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Comment by YuriNiyazov | Hacker News Reader

I don't think I understand what the complaint is. Let me see if I understand this right:

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?

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The issue is more that companies should pay US taxes on profits made in the US. However they can use IP to move those profits to countries with lower tax rates.

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

How does Apple get that $400 to China to make 2 new iPhones? Is there a tax-advantageous route for that? If not, what does it do with that $400?

Not quite. Apple's Irish entity owns the IP for non-US sales only. US sales fall under Apple Inc and are not subject to IP transfer, royalty or licensing and therefore attract the full tax rate. Minus whatever incentives apply of course.

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.

It's worth pointing out that Apple's overall operation in Ireland is significantly more than a PO Box. Like European headquarters with 4000 employees (expanding soon to 5000) kind of significant.

I am pretty sure you are wrong.

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.

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