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How Apple Sidesteps Billions in Taxes

182 points by alokt_ 14y ago

sriramk 14y ago
Apple isn't the only one. Microsoft has an office in Reno for exactly this purpose ( they deal with all licensing).
carbocation 14y ago
They do this by following the tax laws; laws which we as a society have created in order to induce businesses to behave in certain ways.
- _delirium 14y ago
  I don't think the relationship between what the tax laws induce businesses to do, and what we as a society intended to them to do, is particularly straightforward. A lot of tax strategies seem more like emergent effects of multiple laws, often passed by several different jurisdictions, and often in different circumstances than the present ones.
- benihana 14y ago
  Yes, it's essentially federalism in practice. Working as intended.
- cooldeal 14y ago
  So innovating the double Irish with a Dutch sandwich is "following" the law? It's more akin to hacking or circumventing them while still staying legal. Just because something is legal does not mean that it was the spirit of the law or the intention of society. That's why you see laws being changed to frequently to adapt to new scenarios and "innovations". Not to mention that society hasn't much of a say these days, Congressmen need campaign money from corporate firms. As they re-invest some of that saved money into politicians to further gain more money, what chance does an individual voter have? Voting people out doesn't matter much when the alternatives are almost the same and need money for their re-election too.
  - carbocation 14y ago
    And yet, we are the ones who have voted for these people who have created this system. It's not like the voters are without agency; I can still vote for the nominee with $100 in her bank account even if her opponent has $1 trillion in his.
    - sbov 14y ago
      How exactly would a nominee with $100 in her bank account even let you know she exists?
      - tedunangst 14y ago
        The internet.
arvinjoar 14y ago
No matter the tax rate or how diligently one tries to fix loopholes, in a global world big corporations are going to dodge taxes (not always a bad thing). It's just that this is much harder for small companies who don't have armies of lawyers at their disposal, so it essentially creates an unfair advantage for bigger corporations (leverage) over startups and skews the economy towards the BigCo. This is why big corporations are often fine with regulations, higher taxes and raised minimum wages, because they know it will cement their market share. Just putting it out there, I find that it's often overlooked when discussing regulations, tax rates and so on.
- astine 14y ago
  This is true. It's also why some regulatory legistlation, such as Sarbox for example, applies differently to companies beneath and above a certain size.
- raganwald 14y ago
  I’m reminded of an old poker saying: “The more wild cards and crazy rules, the better the expert’s advantage."
  - raverbashing 14y ago
    This is very true What the "regulation fans" don't realize is that the bigger the company the more lawyers/accountants it can hire and work the cracks in the system. This is also valid in the case of Starbucks. Regulation is increased for a reason, and the only company that has the resources to comply with it is Starbucks. Regulation has to be simple, and in the case of transnational corporations, were country borders are mere a detail, increasing regulation will mean essentially nothing to the company and a loss of revenue to the country.
- nikcub 14y ago
  The more complex offshore structures take a lot of expert human effort and other capital costs to setup. To make them worthwhile requires a certain level of revenue, so it is usually only suited to medium-to-large sized businesses. Apple and the other large companies can afford to keep the profit offshore. They are still paying full rates of tax on the revenue and profits they need to keep their businesses running. When Apple pays a dividend, they will do it by paying full US tax rates on the dividend. Thus these tax structures are biased towards big companies only because they can afford to defer payments. That said, all the knowledge that you need to setup a similar structure for a small business is available online and has become a lot cheaper. If you are accepting credit card payments you can setup in an offshore nation with a business registration, a bank account and a merchant account for a few thousand dollars.
robertpateii 14y ago
No easy answer to this. All the tech companies do it, and if you start legislating the loopholes closed, they'll go to another state and maybe even another country. And you can't expect the companies to change on their own. They'd be sued if they didn't exploit all legal means of increasing shareholder profits. I think it will take smart legislation added in increments over the course of years and years. good luck with that, Congress.
staunch 14y ago
Would a corporate "buffet rule" solve this? Let companies do whatever shenanigans they want, but if they operate in the US and earn > $1 billion they can't owe less than 15%?
- rdtsc 14y ago
  I am pretty sure then they will find creative and yet legal ways of re-define "operate in US" and "earn" terms.
- protomyth 14y ago
  It would pretty much hand overseas corporations the US market given the fun of "licensing fees" paid to a parent company overseas. See Monster Cable for a great example. I also believe the Japanese and German car makers pull this one. The "Buffet Rule" is a pretty good acknowledgement that our tax system is way too complicated, will end up like the problems the AMT is causing, and shows how broken the the discussion is on the news of "amount" and "rate".
tvon 14y ago
It's somewhat interesting (or just entertaining) that things large corporations have been doing for ages are gaining new attention because we can throw Apple's name into the mix.
- cooldeal 14y ago
  It does change the scale of things materially because of Apple's high profits compared to other large organizations that you talk about.
  - jlarocco 14y ago
    Not really. Companies of every size have been taking advantage of stuff like this for decades. Stuff like Delaware's corporation laws [1] are pretty well known. It's common sense, really. Why would anybody pay more taxes than they had to? https://en.wikipedia.org/wiki/Delaware_General_Corporation_Law https://en.wikipedia.org/wiki/Delaware_General_Corporation_L....
    - nirvdrum 14y ago
      Unless I'm grossly mistaken, there's no tax benefit to incorporating in Delaware. Their franchise tax is actually pretty high. The reason to incorporate there has to do with reducing legal costs, AFAIK, which is a separate matter.
forrestthewoods 14y ago
The magic phrase to me in the article is "Apple serves as a window on how technology giants have taken advantage of tax codes written for an industrial age and ill suited to today’s digital economy." So true. Our laws, and not just tax laws, were not created for a digital environment. Throw in multinational corporations spanning the globe and many laws fall apart. I honestly have no idea how that can be fixed nor have I read a realistic proposal to do so. Everyone says "close the loopholes" but I've never seen a list of proposed loophole changes that was viable.
protomyth 14y ago
Yep, given a set of rules and the means, people and companies will use them to reduce their bills. The biggest problem with our tax laws is that they have moved from a way to raise income to being used to control behavior which results in "rule lawyering" to get the best deal. Simple rules mean actual income, complex rules means a lot of employment for accounts and lawyers to get a lower bill.
aakil 14y ago
There really should be some sort of movement to shame apple (and hopefully other California companies) for doing this. They've benefitted immensely from the infrastructure we've provided and are doing nothing to invest back into it now that they're on top. At the very least they should help with the rising tuition costs at public schools (UCs, Cal States, etc.)
- jlarocco 14y ago
  Shaming them for what? They're simply taking advantage of the confusing and loophole filled tax laws you provided them. Nobody pays more taxes than they absolutely have to. If you don't want people to abuse loopholes, fix the loopholes.
  - aakil 14y ago
    I guess I feel that there'll always be loopholes and ways to exploit the system if you try hard enough, so having that be something that can tarnish a company's public image is a much bigger deterrent than the law can be. Also, realistically, it's a lot easier to have a bunch of students refuse to buy the iPhone 5 until apple pays its fair share of taxes, than to have legislators change the tax code.
