If Apple didn’t hold $181B overseas, it would owe $59B in US taxes
arstechnica.com
arstechnica.com
I'm not a tax lawyer, but as I understand the recent spate of "tax inversions," that is when a US company buys a foreign company and make the non-US entity the new HQ are much less of a dodge than is often reported.
My understanding is that the US company still pays the full US tax rate (which is the highest in the world) on all sales in the US. They then pay the prevailing tax rates in the countries in which they operate.
If they didn't have the foreign entity, they would have to pay the full US rate on sales they make in China, Spain, and South Africa—all of which have lower rates.
In that light, Apple isn't dodging taxes, rather they're just not additional taxes on sales that happen outside the US. There's still an argument that can be made that they should still pay the US, but I think it strikes people as less fair. So instead we get amorphous reports designed to stoke fear, uncertainty, and doubt with regard to these companies.
If nothing else, the reporting should be clear that the US wouldn't be getting all that money back, just the portion that exceeds the tax rate in the various countries they operate in.
Like I said, I'm no lawyer, or even accountant, but this piece is garbage from a logical perspective.
not really.
" the Congressional Research Service put the U.S. effective rate at 27.1 percent, slightly lower than the OECD average of 27.7 percent."
( source : http://www.politifact.com/punditfact/statements/2014/sep/09/... ).
Actual corporate taxes paid are below the average developed country
"Out of the 34 countries in the OECD, America ranks first with a 39.1 percent corporate tax rate, compared to an OECD average of 24.1 percent. The OECD figure is what’s called the statutory rate, meaning the base rate applied to corporate profits."
To some people in the US this is a desirable outcome, because anyone doing business overseas is a dirty tax dodger and ought to come back home.
In countries with higher incomes taxes than the US (which seems to be most first world countries...), how come the foreign earned income exclusion and the foreign tax credit do not result in US workers in such countries paying the same total income tax as that country's native workers?
That's ignoring a huge number of not-so-first-world countries which are nonetheless nice places to work, plus countries like Greece where the actual income tax paid by local people is much less than the official rate.
The problem for US citizens in developed countries WRT to the US taxes is not the taxes themselves. Rather it is the burden of complying with the law, and the cost of finding competent tax preparers knowledgeable in both US tax law, and local tax law.
Everyone's circumstances are different. So there is no single/repeatable method for resolution.
Government lives in an alternate reality without the pressures and incentives of free market competition. Ninety-nine percent of its revenues come, at the end of the day, from people robbed at gunpoint (try not paying your taxes and then refusing to go to be locked in a cage). It doesn't operate at all similarly to how small businesses operate. And no, I don't have a better idea.
My point is that I'm all for people paying less tax because I think there's a decent probability that that's literally more beneficial than paying more. The government is like a fat pig. Giving it more food doesn't help. Giving it less (to a point) forces it to operate more efficiently.
Seems like every time there is a story about govt waste, there is a greedy private company that was contracted to do the work. They charge rates only the govt can stomach to pay, because their choices are limited to a small number of approved companies in the procurement process. Who's fault is that?
I've lived in DC too and have friends that work in and around the government. Yes, it is inefficient and bureaucratic. Yes, the work culture is Office Space. Everyone wants the govt to save money, but no one wants to vote themselves into unemployment.
I don't fail to see that at all. It would be better if some of the people I used as examples were out of work, and I am all for that, even though I personally would be worse off for it.
I'm also a supporter of totally Open Borders... I'm not trying to benefit from unfair systems.
The rest of the budget is SS, healthcare, defense, interest.
Lazy govt workers are a tiny portion of the federal budget.
Tech is developed in the US, and then licensed to a subsidiary in a different country, for a fee. The US entity pays taxes on the income produced by these fees. Then the subsidiary sells products based on this tech, and pays taxes on the profits in the country where this happens.
Is the complaint that the fee charged to its subsidiaries too low? The article itself addresses that by saying that the fee is set in an "arm's length" transaction.
