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Only an American could have written this answer. All other countries in the world use a non global taxation system. Two basic scenarios: 1. US entity owns a c

Only an American could have written this answer. All other countries in the world use a non global taxation system. Two basic scenarios: 1. US entity owns a company in the UK. UK company earns $100, pays 20% tax on that, and is left with $80. Declares a dividend to the US parent, and the US then taxes the difference (35% US tax rate - 20% UK tax rate = another 15% to pay). We're left with $65 2. UK entity owns a company in Sweden. Swedish company earns $100, pays 22% tax on that, and is left with $78. Declares a dividend to the UK parent, which is then left untaxed. Why does 2 make more sense than 1? Because the money was generated in Sweden, and the fact that some parent/holding entity is UK based does not matter (like, at all). Scenario 1 pushes US companies to expand abroad (i.e. through foreign M&A), and not repatriate any profits back to the US. It also makes it easier for non US entities to acquire US companies, because they can achieve larger tax synergies than a domestic US acquirer would. A US company trying to achieve something like that would have to do an inversion, which sometimes can be hard to do. The current state of the US tax code is a great example why Microsoft paid a whopping $2bn for something like Minecraft (Sweden based), or an even larger amount for Luxembourg based Skype. What can they do with that cash otherwise? It's not like they're going to repatriate (ever) without a tax holiday.

tormeh 11y ago
You know, I think maybe this taxation system is a part of why US companies become so successful. It basically forces any US company that sells overseas to become a multinational.
- adventured 11y ago
  The world's largest economy under a single unified market speaking the same language, has a lot more to do with it. By the time companies come out of the US, they're typically already well on their way competitively and have scale. It's the same reason China is so effective at producing giants like Alibaba, Xiaomi, and Baidu.
return0 11y ago
It looks like the real issue is the high corporate tax rate in the US then. Are there not double-taxation treaties to avoid overtaxing otherwise? On the other hand, the scenario of a UK company owning a company in a tax-free zone in dubai and thus paying 0% taxes anywhere doesn't sound fair either.
- IkmoIkmo 11y ago
  Double tax treaties are pretty common, it depends on the good and the corridor so I don't really know what it's like for Apple. Still, the fact they mention tax as a reason to keep cash offshore probably means the treaties are non-existent or limited at best.
- charlesdm 11y ago
  Well, the second part of this equation is that they are able to funnel a ton of cash to low tax companies (via loans/royalties/other loopholes). So maybe they've only paid 1-5% on the entire amount. Repatriation of those funds would essentially mean paying close to 35% tax (+ state taxes). DTTs don't fix that, they just make sure you don't pay the same amount twice. I.e. the 20% in the UK AND 35% in the US. Add to that fact that Apple can pretty much borrow unlimited funds in the market (debt != income, you don't pay tax when you borrow) to fund share buybacks and dividends. Why repatriate? Financially it just does not make sense, since you'd lose so much of your equity. It's better to invest it abroad. Re Dubai: If an entity is a conduit company, then maybe not. But if you're operating a business or selling stuff there, then I think it is. No income tax is more of an anomaly these days, and a way for countries to attract new business.
jusben1369 11y ago
You're sort of falling victim to the rules of the current game (US entity owning subsidiary in xyz location) I was working at a higher level and rejecting the notion that a company no longer needs to pay taxes on profits simply because they're outside their borders. The Chinese government can tax worker salaries and levy a consumption tax on goods and services sold into the production. The German government can levy a GST too. And Apple, where applicable, can deduct those taxes before calculating profits. So conceptually that's the cleanest way it should work (same for a German or Australian company. No U S A U S A thing going on here)

tormeh 11y ago

You know, I think maybe this taxation system is a part of why US companies become so successful. It basically forces any US company that sells overseas to become a multinational.

adventured 11y ago
The world's largest economy under a single unified market speaking the same language, has a lot more to do with it. By the time companies come out of the US, they're typically already well on their way competitively and have scale. It's the same reason China is so effective at producing giants like Alibaba, Xiaomi, and Baidu.

return0 11y ago

It looks like the real issue is the high corporate tax rate in the US then. Are there not double-taxation treaties to avoid overtaxing otherwise? On the other hand, the scenario of a UK company owning a company in a tax-free zone in dubai and thus paying 0% taxes anywhere doesn't sound fair either.

IkmoIkmo 11y ago
Double tax treaties are pretty common, it depends on the good and the corridor so I don't really know what it's like for Apple. Still, the fact they mention tax as a reason to keep cash offshore probably means the treaties are non-existent or limited at best.
charlesdm 11y ago
Well, the second part of this equation is that they are able to funnel a ton of cash to low tax companies (via loans/royalties/other loopholes). So maybe they've only paid 1-5% on the entire amount. Repatriation of those funds would essentially mean paying close to 35% tax (+ state taxes). DTTs don't fix that, they just make sure you don't pay the same amount twice. I.e. the 20% in the UK AND 35% in the US. Add to that fact that Apple can pretty much borrow unlimited funds in the market (debt != income, you don't pay tax when you borrow) to fund share buybacks and dividends. Why repatriate? Financially it just does not make sense, since you'd lose so much of your equity. It's better to invest it abroad. Re Dubai: If an entity is a conduit company, then maybe not. But if you're operating a business or selling stuff there, then I think it is. No income tax is more of an anomaly these days, and a way for countries to attract new business.

jusben1369 11y ago

You're sort of falling victim to the rules of the current game (US entity owning subsidiary in xyz location) I was working at a higher level and rejecting the notion that a company no longer needs to pay taxes on profits simply because they're outside their borders. The Chinese government can tax worker salaries and levy a consumption tax on goods and services sold into the production. The German government can levy a GST too. And Apple, where applicable, can deduct those taxes before calculating profits. So conceptually that's the cleanest way it should work (same for a German or Australian company. No U S A U S A thing going on here)