  - hej 14y ago
    Using loopholes when you know they are loopholes seems pretty immoral to me. You don’t have to agree with me on that, but that would for example be a prime reason for shaming them. Morals are not equal to the law. Immoral things stay immoral even if they are legal. And there is nothing wrong with calling out immoral behavior.
    - jlarocco 14y ago
      Some people would say collecting tax is already immoral.
- Androsynth 14y ago
  We should be shaming the politicians who created this mess, both at the state and federal levels.
acslater00 14y ago
There is a really important lesson from all of this, and it is not that Apple is wrong for rationally exploiting global tax laws to avoid paying US taxes. The fact that California has no tax jurisdiction in Nevada, and that the US has no tax jurisdiction in Ireland, is an unassailable fact of life. Tax laws are subject to regulatory competition like many other things, and ignoring that -- insisting that this is an issue of morality or fairness -- is silly. If the US had a globally competitive corporate tax rate (say 15%), it would make most of these tactics irrelevant. There's no need to shelter income in Ireland if they have the same tax rates. Because of the reduced sheltering, such a reform would probably raise revenue on net. But even if it didn't, it would have many ancillary benefits, such as repatriating many billions of dollars in corporate profits and increasing the degree to which they are deployed in the US, which would far exceed the costs. Even better would be to reduce corporate income tax to 0% and increase dividend and capital gains rates to personal-income-tax levels to make up for it. The main reason dividend income is treated preferentially in the US is that corporate profits are already being taxed (in theory). Those multi-level nature of the US tax code creates unnecessary loopholes, as well as costs and confusion. Counter-intuitively, eliminating the corporate income tax would make it much easier to tax corporate income, because those profits necessarily flow back to investors either in the form of dividends or capital gains. If you are a resident of the US (and california) and you own 1 apple share, you pay taxes on your share of Apple's income. Even better, it would be progressive. Rich people pay more, poorer people pay less. Simple, right?
- protomyth 14y ago
  Uhm... the other problem increasing taxes on capital gains is that most Americans in the under 50 crowd are going to use those for retirement.
  - acslater00 14y ago
    The actual appreciation of their investments would be higher if you eliminated corporate income tax. And you would still get to defer payment until you sell the actual investment. Properly designed, it all evens out.
dageshi 14y ago
My personal feeling on this is that the moment the tax system becomes so complicated that you've got to employ lots of people to figure it out then you've turned taxes into a business expense which is as susceptible to optimisation as any other part of your business.
lunarscape 14y ago
Regarding how Ireland is mentioned in the article- Apple has had a significant presence in Ireland since the year 1980, has a workforce nearing 3000 and is expanding, announcing 500 jobs just this month [1]. Hardly "little more than a letterbox or an anonymous office " as could be misinterpreted rather easily from this article. [1] http://www.reuters.com/article/2012/04/20/us-apple-ireland-idUSBRE83J0PI20120420 http://www.reuters.com/article/2012/04/20/us-apple-ireland-i...
- rmc 14y ago
  To put it in perspective, the 80s in Ireland were very bad economically, very few jobs, lots of emigration. Apple also have their office in Cork (not Dublin) which would have fewer native industries and employment, so they probably qualify chore all kinds of 'kindness' grants.
  - deleted 14y ago
    [deleted]
philiphodgen 14y ago
This kind of thing (on a smaller scale, admittedly) is what I do in my day job. In the same way we hear "The internet interprets censorship as damage and routes around it" we can say "Money interprets taxation as damage and routes around it." Someone imposing censorship upon the internet might have all of the morality and justification in the world behind his/her argument. Irrelevant. So too with taxation. You can talk about moral imperatives all you want -- one should support the country you're in by paying taxes. Irrelevant. You make tangible objects float in mid-air by altering the law of gravity, or by using magnificent quantities of effort (e.g., fly tons of metal through the sky by burning vast quantities of fuel). You (as a government) make money change course and come to rest elsewhere by altering the law of taxation or by using magnificent quantities of rhetoric (look for "should" and "ought" and "them" in sentences). Or you use magnificent quantities of enforcement (tax audits, put people in jail, etc. I live in this universe, too.) Ultimately, the point by @yummyfajitas is correct. Countries have sovereignty and can do as they damn well please. The U.S. has the bullying power of the U.S. dollar and a lot of guns to convince other countries to behave in ways that the U.S. wants them to behave. This will work until it doesn't work anymore. The way this will cease working for the U.S. government is that the bullying will become unacceptable for other governments. They will rightly see this as ceding national sovereignty to the U.S. government. This will not happen until the U.S. dollar weakens and a plausible reserve currency appears. China's slow moves to relaxing currency controls tells you where the next likely reserve currency will be. The other way this will cease working is visible in the cited article. Large economic organizations -- like Apple -- are starting to develop their own anti-gravitation fields and can float above tax laws of any particular country. It's fun to watch. Put your moral imperatives in your pocket for a while and just observe. What is Congress doing, and why? Why, for instance, is a lot of the anti-international tax legislation in Congress coming from Senator Levin (D-Mich)? What are companies doing? After you see something happen, don't ask "Why?" Better to ask, "And then what will happen?" You might surprise yourself. The unintended consequences are sitting there, in plain sight.
NHQ 14y ago
I'd like to see Apple or any company to do as they threaten and move their headquarters. Try asking all of your top talent to move from their nice property values and school districts to some tax haven.
- guga31bb 14y ago
  Boeing moved from Seattle to Chicago in 2001 [0]. A major company moving headquarters is not unheard of. [0] http://www.nytimes.com/2001/03/22/us/boeing-jolting-seattle-will-move-headquarters.html?pagewanted=all&src=pm http://www.nytimes.com/2001/03/22/us/boeing-jolting-seattle-...
  - Drbble 14y ago
    Boeing moved less than 1 percent of their employees to Chicago.
Dove 14y ago
This seems like an appropriate place to mention that the FairTax proposal makes tax evasion very difficult. If you haven't read about it, you really should -- I think it's pretty well thought out.
- Drbble 14y ago
  Sure, if we stop trying to tax, we will stop failing. But that doesn't actually help.
brianobush 14y ago
If I were an aapl shareholder, I would hope they were exploiting every opportunity to avoid paying unnecessary taxes. Adjusting tax rates are used by many jurisdictions to lure (and control) businesses.
pclark 14y ago
Well I'll just say it as I do not think anyone else has: I find this disgusting and it seems like capitalism gone too far. California is struggling and would benefit from the contributions of the worlds largest contributions that reside within its borders.
- mhartl 14y ago
  California is "struggling" because of atrociously bad management. It's not like the state lacks in physical or human capital. I mean, Jeebus, the Golden State is home to the capitals of two of the world's greatest industries (entertainment and technology). It takes world-class incompetence to squander such riches. Don't blame the state government, though. The problems are structural, not personal. If we replaced the current slate of corrupt, incompetent politicians, new ones would take their place. The internal incentives of the system would see to that. In modern politics, corruption is a winning strategy. On the other hand, if the state government of California were run more like, say, Apple, they wouldn't be in such a bind. But that would mean running California more like a for-profit business. This suggests a possibility: the problem may not be that capitalism has gone too far—it could be that it simply hasn't gone far enough.
