid to US government: minimal.
The profits from firms that do lots of business in the USA are being paperwork-shifted outside the country to evade taxes.
This has been covered extensively in numerous in-depth articles about major corporations and their tax schemes.
- harryh 10y agoYou actually have it backwards. US firms that do a lot of business overseas are being paperwork-shifted outside of the US not to avoid paying taxes on US operations but to avoid paying US taxes on operations that take place largely overseas. This is how Apple ends up with 250 Billion (or whatever it is now) overseas that it doesn't want to Repatriate and pay US taxes on. That money wasn't earned by selling iPods in the US, it was earned by selling iPods everywhere else.
- ethbro 10y agoBoth of these are problems. The first is the US government not doing enough to prevent shell IP licensing from being used to eliminate US profits (while the companies are benefiting from US stability and legal protections). The second is the issue with US companies repatriating (or not) profits earned in foreign subsidiaries.
- jstelly 10y agoHere's an article that explains how starbucks uses a similar strategy to reduce their tax bill: http://www.reuters.com/article/us-britain-starbucks-tax-idUSBRE89E0EX20121015 http://www.reuters.com/article/us-britain-starbucks-tax-idUS...