3 ms·

Income before tax: $13.9 billion Income tax: $3.2 billion So Apple's effective tax rate is 23%. Honestly that's better than I expected, but still less than i

by MarkMc 9y ago

Income before tax: $13.9 billion Income tax: $3.2 billion So Apple's effective tax rate is 23%. Honestly that's better than I expected, but still less than it should be. Federal corporate income tax is 35% and California adds 8.84%. So there are other California companies which pay almost twice as much tax as Apple. (Keep in mind that almost all of the value created by Apple is created in California. If Apple were to outsource all their sales and be a purely Californian company then it would make almost the same amount of pre-tax profit)

adventured 9y ago
> So Apple's effective tax rate is 23%. ... Honestly that's better than I expected, but still less than it should be. ... Federal corporate income tax is 35% That's misleading. You're comparing their global effective tax rate versus the US Federal rate. The question is how much did Apple pay in taxes in the US, on US-based profits. 23% isn't less than it should be, it's extremely reasonable compared to rates around the world. The OECD average statutory corporate income tax rate is around 24% (the effective rate is even lower). The average effective corporate income tax rates for 2012: UK, 10%; Germany, 14%; Canada, 16%; Australia, 17%; China, 19%; France, 20%; South Korea, 20%. Even Scandinavian nations like Finland (20%) or Sweden (22%) have lower statutory rates (to say nothing of the effective). Denmark has a reputation for having a government spending rate that is among the highest on earth among developed nations as a share of its economy, and its statutory rate is merely 24.5%.
- MarkMc 9y ago
  My point is that almost all of Apple's profit is in reality generated in California, even if its sales and accounting profits are booked overseas. So I'm comparing US-based profit with the US Federal tax rate. Let's say an iPhone is sold in the UK, generating a $200 profit. How much of that profit was really generated in the UK and how much in the US? The answer is to consider what would happen if Apple's US and UK operations were two distinct, independent companies: Apple in California would determine almost everything about the way iPhones are sold in the UK - where the Apple stores are located, what the stores look like, what their TV and billboard advertising should look like, what happens when a customer returns a product, etc. Apple US would then take this list of requirements and negotiate with a UK business partner. In that negotiation the UK partner has very little leverage - if the UK partner doesn't like terms Apple US is offering, Apple US can just find another partner. The UK partner then sells phones according to Apple's specification. The result is that the UK partner will have thin margins and almost all profit will flow back to the US. Unfortunately, tax law allows Apple to move its intellectual property to an Irish subsidiary company. The profit on UK sales is then booked in Ireland and Apple pays the low Irish tax rate even though the real profit has been generated in the US. I accept your point that 23% may be a good corporate tax rate - but in that case it should be 23% for all Californian companies, not just the ones which are able to transfer their IP offshore.
  - fauigerzigerk 9y ago
    I think the difficulty with corporation tax for global corporations is that asking where profits are generated is not the only relevant question. You could also ask who bears the cost of generating those profits. Where did Apple's employees grow up and go to school before they joined Apple in California? Who builds the infrastructure for manufacturing and distributing Apple's products? So the global distribution of value generation and the global distribution of cost can vary significantly. In fact, Apple is a relatively simple case compared to, say, Amazon. Of course, this doesn't make the sort of "tax planning" you're talking about any less problematic. On the contrary.
- fauigerzigerk 9y ago
  On top of that, the owners of the company pay income tax on dividends and capital gains tax on share disposals. But of course that doesn't answer the tricky question of who should get what share of corporate taxes paid by global corporations.

by MarkMc 9y ago

adventured 9y ago

> So Apple's effective tax rate is 23%. ... Honestly that's better than I expected, but still less than it should be. ... Federal corporate income tax is 35% That's misleading. You're comparing their global effective tax rate versus the US Federal rate. The question is how much did Apple pay in taxes in the US, on US-based profits. 23% isn't less than it should be, it's extremely reasonable compared to rates around the world. The OECD average statutory corporate income tax rate is around 24% (the effective rate is even lower). The average effective corporate income tax rates for 2012: UK, 10%; Germany, 14%; Canada, 16%; Australia, 17%; China, 19%; France, 20%; South Korea, 20%. Even Scandinavian nations like Finland (20%) or Sweden (22%) have lower statutory rates (to say nothing of the effective). Denmark has a reputation for having a government spending rate that is among the highest on earth among developed nations as a share of its economy, and its statutory rate is merely 24.5%.

MarkMc 9y ago
My point is that almost all of Apple's profit is in reality generated in California, even if its sales and accounting profits are booked overseas. So I'm comparing US-based profit with the US Federal tax rate. Let's say an iPhone is sold in the UK, generating a $200 profit. How much of that profit was really generated in the UK and how much in the US? The answer is to consider what would happen if Apple's US and UK operations were two distinct, independent companies: Apple in California would determine almost everything about the way iPhones are sold in the UK - where the Apple stores are located, what the stores look like, what their TV and billboard advertising should look like, what happens when a customer returns a product, etc. Apple US would then take this list of requirements and negotiate with a UK business partner. In that negotiation the UK partner has very little leverage - if the UK partner doesn't like terms Apple US is offering, Apple US can just find another partner. The UK partner then sells phones according to Apple's specification. The result is that the UK partner will have thin margins and almost all profit will flow back to the US. Unfortunately, tax law allows Apple to move its intellectual property to an Irish subsidiary company. The profit on UK sales is then booked in Ireland and Apple pays the low Irish tax rate even though the real profit has been generated in the US. I accept your point that 23% may be a good corporate tax rate - but in that case it should be 23% for all Californian companies, not just the ones which are able to transfer their IP offshore.
- fauigerzigerk 9y ago
  I think the difficulty with corporation tax for global corporations is that asking where profits are generated is not the only relevant question. You could also ask who bears the cost of generating those profits. Where did Apple's employees grow up and go to school before they joined Apple in California? Who builds the infrastructure for manufacturing and distributing Apple's products? So the global distribution of value generation and the global distribution of cost can vary significantly. In fact, Apple is a relatively simple case compared to, say, Amazon. Of course, this doesn't make the sort of "tax planning" you're talking about any less problematic. On the contrary.
fauigerzigerk 9y ago
On top of that, the owners of the company pay income tax on dividends and capital gains tax on share disposals. But of course that doesn't answer the tricky question of who should get what share of corporate taxes paid by global corporations.