  - jarek 14y ago
    What if pushing capitalism far enough results in California being run like an Enron, a Blockbuster, a Lehman, or any number of tech bubble 1.0 darling businesses instead of like Apple? Apple is pretty lean and is winning the market cap game right now, but the largest companies haven't always been as good.
    - mhartl 14y ago
      Such disasters could happen, and minimizing their frequency is an important engineering problem. But you have a long road to hoe if you want to argue that the average quality of private management isn't much better than the average quality of public governance.
      - 14y ago
newbie12 14y ago
Apple, as a corporation, should pay ZERO taxes. The resources invested in Apple were taxed before invested, and will be taxed again when investors realize their capital or income gains. Corporate taxes are double taxation. It is Apple's moral duty to legally pay the minimal amount of taxes possible. Every dollar Washington or Sacramento takes from Apple and gives away as some political handout is one less dollar available for perhaps the most innovative tech company in the world. Taxes on Apple, and other tech leaders, literally undermine American competitiveness...
- jarek 14y ago
  Yeah, especially those political handouts that pay for maintenance on the I-280.
zobzu 14y ago
So when the state takes 50% of the salary, it's bad but it's life. It's what the state needs to survive and enhance. When companies pay 0% tax rate, quick, defend them. If they did pay the tax, the CA state certainly wouldn't have any money problem. But no, that's not important, right? Shares etc are! I'm surprised everyone finds it ok. I'd almost dare to say it's an issue that is especially present in the US (that people think it's fine and to "blame the game not the player" kind of crap)
- driverdan 14y ago
  There is no state in the US that takes anywhere near 50% of your salary (assuming by state you don't mean country). Companies should pay lower taxes because the buck doesn't stop there. Owners / equity holders are the benefactors of the company's profits and should be the ones to pay taxes, assuming you agree with having income taxes.
- paulhauggis 14y ago
  or how about the fact that many people think that monopolies are bad, yet are fine with the government completely taking over things like health care, which would create a monopoly. The same rules will also apply (IE: no competition=no innovation).
  - zobzu 14y ago
    I actually think that some government monopolies are not bad. The problem is that they can't be implemented properly if there's corruption (and there is, always). For example in France the state owned the electrical company and the telecom company for a long while. Result? - Single electrical network - Single, full fiber, telecom network. - Health care, even if not perfect, is way better than in the US. Those work very well and are among the best in the world. When mobile phones came to the game, they did not interfere in any way. Result? - Each operator has a set of frequencies, successful operators have no bandwidth left (I'm sure you know of that issue in NYC, SF, and all big US cities if you're on AT&T. Same issue.) - Deployment and coverage takes forever (again in the US it's the same, so many areas don't even have 3G or any cellular network at all) since not all zones are as profitable - Same issue every time a new tech comes up (good luck til all the country is covered by LTE) This concludes into: the state has to organize and regulate things for the good of the people (which actually also leads to faster innovation, see the fiber example again. France's full fiber network is in place since many decades!) The problem is that no country really does even a little bit of that anymore. Every party is backed by corporations and sustain only their interests. The scheme is well oiled with several steps, and we aren't very different from the people in Europe from the 1700's (regardless of the country)
daniel-cussen 14y ago
A company will act in its own best interest--this is expected and in no way alarming. That they try to legally avoid taxes is beneath obvious.
jashkenas 14y ago
For the truly curious, the source documents for this story are available here: http://www.nytimes.com/interactive/2012/04/29/technology/apple-tax-documents.html http://www.nytimes.com/interactive/2012/04/29/technology/app...
honopu 14y ago
I think it is pretty simple. Apple and any other company is required AND expected by its shareholders to minimize taxes paid and keep all expenses under control. Saying "well gee we should pay more tax, it's really the right thing to do, lets change around a bunch of stuff so we pay a higher rate of tax" would never fly.
epoxyhockey 14y ago
Every time I read about these tax schemes, I think, "I want to do that, too." Is there any company out there that will help the little guys making all of their money online complete a double Irish Dutch sandwich?
- driverdan 14y ago
  Define little. It's only worthwhile when you reach a certain level of profit. There are quite a few lawyers and accountants that specialize in offshoring.
  - epoxyhockey 14y ago
    Little, as in, a few hundred thousand per year. I was thinking that if the money of several small companies were pooled together, something beneficial could be done.
deleted 14y ago
[deleted]
grellas 14y ago
The implied but never fully-articulated point of this article is that high-tax domiciles resent it when rational actors having a choice in the matter will routinely structure their business affairs to incur tax to the maximum extent possible in low-tax as opposed to high-tax domiciles. The issue becomes almost formulaic. Given (1) rational actors, (2) freedom to choose and to structure business affairs using a multiplicity of entities for different purposes, (3) resources with which to hire and pay for the talent needed to sort out the tax issues and their complexities, (4) a business goal of maximizing after-tax profits, (5) a multiplicity of domiciles from which to choose, and (6) a ready means by which to direct resources from one domicile to another (as with digital assets), it inevitably follows that every sophisticated company meeting these criteria will avail itself of the tax avoidance/minimization strategies. As the article notes, it is perfectly legal and every big company does it (see, e.g., this similar write-up from a couple of years ago on Google's comparable tax strategies: http://news.ycombinator.com/item?id=1815195 http://news.ycombinator.com/item?id=1815195). Nothing, of course, stops a given company from voluntarily subjecting itself to higher tax rates by declining to follow this formula but why would it? Big companies will routinely want to avoid high taxes if they can. So too do small businesses. People may have social views that higher taxes are desirable but, as individual economic actors, they will seek to avoid them. This may be right or wrong but it is reality. This means that high-tax domiciles will have no choice but to continue to remain frustrated that they cannot have unchecked means of taxing their citizens. As long as people have freedom, governments have to strike a balance that people can live with. And that is not a bad thing.
- robomartin 14y ago
  There's also the very real and reasonable question of where capital might be used more efficiently. Having seen first-hand how government agencies make spending decisions it is my opinion that a huge percentage of tax dollars is wasted. Private industry is almost always far more efficient in allocating resources out of necessity. I have seen cases where government agencies pay double --or more-- what a private entity would pay for exactly the same product or service.
  - pgisadickyup 14y ago
jasonkolb 14y ago
Taxing money when it is earned instead of when it is spent will result in the money being shuffled around the globe in complex ways. I always get blasted for saying this, but the only way to get taxes from these profits is by shifting to a sales tax model instead of an income tax model.
jarek 14y ago
California should call Apple's (and others') bluff. Let companies decide if saving 8% in tax is worth leaving the Silicon Valley ecosystem and infrastructure.
gulbrandr 14y ago
single page link: http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html?_r=1&hp&pagewanted=all http://www.nytimes.com/2012/04/29/business/apples-tax-strate...
eps 14y ago
