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There is a law in the UK that defines exactly how transfer pricing works, in order to prevent abuses. Is your argument that Apple is breaking this law, or that

by Lazare 7y ago

There is a law in the UK that defines exactly how transfer pricing works, in order to prevent abuses. Is your argument that Apple is breaking this law, or that the UK law is simply poorly drafted? If the latter, have you contacted your MP? I understand your concern about their profit margin, what I'm curious about is why you think any answers lie with Apple and not some branch of the UK government.

reallydontask 7y ago
As it happens, I have written to my (labour) MP, hard to see anything coming out of it since they've not been in power since 2010? To be fair, my position varies between blaming the companies for the financial shenanigans and blaming the politicians for the messy tax code, not that I said anything about this in my previous post.
chimprich 7y ago
> I'm curious about is why you think any answers lie with Apple and not some branch of the UK government. It appears that it's very tough for governments to stay ahead of the tax shenanigans of enormous multinational corporations with immense resources at their disposal. The UK tax laws could certainly do with improvement, but in my opinion this is deeply unethical behaviour by Apple, even if it's difficult to establish whether it's actually illegal.
AnthonyMouse 7y ago
The problem isn't that the law is poorly drafted, it's that the underlying premise is flawed. For example, suppose the UK operation needs money to buy inventory. One possibility is to sell its own shares. Then it has "free" money, zero borrowing cost, so it makes profits. Another possibility is to go to a lender and borrow the money at interest. Then the interest payments eat its profits. That difference in treatment is intended. The idea behind the distinction is that loan interest doesn't depend on the success of the business. If the business does poorly the investors make less profit but a lender isn't owed less interest. If the business does well the investors make more profit but a lender isn't owed more interest. That's the difference between profit and interest. But in this context the retail operation has highly predictable costs and revenues, and it's easy to adjust things in real time as sales volume increases or decreases. It's not like R&D where you have to spend for five years before you start making potential returns. So it's easy to borrow exactly the amount of money you need at market interest rates in an arms length transaction, and have the interest eat up your profits. And none of that is "wrong" -- profits come from investment. If nobody made any initial investment into the UK operation and it had to borrow all of its operating capital, it's completely expected in an efficient market that the borrowing costs would eat all its profits. The expected return (profit) on investing no money is no money. The problem isn't transfer pricing. The amount they're paying can be the amount you would pay in an arms length transaction and still have it eat all their profits. A retail operation that has taken no investment will legitimately have minimal profits.
- pjc50 7y ago
  The underlying premise is "does it really make sense to treat the UK operation as a separate item, or should we be dividing UK revenue by global revenue and demanding a tax on that percentage of global profit of Apple Inc?"
  - AnthonyMouse 7y ago
    Except that Apple Inc doesn't exist in their jurisdiction, and there are good reasons why it doesn't work that way. Consider the possibility that they just not operate in the UK at all. They sell iPhones to a global retailer in the US, the independent retailer imports them into the UK and sells them to customers there. Apple sells exactly the same number of iPhones to exactly the same end customers, but now they're not subject to UK jurisdiction at all. If that's all it takes to avoid the global "profit tax" then that is what would happen. But that makes no sense. There is no sense or benefit in making the global tax contingent on whether the final low margin retailer in your jurisdiction is a subsidiary or not. But if you still want to impose the same kind of global tax even through an independent entity then you have to go all the way back through the whole supply chain or it can be trivially avoided again, at which point all you've basically done is reinvent VAT. > or should we be dividing UK revenue by global revenue and demanding a tax on that percentage of global profit of Apple Inc? This also doesn't work for another reason. Suppose a company (not necessarily Apple) has two lines of business. One is high volume low margin manufacturing commodity hardware, the other is a high margin software development. The hardware business is responsible for most of their revenue but only a small fraction of their profits, because the margins are very low. If they sell a lot of hardware but not a lot of software in the UK then your formula is unjustly allocating profits from the global software business to the UK where they sell mostly hardware, and then they would have the incentive to stop selling you hardware because the tax would be more than their actual margin on the hardware. But if you let them apportion profits accurately based on different lines of business then we're right back to them being able to shift them into whatever jurisdiction they like by engaging in high margin transactions in low tax jurisdictions. There is no such thing as profit as distinct from revenue. All revenue is profit to somebody in the supply chain. If you want to tax profit throughout a supply chain, all you have to do is make sure that you only tax revenue exactly once and you're done. But that's still just VAT or sales tax. Pretending corporate income tax is something fundamentally different is just introducing exactly the sort of complexity that allows international corporations to avoid paying the same taxes that domestic corporations still have to pay.