Or is the complaint something much stronger, namely that Apple should pay taxes on all the income produced everywhere in the world? If so, what is the reasoning behind that? Is it because the software is written and hardware is designed in the US?
The way it should work is:
- Apple makes an iPhone for $200 in China
- Apple sells the iPhone in the US for $600
- Apple pays US taxes on the $400 profit
The way it actually works is:
- Apple creates Apple of Ireland as a PO Box in Ireland
- Apple gives one of its iPhone patents to Apple of Ireland
- Apple makes an iPhone for $200 in China
- Apple sells the iPhone in the US for $600
- Apple pays $400 to Apple of Ireland to "license" the patent
- Apple pays $0 of US taxes because it sold the iPhone "at cost"
- Apple of Ireland pays negligible taxes on the $400 profit due to low tax rates
What's actually happening is that Apple (and other companies using this system) are paying significantly less tax in countries outside the US where they operate.
This arrangement arguably benefits the US government, as it makes US-based companies stronger at the expense of the rest of the world's tax revenues.
From the article itself: "a company sells or licenses its foreign rights for intellectual property developed in the United States to a subsidiary in a country with lower tax rates."
Note the 'foreign rights' part. This has nothing to do with iPhones sold in the US.
If Apple provides more value to US citizens with those funds than the US Government would, then these tax management tactics are beneficial to US citizens.
If Apple paid out all of it's $181B to shareholders, it would owe $ about half the claimed amount in US taxes. Apple however has not made this decision not to pay out to shareholders, and it would be extremely impractical to attempt to force it.
Note that Apple hasn't actually paid out this money to shareholders, so it probably will do so at some point in the future, and still pay these taxes. These taxes are deferred, not "avoided". It's just doing so at a slower rate (and probably waiting until negotiations with the IRS yield a better deal)
If it was outlawed to hold this tax overseas, Apple would still not pay it out to shareholders. Instead it would simply invest it, in overseas real estate, overseas data centers, overseas financial holdings or whatever. It seems to me very unlikely that it would make a different decision (not pay out vs. pay out) simply because the US govt. would try to force them.
Or worse, Apple would do what companies did before WWII. Never pay out profits. Instead have a deal that roughly amounts to this : "if you have $xx of apple stock, you get a director position within Apple, which comes with an expense account, free disneyworld access, a yacht, ..." and never pay out anything (and then have 10 tiers of this deal ...). And yes, that is legal.
For example although Google's advertising algorithms and engineering may be largely based in the US, its advertising revenues come from all over the world. Generally it's required to have a presence in the places where it operates, with revenue accounted for there and taxed by the local governments.
Are these people arguing that that revenue needs to end up in the US and be taxed there too instead of taxing it once then investing it elsewhere (like treasuries)?
Anyhow, the companies in question aim to increase their profit as much as possible within the law and are required to do so [0] by said law. If people don't like it, change the law.
"Change the law" assumes that the politicians are working for all of us. They aren't.
The tech companies benefit hugely from being based here. If you don't believe that then please recreate Silicon Valley in another country and show me how well that works (spoiler, been tried, didn't work). So long as they benefit from being based here they should pay their taxes.
Source: CEO of a Silicon Valley company that is 18 years old and has paid every penny of tax owed without whining and without trying to off shore it or hide it in any way.
Or maybe better any downvoters care to justify Apple's behaviour?
Link?
[1] https://www.nationalpriorities.org/campaigns/military-spendi...
But the point I was fumbling to make is that there are a lot of people who minimize their tax and honestly believe that they are doing the morally right thing in doing so.
If it was easy for governments to get the money owed, it would allow them to cash in votes for finally lowering taxes (in France especially...).
The fact that they did not succeed so far is proof that we need the system to evolve against these abuses. My only way of going in that direction is to scrutinize officials' campaigns and vote for the ones who want to tackle that problem, but that's so little it feels cowardly.