Similarly IKEA pays zero tax by channeling all it's profits through a very complicated setup to an Irish non-profit. GE not only pays zero tax, but also manages to extract tax refunds from the US government. The big question if an evasive tax setup makes sense at lower profit levels, or if the costs of setting up and maintaining it are prohibitive. Does anyone know?
- hnwh 14y ago
  The big question more precisely, is at what profit threshold dollar amount does it start making sense to do it
- Drbble 14y ago
  If governments wanted to solve this problem, they could do so trivially by setting wealth taxes on the human owners of those corporations
  - DanBC 14y ago
    Rich people can afford good accountants and lawyers. Tax avoidance[1] skirts the edge of tax evasion[2], but that's what the good accountants are for. Putting different taxes on the owners of some corporation just means that no-one owns the corporation and that everyone is an employee. [1] Avoidance is legally using loopholes to reduce a tax bill. [2] Evasion is illegally using loopholes, or just plain not paying tax.
mpat 14y ago
"As of September 24, 2011 and September 25, 2010, $54.3 billion and $30.8 billion, respectively, of the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S. dollar-denominated holdings. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S." http://files.shareholder.com/downloads/AAPL/1826229879x0xS1193125-11-282113/320193/filing.pdf http://files.shareholder.com/downloads/AAPL/1826229879x0xS11... These tactics don't exempt corporations from US federal taxation, they just serve to delay when the taxes are payable. Apple owes US federal income taxes on the earnings of its foreign subsidiaries that is payable upon repatriation of the cash to the US. Accordingly, Apple and has booked an $8.9 billion liability for the taxes it owes on the unremitted earnings of foreign subsidiaries. Unless Congress moves forward with a "repatriation holiday," that liability will remain until Apple brings back the cash to the US to fund domestic investment or to return to shareholders and pays the US taxes it owes.
nazgulnarsil 14y ago
I think a bot should auto repost Graham's Mind the Gap and How to Create Wealth in the comments of every economics post.
seanalltogether 14y ago
So if Apple is operating as a foreign entity for selling this stuff, does that not mean they have to pay import taxes, or are they somehow exempt?
bceagle 14y ago
I don't feel any ill will for Apple. Companies are always going to try and do what is best for them and that makes sense. What is crazy is why the idea of a flat tax has never gained more traction. I understand that there are some potential issues with a flat tax, but at the very least it simplifies things and levels the playing field.
byrneseyeview 14y ago
This indirectly brings up the point that it's hard to make the case for directly taxing corporations at all, aside from the fact that it's convenient. Ultimately, all corporations are owned by tax-paying people (or nonprofits). So why not tax their distributions as income? If I forgo working, and instead develop some skill that I could use to raise my income, nobody taxes me on the increase in notional wealth I have from being more skilled; I get taxed when I get paid in a form that I could use for consumption. Meanwhile, corporations: a) Get taxed on their profits b) May pay lower notional levels, but only by paying people to game the rules c) Get taxed on their dividends (essentially a 15% surtax on the 35% tax on their profits) d) Also get taxed through capital gains--which is a change in the (un-inflation-adjusted) net present value of future dividends (which, remember, are taxed when they're earned, then taxed when they're paid). If you give our tax code enough credit, the 35% tax rate is a lower bound. If the government is willing to let you pay $X less in taxes for doing Y, they're saying that the benefit of Y exceeds the forgone tax income of $X. So if I get a $5K tax credit for installing solar panels, the amount of tax-equivalent benefit the government has derived from my behavior is at least $5K. You could argue that the tax code is imperfect, and that action Y is not always worth $X. But then you're suggesting that we transfer money from a competent rule-follower to an incompetent rule-writer. If governing skill is constant across tax collection and other government behaviors, then exploiting tax loopholes is just in proportion to how exploitable they are--a government so screwed up that it can't manage to legally tax you for anything is a government that definitely shouldn't have its hands on your money. Obviously, the government has other core competencies besides taxation. But corporate taxes are worth reconsidering. I'd much rather have dividends taxed as regular income--turning corporations into a pure savings vehicle. Taxing corporation-generated wealth four times--when it's generated, when it's calculated, when it's distributed, and when ownership is transferred--is at least three times too many.
- notJim 14y ago
  Another person suggested this idea and the thread, and this was the problem I had with it: > Ultimately, all corporations are owned by tax-paying people (or nonprofits). So why not tax their distributions as income? Many companies don't pay dividends and sit on their profits for a long period of time, so in practice, that money might never be taxed.
drumdance 14y ago
One reason corporations are so diligent about avoiding taxes is scale. If you can save, say $1 million, byt paying lawyers & accountants $500,000, the decision is a no-brainer. I'm sure this is exactly how Apple's outside counsel sells it. I think the best approach is just to eliminate corporate taxes. If instead you just tax the dividends, that same $1,000,000 in liability will be distributed among thousands of shareholders, who will not have nearly as strong an incentive to hire $400/hour lawyers.
jerf 14y ago
You know, it's not as if this money has escaped being taxed. At most, it's escaped one layer. It'll be taxed if they use it to pay someone. It'll be taxed when that someone uses it to pay for something else. If they move any of it somewhere else, it'll be taxed, if it becomes someone's capital gains it'll be taxed. If they use it to buy something, that purchase will be taxed, as will the thing they purchased at pretty much every layer. If it does pretty much anything other than sit there, it'll be taxed, and the next people to get it will have their use of the money taxed too. It isn't money that has magically been freed of taxation, it's just money that isn't being taxed this exact second.
gravitronic 14y ago
The article mentioning Ireland touched home for me. That's where the bulk of RIM's developer payments come from. Until now I thought my dj app was just REALLY popular with the Irish.
appleaintbad 14y ago
So- if there is anything unfair about this, it is that small companies that can't choose to relocate from Cali bear the tax burden. But it is ridiculous to make it look like Apple is avoiding paying its bills. Instead why don't we see this as a perfect case in point for why we should privatize government? If we paid government directly for its services rather than requiring it to parasitically suck cash as it is set up to now, then Apple would have to pay its fair share of the services rendered in Cali and elsewhere. But, it won't be billions, because "billions" is not a fair price to pay for what it gets from the government- at least, unless there is something it is getting that I don't know about.
whatusername 14y ago
The Kerry packer (Australian media baron) quote is always appropriate: During the inquiry he repeatedly berated the politicians conducting it, and the government. When asked about his company's tax minimisation schemes, he replied: "Of course I am minimising my tax. And if anybody in this country doesn't minimise their tax, they want their heads read, because as a government, I can tell you you're not spending it that well that we should be donating extra!"
DavidAbrams 14y ago
California rips companies off and begs for this kind of behavior. Ask anyone who has started a small business in California. For example, your business can make zero dollars (or even lose money), and you will still owe California $800. EVERY YEAR. Fuck you, California.
nikcub 14y ago
These structures only defer taxes. They will eventually be paid somewhere. Surprised there was no mention of the recent large Apple dividend, which will require that cash to be repatriated to the USA. What is unfair is that an international shareholder in Apple stock only gets their dividend after US taxes are paid and is then hit again with their local taxes.

