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This discussion is missing context. The whole reason that Apple has to pay taxes on foreign income is because unlike almost every other developed nation the US
by benjaminl 9y ago
This discussion is missing context. The whole reason that Apple has to pay taxes on foreign income is because unlike almost every other developed nation the US has a worldwide tax system. Almost every other nation has a territorial tax system. The rest of the world with their territorial system taxes income earned within that country, the US rather taxes income worldwide, regardless of where it is earned.
For example, if a British company earns income in Germany, its pays German taxes on its German income. But if a US company earns income in Germany it pays both German taxes and US taxes.
What is little known about this tax bill is that it normalizes our tax system with the rest of the world by moving to a territorial tax system. This is not about Apple avoiding tax on profit earned in the US, they will continue to pay US taxes, they won't pay taxes on income earned outside of the US going forward. [0] That means that there won't be any more hordes of overseas profits. And means the end of those tax inversions or corporate inversions you have been hearing about. [1]
So now that foreign profits aren't going to be taxed, something needed to be done with all the profits generated under the old system. The 23% repatriation tax is a compromise between the new rate of effectively 0% and the old rate of 39%. This BTW happens to be very close to the OECD, the developed world's, average tax rate of 24%.
Edit:
As was astutely pointed out below the US only pays additional taxes to the US if their US tax bill was higher than their German one. And they paid the difference between to two to the US.
[0] - https://news.ycombinator.com/item?id=11430290 https://news.ycombinator.com/item?id=11430290
[1] - https://news.ycombinator.com/item?id=11429859 https://news.ycombinator.com/item?id=11429859
- anilshanbhag 9y ago=> But if a US company earns income in Germany it pays both German taxes and US taxes. This is not portrayed accurately. If you pay German taxes, you claim exception for that amount. So if you pay more taxes than the rate in US, you owe no tax for that income in US. If the rate is less in the country than in US, you pay the difference.
- adw 9y agoIf there's a double taxation treaty for corporate income in place. I have no idea, but it's somewhere in https://www.irs.gov/pub/irs-trty/germany.pdf https://www.irs.gov/pub/irs-trty/germany.pdf ...
- benjaminl 9y agoYes, that is correct but since the US had until recently the highest corporate tax in the OECD, the US corporation will would almost always pay more taxes on German income than a German corporation would on German it’s German income. Giving the US corporation a systematic disadvantage unless they kept the money out of the US. But all this has now changed.
- TheSpiceIsLife 9y ago> What is little known about this tax bill > But all this has now changed I live in Australia. As a casual outside observer, can you inform me as to whether this tax bill has passed in to legislation, or is likely to?
- trothamel 9y agoIt's law, as of a few weeks ago. Some provisions will go into effect over the course of this year.
- jldugger 9y agoIt's law: http://thehill.com/sites/default/files/styles/thumb_small_article/public/trumpdonald_signingtax_122217getty.jpg?itok=_4458LR0 http://thehill.com/sites/default/files/styles/thumb_small_ar...
- stevenwoo 9y agoIt passed, but there are parts of the bill that only last ten years (those applying to personal/small business taxes), and then those tax rules revert to the previous version after ten years unless they are passed again under non-Byrd rules in the Senate. https://www.bloomberg.com/news/articles/2017-11-14/how-the-byrd-rule-will-shape-u-s-tax-overhaul-quicktake-q-a https://www.bloomberg.com/news/articles/2017-11-14/how-the-b...
- cavisne 9y agoWhich will of course be extended as no government would survive a personal tax increase
- IBM 9y agoYes you get a credit for the foreign taxes paid, but even still it's absurdly punitive for being an American corporation.
- Pulcinella 9y agoI would not consider taxes to be “punitive.” Taxes aren’t punishment. They are much more like a membership fee.
- IBM 9y agoI think it's fine to view taxes that way, but we should also realize that to a business taxes are a cost to be minimized. No for-profit business willingly conducts their affairs to maximize taxes. We live in a rules based system and the rules should be designed to incentivize the behaviors we want. Expecting any business to deviate from whats in their best interest is just... out of touch with reality.
- fjsolwmv 9y agoThat's been repeated ad nauseum and isn't relevant to this discussion. Parent was replying to someone who said "punitive".
- rhizome 9y agoWhat's good for America is good for General Motors.
- Helloworldboy 9y agoWhat’s good for America may make GM uncompetitive internationally.
- burnallofit 9y agoMany public corporations want to (indirectly) maximize taxes. That's because taxes are levied on profits, and maximizing profits to increase share value is often a good thing.
- revelation 9y agoBut of course Apple isn't paying no German taxes. They didn't pay taxes on any of this overseas money, and they had the gall to ask for an "repatriation holiday" so they could pay overall zero taxes on that huge heap of money. Now they are paying the US gov. Unless they can keep coming up with more Irish tax avoidance schemes, going forward they will probably also have to pay in Europe.