by Lazare 7y ago

reallydontask 7y ago

As it happens, I have written to my (labour) MP, hard to see anything coming out of it since they've not been in power since 2010? To be fair, my position varies between blaming the companies for the financial shenanigans and blaming the politicians for the messy tax code, not that I said anything about this in my previous post.

chimprich 7y ago

> I'm curious about is why you think any answers lie with Apple and not some branch of the UK government. It appears that it's very tough for governments to stay ahead of the tax shenanigans of enormous multinational corporations with immense resources at their disposal. The UK tax laws could certainly do with improvement, but in my opinion this is deeply unethical behaviour by Apple, even if it's difficult to establish whether it's actually illegal.

AnthonyMouse 7y ago

The problem isn't that the law is poorly drafted, it's that the underlying premise is flawed. For example, suppose the UK operation needs money to buy inventory. One possibility is to sell its own shares. Then it has "free" money, zero borrowing cost, so it makes profits. Another possibility is to go to a lender and borrow the money at interest. Then the interest payments eat its profits. That difference in treatment is intended. The idea behind the distinction is that loan interest doesn't depend on the success of the business. If the business does poorly the investors make less profit but a lender isn't owed less interest. If the business does well the investors make more profit but a lender isn't owed more interest. That's the difference between profit and interest. But in this context the retail operation has highly predictable costs and revenues, and it's easy to adjust things in real time as sales volume increases or decreases. It's not like R&D where you have to spend for five years before you start making potential returns. So it's easy to borrow exactly the amount of money you need at market interest rates in an arms length transaction, and have the interest eat up your profits. And none of that is "wrong" -- profits come from investment. If nobody made any initial investment into the UK operation and it had to borrow all of its operating capital, it's completely expected in an efficient market that the borrowing costs would eat all its profits. The expected return (profit) on investing no money is no money. The problem isn't transfer pricing. The amount they're paying can be the amount you would pay in an arms length transaction and still have it eat all their profits. A retail operation that has taken no investment will legitimately have minimal profits.

pjc50 7y ago
The underlying premise is "does it really make sense to treat the UK operation as a separate item, or should we be dividing UK revenue by global revenue and demanding a tax on that percentage of global profit of Apple Inc?"
- AnthonyMouse 7y ago
  Except that Apple Inc doesn't exist in their jurisdiction, and there are good reasons why it doesn't work that way. Consider the possibility that they just not operate in the UK at all. They sell iPhones to a global retailer in the US, the independent retailer imports them into the UK and sells them to customers there. Apple sells exactly the same number of iPhones to exactly the same end customers, but now they're not subject to UK jurisdiction at all. If that's all it takes to avoid the global "profit tax" then that is what would happen. But that makes no sense. There is no sense or benefit in making the global tax contingent on whether the final low margin retailer in your jurisdiction is a subsidiary or not. But if you still want to impose the same kind of global tax even through an independent entity then you have to go all the way back through the whole supply chain or it can be trivially avoided again, at which point all you've basically done is reinvent VAT. > or should we be dividing UK revenue by global revenue and demanding a tax on that percentage of global profit of Apple Inc? This also doesn't work for another reason. Suppose a company (not necessarily Apple) has two lines of business. One is high volume low margin manufacturing commodity hardware, the other is a high margin software development. The hardware business is responsible for most of their revenue but only a small fraction of their profits, because the margins are very low. If they sell a lot of hardware but not a lot of software in the UK then your formula is unjustly allocating profits from the global software business to the UK where they sell mostly hardware, and then they would have the incentive to stop selling you hardware because the tax would be more than their actual margin on the hardware. But if you let them apportion profits accurately based on different lines of business then we're right back to them being able to shift them into whatever jurisdiction they like by engaging in high margin transactions in low tax jurisdictions. There is no such thing as profit as distinct from revenue. All revenue is profit to somebody in the supply chain. If you want to tax profit throughout a supply chain, all you have to do is make sure that you only tax revenue exactly once and you're done. But that's still just VAT or sales tax. Pretending corporate income tax is something fundamentally different is just introducing exactly the sort of complexity that allows international corporations to avoid paying the same taxes that domestic corporations still have to pay.