182 points by alokt_ 14y ago

Apple isn't the only one. Microsoft has an office in Reno for exactly this purpose ( they deal with all licensing).

They do this by following the tax laws; laws which we as a society have created in order to induce businesses to behave in certain ways.

_delirium 14y ago
I don't think the relationship between what the tax laws induce businesses to do, and what we as a society intended to them to do, is particularly straightforward. A lot of tax strategies seem more like emergent effects of multiple laws, often passed by several different jurisdictions, and often in different circumstances than the present ones.
benihana 14y ago
Yes, it's essentially federalism in practice. Working as intended.
cooldeal 14y ago
So innovating the double Irish with a Dutch sandwich is "following" the law? It's more akin to hacking or circumventing them while still staying legal. Just because something is legal does not mean that it was the spirit of the law or the intention of society. That's why you see laws being changed to frequently to adapt to new scenarios and "innovations". Not to mention that society hasn't much of a say these days, Congressmen need campaign money from corporate firms. As they re-invest some of that saved money into politicians to further gain more money, what chance does an individual voter have? Voting people out doesn't matter much when the alternatives are almost the same and need money for their re-election too.
- carbocation 14y ago
  And yet, we are the ones who have voted for these people who have created this system. It's not like the voters are without agency; I can still vote for the nominee with $100 in her bank account even if her opponent has $1 trillion in his.
  - sbov 14y ago
    How exactly would a nominee with $100 in her bank account even let you know she exists?
    - tedunangst 14y ago
      The internet.

arvinjoar 14y ago

No matter the tax rate or how diligently one tries to fix loopholes, in a global world big corporations are going to dodge taxes (not always a bad thing). It's just that this is much harder for small companies who don't have armies of lawyers at their disposal, so it essentially creates an unfair advantage for bigger corporations (leverage) over startups and skews the economy towards the BigCo. This is why big corporations are often fine with regulations, higher taxes and raised minimum wages, because they know it will cement their market share. Just putting it out there, I find that it's often overlooked when discussing regulations, tax rates and so on.

astine 14y ago
This is true. It's also why some regulatory legistlation, such as Sarbox for example, applies differently to companies beneath and above a certain size.
raganwald 14y ago
I’m reminded of an old poker saying: “The more wild cards and crazy rules, the better the expert’s advantage."
- raverbashing 14y ago
  This is very true What the "regulation fans" don't realize is that the bigger the company the more lawyers/accountants it can hire and work the cracks in the system. This is also valid in the case of Starbucks. Regulation is increased for a reason, and the only company that has the resources to comply with it is Starbucks. Regulation has to be simple, and in the case of transnational corporations, were country borders are mere a detail, increasing regulation will mean essentially nothing to the company and a loss of revenue to the country.
nikcub 14y ago
The more complex offshore structures take a lot of expert human effort and other capital costs to setup. To make them worthwhile requires a certain level of revenue, so it is usually only suited to medium-to-large sized businesses. Apple and the other large companies can afford to keep the profit offshore. They are still paying full rates of tax on the revenue and profits they need to keep their businesses running. When Apple pays a dividend, they will do it by paying full US tax rates on the dividend. Thus these tax structures are biased towards big companies only because they can afford to defer payments. That said, all the knowledge that you need to setup a similar structure for a small business is available online and has become a lot cheaper. If you are accepting credit card payments you can setup in an offshore nation with a business registration, a bank account and a merchant account for a few thousand dollars.

robertpateii 14y ago

No easy answer to this. All the tech companies do it, and if you start legislating the loopholes closed, they'll go to another state and maybe even another country. And you can't expect the companies to change on their own. They'd be sued if they didn't exploit all legal means of increasing shareholder profits. I think it will take smart legislation added in increments over the course of years and years. good luck with that, Congress.

staunch 14y ago

Would a corporate "buffet rule" solve this? Let companies do whatever shenanigans they want, but if they operate in the US and earn > $1 billion they can't owe less than 15%?

rdtsc 14y ago
I am pretty sure then they will find creative and yet legal ways of re-define "operate in US" and "earn" terms.
protomyth 14y ago
It would pretty much hand overseas corporations the US market given the fun of "licensing fees" paid to a parent company overseas. See Monster Cable for a great example. I also believe the Japanese and German car makers pull this one. The "Buffet Rule" is a pretty good acknowledgement that our tax system is way too complicated, will end up like the problems the AMT is causing, and shows how broken the the discussion is on the news of "amount" and "rate".

tvon 14y ago

It's somewhat interesting (or just entertaining) that things large corporations have been doing for ages are gaining new attention because we can throw Apple's name into the mix.

cooldeal 14y ago
It does change the scale of things materially because of Apple's high profits compared to other large organizations that you talk about.
- jlarocco 14y ago
  Not really. Companies of every size have been taking advantage of stuff like this for decades. Stuff like Delaware's corporation laws [1] are pretty well known. It's common sense, really. Why would anybody pay more taxes than they had to? https://en.wikipedia.org/wiki/Delaware_General_Corporation_Law https://en.wikipedia.org/wiki/Delaware_General_Corporation_L....
  - nirvdrum 14y ago
    Unless I'm grossly mistaken, there's no tax benefit to incorporating in Delaware. Their franchise tax is actually pretty high. The reason to incorporate there has to do with reducing legal costs, AFAIK, which is a separate matter.

forrestthewoods 14y ago

The magic phrase to me in the article is "Apple serves as a window on how technology giants have taken advantage of tax codes written for an industrial age and ill suited to today’s digital economy." So true. Our laws, and not just tax laws, were not created for a digital environment. Throw in multinational corporations spanning the globe and many laws fall apart. I honestly have no idea how that can be fixed nor have I read a realistic proposal to do so. Everyone says "close the loopholes" but I've never seen a list of proposed loophole changes that was viable.

protomyth 14y ago

Yep, given a set of rules and the means, people and companies will use them to reduce their bills. The biggest problem with our tax laws is that they have moved from a way to raise income to being used to control behavior which results in "rule lawyering" to get the best deal. Simple rules mean actual income, complex rules means a lot of employment for accounts and lawyers to get a lower bill.

aakil 14y ago

There really should be some sort of movement to shame apple (and hopefully other California companies) for doing this. They've benefitted immensely from the infrastructure we've provided and are doing nothing to invest back into it now that they're on top. At the very least they should help with the rising tuition costs at public schools (UCs, Cal States, etc.)