- valuearb 9y agoYes, they paid taxes in Germany, France, etc. it’s reported in their financial statements. They’ve already paid 8 or 9% foreign income taxes on their foreign earnings.
- gaius 9y agoReally? Because those are EU countries and Apple has a tax deal with Ireland in the EU.
- skgoa 9y agoTheir corporate headquarter is in Ireland. They pay payroll taxes, VAT etc. in each EU member state just like every business has to. They do not, however, have to pay taxes on their corporate earnings in EU countries other than Ireland. That is a central part of "Freedom of Commerce" in the EU. (One of the EU's 4 foundational freedoms.) What Apple has been rightfully accused of is not paying their taxes on corporate earnings in Ireland.
- revelation 9y agoHow do you evade sales tax, labor overhead? 9% is a far ways off from the nominal.
- speleding 9y agoApple paid millions in VAT, income tax for German employees, environmental (packaging) taxes, etc. They did not pay much tax on their profits in Germany, but it's debatable which part of the profit of a firm designing phones in the US and building them in China should fall to Germany.
- MrMorden 9y agoAnd either way you have to do all the work for both countries' tax systems. Compliance costs are not negligible.
- jitix 9y agoThe worldwide tax law sucks even more for an individual. And it makes absolutely no sense when you’re not even a citizen!
- kinkrtyavimoodh 9y agoIf you are not a citizen, you can at least avoid it if you are not staying in the US, as you'd be a non-resident for tax purposes. But if you are a non-citizen who is a resident for tax purposes, then yeah you are out of luck.
- jitix 9y agoYeah the latter sucks because as a resident I can’t even start a business here. I have to jump through hooves like Estonia’s e-residency program to just publish an app.
- tizzdogg 9y agoThe expression is "jump through hoops". Sorry to nitpick.
- jsjohnst 9y agoHoopes (yes, a misspelling) gets autocorrected to hooves for me, so could’ve been a typo and not that they didn’t know the expression.
- RHSeeger 9y agoProbably because the word is "hoops", without the "e"; the plural of "hoop". ^ Not meant as sarcasm, just noting the possible reason the spellchecker gets confused.
- jsjohnst 9y agoRight, but if you notice, the e and the s are adjoining keys on most common keyboards. Apologies if my wording was confusing, but I didn’t call out the es as the OP misspelling the pluralization, but rather specifically as a typo. My mention of misspelling was there only to prevent another person from pointing it out, but alas, I still failed it seems.
- miketery 9y ago> That means that there won't be any more hordes of overseas profits. And means the end of those tax inversions or corporate inversions you have been hearing about. [1] This won't stop companies selling their IP to overseas shells and then paying royalties.
- propman 9y agoThey will still be taxed on foreign profits. It's the global minimum tax of 11%. So if they are based in Ireland they'd pay 2% in Ireland and 9% to America. If in China, they'll pay 15% in China and 0% in America. Regardless of this, stopping the flow of capital and investment into the country with a 35% tax is extremely dumb. Everyone will say effective is far less, but it's far less because of foreign profits and IP stashed in Ireland and effective may be 20% for tech, but marginal to bring back in the states is still 35%
- ojbyrne 9y agoIt’s kind of obnoxious that they reformed this for corporations but not for individuals.
- KKKKkkkk1 9y agoDoes that transition to a territorial system apply only to corporations or do individuals count too? American expats are among the few in the world who have to pay taxes to the mothership no matter how long they live abroad.
- cjslep 9y agoUS citizens living abroad are still subject to the worldwide tax. The Republican's tax bill only affected corporations.
- jjeaff 9y agoIf you are living abroad, you only have to pay tax on your income in excess of ~$110k
- bnferguson 9y agoBut you still have to file, which is not only a pain, rather expensive. My tax prep bill last year was around 1200 EUR in the Netherlands on top of my Dutch tax prep.
- yodsanklai 9y agowould it be hard to do it by yourself?
- nikdaheratik 9y agoYes and no. You have to do a 1040 no matter what and you have to include a number of special forms that you must get absolutely right or you deal with alot of BS from having to talk to the IRS. And that's just for a simple tax situation. If you have income from multiple sources, some of which may be in the U.S. and some not, even if it's as simple sideline business, then it gets more complicated as you also have to calculate profit/loss for that as if it were in the U.S., then subtract your taxes paid in your country, and demonstrate that it's all below a certain threshold. And there's also payroll tax exemptions, etc.
- aluhut 9y ago> For example, if a British company earns income in Germany, its pays German taxes on its German income. Or, like Apple have a double Irish with a Dutch sandwich. http://www.independent.co.uk/news/business/news/eu-takes-ireland-to-court-15-billion-dollars-fine-apple-back-taxes-latest-european-court-of-justice-a7982211.html http://www.independent.co.uk/news/business/news/eu-takes-ire...