jlarocco 14y ago
Shaming them for what? They're simply taking advantage of the confusing and loophole filled tax laws you provided them. Nobody pays more taxes than they absolutely have to. If you don't want people to abuse loopholes, fix the loopholes.
- aakil 14y ago
  I guess I feel that there'll always be loopholes and ways to exploit the system if you try hard enough, so having that be something that can tarnish a company's public image is a much bigger deterrent than the law can be. Also, realistically, it's a lot easier to have a bunch of students refuse to buy the iPhone 5 until apple pays its fair share of taxes, than to have legislators change the tax code.
- hej 14y ago
  Using loopholes when you know they are loopholes seems pretty immoral to me. You don’t have to agree with me on that, but that would for example be a prime reason for shaming them. Morals are not equal to the law. Immoral things stay immoral even if they are legal. And there is nothing wrong with calling out immoral behavior.
  - jlarocco 14y ago
    Some people would say collecting tax is already immoral.
Androsynth 14y ago
We should be shaming the politicians who created this mess, both at the state and federal levels.

acslater00 14y ago

There is a really important lesson from all of this, and it is not that Apple is wrong for rationally exploiting global tax laws to avoid paying US taxes. The fact that California has no tax jurisdiction in Nevada, and that the US has no tax jurisdiction in Ireland, is an unassailable fact of life. Tax laws are subject to regulatory competition like many other things, and ignoring that -- insisting that this is an issue of morality or fairness -- is silly. If the US had a globally competitive corporate tax rate (say 15%), it would make most of these tactics irrelevant. There's no need to shelter income in Ireland if they have the same tax rates. Because of the reduced sheltering, such a reform would probably raise revenue on net. But even if it didn't, it would have many ancillary benefits, such as repatriating many billions of dollars in corporate profits and increasing the degree to which they are deployed in the US, which would far exceed the costs. Even better would be to reduce corporate income tax to 0% and increase dividend and capital gains rates to personal-income-tax levels to make up for it. The main reason dividend income is treated preferentially in the US is that corporate profits are already being taxed (in theory). Those multi-level nature of the US tax code creates unnecessary loopholes, as well as costs and confusion. Counter-intuitively, eliminating the corporate income tax would make it much easier to tax corporate income, because those profits necessarily flow back to investors either in the form of dividends or capital gains. If you are a resident of the US (and california) and you own 1 apple share, you pay taxes on your share of Apple's income. Even better, it would be progressive. Rich people pay more, poorer people pay less. Simple, right?

protomyth 14y ago
Uhm... the other problem increasing taxes on capital gains is that most Americans in the under 50 crowd are going to use those for retirement.
- acslater00 14y ago
  The actual appreciation of their investments would be higher if you eliminated corporate income tax. And you would still get to defer payment until you sell the actual investment. Properly designed, it all evens out.

dageshi 14y ago

My personal feeling on this is that the moment the tax system becomes so complicated that you've got to employ lots of people to figure it out then you've turned taxes into a business expense which is as susceptible to optimisation as any other part of your business.

lunarscape 14y ago

Regarding how Ireland is mentioned in the article- Apple has had a significant presence in Ireland since the year 1980, has a workforce nearing 3000 and is expanding, announcing 500 jobs just this month [1]. Hardly "little more than a letterbox or an anonymous office " as could be misinterpreted rather easily from this article. [1] http://www.reuters.com/article/2012/04/20/us-apple-ireland-idUSBRE83J0PI20120420 http://www.reuters.com/article/2012/04/20/us-apple-ireland-i...

rmc 14y ago
To put it in perspective, the 80s in Ireland were very bad economically, very few jobs, lots of emigration. Apple also have their office in Cork (not Dublin) which would have fewer native industries and employment, so they probably qualify chore all kinds of 'kindness' grants.
- deleted 14y ago
  [deleted]

philiphodgen 14y ago

This kind of thing (on a smaller scale, admittedly) is what I do in my day job. In the same way we hear "The internet interprets censorship as damage and routes around it" we can say "Money interprets taxation as damage and routes around it." Someone imposing censorship upon the internet might have all of the morality and justification in the world behind his/her argument. Irrelevant. So too with taxation. You can talk about moral imperatives all you want -- one should support the country you're in by paying taxes. Irrelevant. You make tangible objects float in mid-air by altering the law of gravity, or by using magnificent quantities of effort (e.g., fly tons of metal through the sky by burning vast quantities of fuel). You (as a government) make money change course and come to rest elsewhere by altering the law of taxation or by using magnificent quantities of rhetoric (look for "should" and "ought" and "them" in sentences). Or you use magnificent quantities of enforcement (tax audits, put people in jail, etc. I live in this universe, too.) Ultimately, the point by @yummyfajitas is correct. Countries have sovereignty and can do as they damn well please. The U.S. has the bullying power of the U.S. dollar and a lot of guns to convince other countries to behave in ways that the U.S. wants them to behave. This will work until it doesn't work anymore. The way this will cease working for the U.S. government is that the bullying will become unacceptable for other governments. They will rightly see this as ceding national sovereignty to the U.S. government. This will not happen until the U.S. dollar weakens and a plausible reserve currency appears. China's slow moves to relaxing currency controls tells you where the next likely reserve currency will be. The other way this will cease working is visible in the cited article. Large economic organizations -- like Apple -- are starting to develop their own anti-gravitation fields and can float above tax laws of any particular country. It's fun to watch. Put your moral imperatives in your pocket for a while and just observe. What is Congress doing, and why? Why, for instance, is a lot of the anti-international tax legislation in Congress coming from Senator Levin (D-Mich)? What are companies doing? After you see something happen, don't ask "Why?" Better to ask, "And then what will happen?" You might surprise yourself. The unintended consequences are sitting there, in plain sight.

NHQ 14y ago

I'd like to see Apple or any company to do as they threaten and move their headquarters. Try asking all of your top talent to move from their nice property values and school districts to some tax haven.

guga31bb 14y ago
Boeing moved from Seattle to Chicago in 2001 [0]. A major company moving headquarters is not unheard of. [0] http://www.nytimes.com/2001/03/22/us/boeing-jolting-seattle-will-move-headquarters.html?pagewanted=all&src=pm http://www.nytimes.com/2001/03/22/us/boeing-jolting-seattle-...
- Drbble 14y ago
  Boeing moved less than 1 percent of their employees to Chicago.

Dove 14y ago

This seems like an appropriate place to mention that the FairTax proposal makes tax evasion very difficult. If you haven't read about it, you really should -- I think it's pretty well thought out.

Drbble 14y ago
Sure, if we stop trying to tax, we will stop failing. But that doesn't actually help.

brianobush 14y ago

If I were an aapl shareholder, I would hope they were exploiting every opportunity to avoid paying unnecessary taxes. Adjusting tax rates are used by many jurisdictions to lure (and control) businesses.

pclark 14y ago

Well I'll just say it as I do not think anyone else has: I find this disgusting and it seems like capitalism gone too far. California is struggling and would benefit from the contributions of the worlds largest contributions that reside within its borders.

mhartl 14y ago
California is "struggling" because of atrociously bad management. It's not like the state lacks in physical or human capital. I mean, Jeebus, the Golden State is home to the capitals of two of the world's greatest industries (entertainment and technology). It takes world-class incompetence to squander such riches. Don't blame the state government, though. The problems are structural, not personal. If we replaced the current slate of corrupt, incompetent politicians, new ones would take their place. The internal incentives of the system would see to that. In modern politics, corruption is a winning strategy. On the other hand, if the state government of California were run more like, say, Apple, they wouldn't be in such a bind. But that would mean running California more like a for-profit business. This suggests a possibility: the problem may not be that capitalism has gone too far—it could be that it simply hasn't gone far enough.
- jarek 14y ago
  What if pushing capitalism far enough results in California being run like an Enron, a Blockbuster, a Lehman, or any number of tech bubble 1.0 darling businesses instead of like Apple? Apple is pretty lean and is winning the market cap game right now, but the largest companies haven't always been as good.
  - mhartl 14y ago
    Such disasters could happen, and minimizing their frequency is an important engineering problem. But you have a long road to hoe if you want to argue that the average quality of private management isn't much better than the average quality of public governance.
    - 14y ago

newbie12 14y ago

Apple, as a corporation, should pay ZERO taxes. The resources invested in Apple were taxed before invested, and will be taxed again when investors realize their capital or income gains. Corporate taxes are double taxation. It is Apple's moral duty to legally pay the minimal amount of taxes possible. Every dollar Washington or Sacramento takes from Apple and gives away as some political handout is one less dollar available for perhaps the most innovative tech company in the world. Taxes on Apple, and other tech leaders, literally undermine American competitiveness...

jarek 14y ago
Yeah, especially those political handouts that pay for maintenance on the I-280.

zobzu 14y ago

So when the state takes 50% of the salary, it's bad but it's life. It's what the state needs to survive and enhance. When companies pay 0% tax rate, quick, defend them. If they did pay the tax, the CA state certainly wouldn't have any money problem. But no, that's not important, right? Shares etc are! I'm surprised everyone finds it ok. I'd almost dare to say it's an issue that is especially present in the US (that people think it's fine and to "blame the game not the player" kind of crap)

driverdan 14y ago
There is no state in the US that takes anywhere near 50% of your salary (assuming by state you don't mean country). Companies should pay lower taxes because the buck doesn't stop there. Owners / equity holders are the benefactors of the company's profits and should be the ones to pay taxes, assuming you agree with having income taxes.
paulhauggis 14y ago
or how about the fact that many people think that monopolies are bad, yet are fine with the government completely taking over things like health care, which would create a monopoly. The same rules will also apply (IE: no competition=no innovation).
- zobzu 14y ago
  I actually think that some government monopolies are not bad. The problem is that they can't be implemented properly if there's corruption (and there is, always). For example in France the state owned the electrical company and the telecom company for a long while. Result? - Single electrical network - Single, full fiber, telecom network. - Health care, even if not perfect, is way better than in the US. Those work very well and are among the best in the world. When mobile phones came to the game, they did not interfere in any way. Result? - Each operator has a set of frequencies, successful operators have no bandwidth left (I'm sure you know of that issue in NYC, SF, and all big US cities if you're on AT&T. Same issue.) - Deployment and coverage takes forever (again in the US it's the same, so many areas don't even have 3G or any cellular network at all) since not all zones are as profitable - Same issue every time a new tech comes up (good luck til all the country is covered by LTE) This concludes into: the state has to organize and regulate things for the good of the people (which actually also leads to faster innovation, see the fiber example again. France's full fiber network is in place since many decades!) The problem is that no country really does even a little bit of that anymore. Every party is backed by corporations and sustain only their interests. The scheme is well oiled with several steps, and we aren't very different from the people in Europe from the 1700's (regardless of the country)

daniel-cussen 14y ago

A company will act in its own best interest--this is expected and in no way alarming. That they try to legally avoid taxes is beneath obvious.

jashkenas 14y ago

For the truly curious, the source documents for this story are available here: http://www.nytimes.com/interactive/2012/04/29/technology/apple-tax-documents.html http://www.nytimes.com/interactive/2012/04/29/technology/app...

honopu 14y ago

I think it is pretty simple. Apple and any other company is required AND expected by its shareholders to minimize taxes paid and keep all expenses under control. Saying "well gee we should pay more tax, it's really the right thing to do, lets change around a bunch of stuff so we pay a higher rate of tax" would never fly.

epoxyhockey 14y ago

Every time I read about these tax schemes, I think, "I want to do that, too." Is there any company out there that will help the little guys making all of their money online complete a double Irish Dutch sandwich?

driverdan 14y ago
Define little. It's only worthwhile when you reach a certain level of profit. There are quite a few lawyers and accountants that specialize in offshoring.
- epoxyhockey 14y ago
  Little, as in, a few hundred thousand per year. I was thinking that if the money of several small companies were pooled together, something beneficial could be done.

deleted 14y ago

[deleted]

grellas 14y ago

The implied but never fully-articulated point of this article is that high-tax domiciles resent it when rational actors having a choice in the matter will routinely structure their business affairs to incur tax to the maximum extent possible in low-tax as opposed to high-tax domiciles. The issue becomes almost formulaic. Given (1) rational actors, (2) freedom to choose and to structure business affairs using a multiplicity of entities for different purposes, (3) resources with which to hire and pay for the talent needed to sort out the tax issues and their complexities, (4) a business goal of maximizing after-tax profits, (5) a multiplicity of domiciles from which to choose, and (6) a ready means by which to direct resources from one domicile to another (as with digital assets), it inevitably follows that every sophisticated company meeting these criteria will avail itself of the tax avoidance/minimization strategies. As the article notes, it is perfectly legal and every big company does it (see, e.g., this similar write-up from a couple of years ago on Google's comparable tax strategies: http://news.ycombinator.com/item?id=1815195 http://news.ycombinator.com/item?id=1815195). Nothing, of course, stops a given company from voluntarily subjecting itself to higher tax rates by declining to follow this formula but why would it? Big companies will routinely want to avoid high taxes if they can. So too do small businesses. People may have social views that higher taxes are desirable but, as individual economic actors, they will seek to avoid them. This may be right or wrong but it is reality. This means that high-tax domiciles will have no choice but to continue to remain frustrated that they cannot have unchecked means of taxing their citizens. As long as people have freedom, governments have to strike a balance that people can live with. And that is not a bad thing.

robomartin 14y ago
There's also the very real and reasonable question of where capital might be used more efficiently. Having seen first-hand how government agencies make spending decisions it is my opinion that a huge percentage of tax dollars is wasted. Private industry is almost always far more efficient in allocating resources out of necessity. I have seen cases where government agencies pay double --or more-- what a private entity would pay for exactly the same product or service.
- pgisadickyup 14y ago

jasonkolb 14y ago

Taxing money when it is earned instead of when it is spent will result in the money being shuffled around the globe in complex ways. I always get blasted for saying this, but the only way to get taxes from these profits is by shifting to a sales tax model instead of an income tax model.

jarek 14y ago

California should call Apple's (and others') bluff. Let companies decide if saving 8% in tax is worth leaving the Silicon Valley ecosystem and infrastructure.

gulbrandr 14y ago

single page link: http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html?_r=1&hp&pagewanted=all http://www.nytimes.com/2012/04/29/business/apples-tax-strate...