- cjslep 9y agoNote that US citizens living abroad are still subject to US's worldwide tax. The tax bill only moved corporations from worldwide to territorial tax.
- mixmastamyk 9y agoWonderful, any details on why that’s the case?
- cjslep 9y agoNope. Feel free to pose the question to any of the House/Senate representatives who hurriedly signed the bill because it was certainly considered in the legislation according to worldwide news outlets. I hope you don't get a canned response answer.
- pentae 9y agoCorporations > People
- fyfy18 9y ago> For example, if a British company earns income in Germany, its pays German taxes on its German income. This isn’t entirely accurate (heh, taxes are complicated). The company would most likely pay VAT/sales tax in Germany, but would pay corporate/income tax in the U.K. If your customer is a VAT registered business you would usually exclude the VAT, unless they are based in the same jurisdiction as you (it doesn’t matter where the item is going). Up until 2015 this wasn’t the case for digital goods as VAT was charged at the ‘place of supply’ (where the company was based), but it is now accounted for where your customer is located. This is what caused the VAT MOSS kerfuffle, as you now need to account for 28 sets of tax rules depending on where your customer is located.
- cm2187 9y agoNot if the sale is made out of a branch or subsidiary based in Germany. Then its profit is calculated in the same way as any local company and taxed locally. And I think this what we are talking about in Apple's case. Not sales made directly by Apple Inc in the US but sales made by foreign subsidiaries of Apple.
- kgwgk 9y agoVAT is paid by consumers, not companies. In principle, companies just collect the tax from their customers and send to the state the part that they are not transferring to their providers (but of course, taxes are complicated).
- pteredactyl 9y agoThanks for this. Sounds win-win to me.
- marvin 9y agoWait a minute. Does this tax bill end the situation where e.g. Google earns $100 million/year in my European home country, but pay only $150,000 in taxes to my home country, using an Irish holding company to ensure their net tax rate (including to the US) on this amount is only a few percent? That would seem like a very good thing to me. The current situation is quite unjust.
- revelation 9y agoIt doesn't. It just means Google will now pay less money to the US government when they want to spend their overseas profits in the US.
- Cthulhu_ 9y agoI think more that Google will hoard less money in Europe to avoid US taxes and will be able to move more back to the US for investments there. It's the US' new isolationist policies in action.
- talmand 9y agoYou mean the new tax law that's more in line with the rest of the world when concerning corporations? Those damn US isolationists acting like the rest of the world! Next thing you know the globalists will start insisting on strong borders and immigration controls.
- skgoa 9y agoNope. That's an intra-EU thing and is very unlikely to change.
- madeofpalk 9y agoWait, is that actually the case here? For example, if a British company earns income in Germany, its pays German taxes on its German income. But if a US company earns income in Germany it pays both German taxes and US taxes. If a British company sets up a company in Germany and that 'subsidiary' earns income in Germany and pays tax in Germany, and then wants to send its money back to the British company, does the British company need to pay tax on that? Isn't that money new income for the British company, and therefor would be taxed accordingly? I think that's the key here.
- netsharc 9y agoNot answering your question, but the companies do tricks so they don't have incomes in some countries. E.g. Starbucks in Germany... they buy their coffee from Sbucks Luxembourg, the amount of coffee needed to make a 7 euro coffee will also cost close to 7 euros, payable to the seller, Sbucks Luxembourg. So the German subsidiary has very low profits (7 euros for coffee beans for 1 cup of coffee!), and pay very little taxes. The Luxembourg subsidiary pay the local taxes, which are much lower -- as arranged by their then premier, and now current head of European Commission, Jean-Claude Juncker: > In early November 2014, just days after becoming head of the commission, Juncker was hit by media disclosures—derived from a document leak known as LuxLeaks—that Luxembourg under his premiership had turned into a major European centre of corporate tax avoidance. With the aid of the Luxembourg government, companies transferred tax liability for many billions of euros to Luxembourg, where the income was taxed at a fraction of 1%. Juncker, who in a speech in Brussels in July 2014 promised to "try to put some morality, some ethics, into the European tax landscape", was sharply criticised following the leaks.[52] A subsequent motion of censure in the European parliament was brought against Juncker over his role in the tax avoidance schemes. The motion was defeated by a large majority.[53] > In 2017, leaked diplomatic cables show Juncker, as Luxembourg’s prime minister from 1995 until the end of 2013, blocked EU efforts to fight tax avoidance by multinational corporations. Luxembourg agreed to multinational businesses on an individualised deal basis, often at an effective rate of less than 1%.[54] If you buy something from European Amazon, the bill will be from Amazon Luxembourg. Same with Apple and Ireland...
- deleted 9y ago[deleted]
- dariosalvi78 9y agoI live in UK, and I earn some money in Spain. In UK I am required to pay the difference between UK and Spanish taxes if I bring the money here. That's pretty standard everywhere.