eps 14y ago

Similarly IKEA pays zero tax by channeling all it's profits through a very complicated setup to an Irish non-profit. GE not only pays zero tax, but also manages to extract tax refunds from the US government. The big question if an evasive tax setup makes sense at lower profit levels, or if the costs of setting up and maintaining it are prohibitive. Does anyone know?

hnwh 14y ago
The big question more precisely, is at what profit threshold dollar amount does it start making sense to do it
Drbble 14y ago
If governments wanted to solve this problem, they could do so trivially by setting wealth taxes on the human owners of those corporations
- DanBC 14y ago
  Rich people can afford good accountants and lawyers. Tax avoidance[1] skirts the edge of tax evasion[2], but that's what the good accountants are for. Putting different taxes on the owners of some corporation just means that no-one owns the corporation and that everyone is an employee. [1] Avoidance is legally using loopholes to reduce a tax bill. [2] Evasion is illegally using loopholes, or just plain not paying tax.

mpat 14y ago

"As of September 24, 2011 and September 25, 2010, $54.3 billion and $30.8 billion, respectively, of the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S. dollar-denominated holdings. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S." http://files.shareholder.com/downloads/AAPL/1826229879x0xS1193125-11-282113/320193/filing.pdf http://files.shareholder.com/downloads/AAPL/1826229879x0xS11... These tactics don't exempt corporations from US federal taxation, they just serve to delay when the taxes are payable. Apple owes US federal income taxes on the earnings of its foreign subsidiaries that is payable upon repatriation of the cash to the US. Accordingly, Apple and has booked an $8.9 billion liability for the taxes it owes on the unremitted earnings of foreign subsidiaries. Unless Congress moves forward with a "repatriation holiday," that liability will remain until Apple brings back the cash to the US to fund domestic investment or to return to shareholders and pays the US taxes it owes.

nazgulnarsil 14y ago

I think a bot should auto repost Graham's Mind the Gap and How to Create Wealth in the comments of every economics post.

seanalltogether 14y ago

So if Apple is operating as a foreign entity for selling this stuff, does that not mean they have to pay import taxes, or are they somehow exempt?

bceagle 14y ago

I don't feel any ill will for Apple. Companies are always going to try and do what is best for them and that makes sense. What is crazy is why the idea of a flat tax has never gained more traction. I understand that there are some potential issues with a flat tax, but at the very least it simplifies things and levels the playing field.

byrneseyeview 14y ago

This indirectly brings up the point that it's hard to make the case for directly taxing corporations at all, aside from the fact that it's convenient. Ultimately, all corporations are owned by tax-paying people (or nonprofits). So why not tax their distributions as income? If I forgo working, and instead develop some skill that I could use to raise my income, nobody taxes me on the increase in notional wealth I have from being more skilled; I get taxed when I get paid in a form that I could use for consumption. Meanwhile, corporations: a) Get taxed on their profits b) May pay lower notional levels, but only by paying people to game the rules c) Get taxed on their dividends (essentially a 15% surtax on the 35% tax on their profits) d) Also get taxed through capital gains--which is a change in the (un-inflation-adjusted) net present value of future dividends (which, remember, are taxed when they're earned, then taxed when they're paid). If you give our tax code enough credit, the 35% tax rate is a lower bound. If the government is willing to let you pay $X less in taxes for doing Y, they're saying that the benefit of Y exceeds the forgone tax income of $X. So if I get a $5K tax credit for installing solar panels, the amount of tax-equivalent benefit the government has derived from my behavior is at least $5K. You could argue that the tax code is imperfect, and that action Y is not always worth $X. But then you're suggesting that we transfer money from a competent rule-follower to an incompetent rule-writer. If governing skill is constant across tax collection and other government behaviors, then exploiting tax loopholes is just in proportion to how exploitable they are--a government so screwed up that it can't manage to legally tax you for anything is a government that definitely shouldn't have its hands on your money. Obviously, the government has other core competencies besides taxation. But corporate taxes are worth reconsidering. I'd much rather have dividends taxed as regular income--turning corporations into a pure savings vehicle. Taxing corporation-generated wealth four times--when it's generated, when it's calculated, when it's distributed, and when ownership is transferred--is at least three times too many.

notJim 14y ago
Another person suggested this idea and the thread, and this was the problem I had with it: > Ultimately, all corporations are owned by tax-paying people (or nonprofits). So why not tax their distributions as income? Many companies don't pay dividends and sit on their profits for a long period of time, so in practice, that money might never be taxed.

drumdance 14y ago

One reason corporations are so diligent about avoiding taxes is scale. If you can save, say $1 million, byt paying lawyers & accountants $500,000, the decision is a no-brainer. I'm sure this is exactly how Apple's outside counsel sells it. I think the best approach is just to eliminate corporate taxes. If instead you just tax the dividends, that same $1,000,000 in liability will be distributed among thousands of shareholders, who will not have nearly as strong an incentive to hire $400/hour lawyers.

jerf 14y ago

You know, it's not as if this money has escaped being taxed. At most, it's escaped one layer. It'll be taxed if they use it to pay someone. It'll be taxed when that someone uses it to pay for something else. If they move any of it somewhere else, it'll be taxed, if it becomes someone's capital gains it'll be taxed. If they use it to buy something, that purchase will be taxed, as will the thing they purchased at pretty much every layer. If it does pretty much anything other than sit there, it'll be taxed, and the next people to get it will have their use of the money taxed too. It isn't money that has magically been freed of taxation, it's just money that isn't being taxed this exact second.

gravitronic 14y ago

The article mentioning Ireland touched home for me. That's where the bulk of RIM's developer payments come from. Until now I thought my dj app was just REALLY popular with the Irish.

appleaintbad 14y ago

So- if there is anything unfair about this, it is that small companies that can't choose to relocate from Cali bear the tax burden. But it is ridiculous to make it look like Apple is avoiding paying its bills. Instead why don't we see this as a perfect case in point for why we should privatize government? If we paid government directly for its services rather than requiring it to parasitically suck cash as it is set up to now, then Apple would have to pay its fair share of the services rendered in Cali and elsewhere. But, it won't be billions, because "billions" is not a fair price to pay for what it gets from the government- at least, unless there is something it is getting that I don't know about.

whatusername 14y ago

The Kerry packer (Australian media baron) quote is always appropriate: During the inquiry he repeatedly berated the politicians conducting it, and the government. When asked about his company's tax minimisation schemes, he replied: "Of course I am minimising my tax. And if anybody in this country doesn't minimise their tax, they want their heads read, because as a government, I can tell you you're not spending it that well that we should be donating extra!"

DavidAbrams 14y ago

California rips companies off and begs for this kind of behavior. Ask anyone who has started a small business in California. For example, your business can make zero dollars (or even lose money), and you will still owe California $800. EVERY YEAR. Fuck you, California.

nikcub 14y ago

These structures only defer taxes. They will eventually be paid somewhere. Surprised there was no mention of the recent large Apple dividend, which will require that cash to be repatriated to the USA. What is unfair is that an international shareholder in Apple stock only gets their dividend after US taxes are paid and is then hit again with their local taxes.