Apple's $348M Tax Settlement In Italy Bodes Ill For Google, Facebook, Microsoft
forbes.com
forbes.com
It's not about following the letter of the law; it's about following the letter of the law, avoiding the court of public opinion, and coughing up whatever is necessary to stop the complaints when some politician wants to distract people from their incompetence and whip up some good old nationalist fury.
What do you legally owe? It's undefined. Or more, defined by whether the country you are in likes you for PR reasons (Google is stealing our newspaper jobs!) * the skill of your lawyers. Great!
How about, we admit corporate income tax is a stupid idea, get rid of it, and raise capital gains taxes respectively (and dividends)? People have the great feature of being corporeal beings which live in a country, which makes them much easier to tax than ethereal corporations.
Of course there are rough edges to fix around overseas investors, but it could not possibly, in any world, be worse than the system we have today.
What has to do Microsoft N with taxes?
If you view the fine as a tax it all makes far more sense. The fine is merely a tax that is the cost of doing business in Europe. Microsoft is willing to pay it because they still net profit in Europe. And Europe certainly has no issue demanding money from an American corporation.
Nation states demanding unreasonable things from foreign companies is nothing new. There's many a ruling that would have gone another way were the defendant a local entity.
This is just opinion
> If you view the fine as a tax it all makes far more sense
It is not a tax, so it doesn't make sense
> The fine is merely a tax that is the cost of doing business in Europe
Wrong, the fine is a consequence of breaking competition laws
> And Europe certainly has no issue demanding money from an American corporation.
The majority of the fines have been given to European companies, more than 80% of the money.
>Nation states demanding unreasonable things from foreign companies is nothing new. There's many a ruling that would have gone another way were the defendant a local entity.
Reality says that this is not the case, but if you have more data, I will look at it
I assure you, the cost of breaking the law is factored into a spreadsheet somewhere in all corporations of note, and that this metaphorical spreadsheet is always used to make decisions.
The OP is absolutely correct when he says that fines are the cost of doing business. He's wrong when he says that this is a phenomenon associated with Europe though -- corporate amorality ultimately knows nothing of national boundaries.
Perhaps is correct is it is the cost of doing business BREAKING the law, but it is wrong when the OP says that it is the cost just for operating in a place without breaking any law
2/3) You're right. A fine isn't a tax. Now assume you are a nation state and some foreign entity is making a shit ton of money off your population. Now let's assume that you feel you aren't getting as large of a slice of pie as you deserve. What are some ways you can increase your slice size? Raising taxes is one way. Issuing fines is another way.
For example local police generate money off things such as parking fines. It's true that the parking fine is a consequence of breaking a local ordinance. However the rationale for issuing more fines can one of several reasons. It could be an increased focus on enforcing existing laws. It could also be because the police need more money and they looked at ways to generate more revenue and found that an increased focus on parking violations would be a cost efficient way to do so. This same line of reasoning can be applied to certain Euro fines.
4) That's fine. The commission can issue fines for many reasons.
5) Ask some lawyer friends for the opinion on Nintendo vs Galoob. They almost certainly discussed it in school. Opinions will vary. More than a few will likely agree that if Nintendo were an American company the outcome would have been different. That's the most famous case I know of.
Still waiting a proof that it is because an American company
> 5) Ask some lawyer friends for the opinion on Nintendo vs Galoob. They almost certainly discussed it in school. Opinions will vary. More than a few will likely agree that if Nintendo were an American company the outcome would have been different. That's the most famous case I know of.
Some USA case doesn't make any argument for your accusation about EU.
You can believe what you want, but reality is what it is
And of course reality is what it is. No shit! Saying that isn't an argument.
Windows 7 N is objectively stupid. The default browser choice is objectively stupid. The released Excel file formats were stupid. In fact I think you'll be hard pressed to come up with a list of changes I product or behavior brought on by the ruling that benefit consumers in any meaningful way.
Which you shouldn't since it's a ridiculous premise.
Microsoft was found to have acted in an anticompetitive manner and for that they have to pay a fine. Not all multinational companies who exist in the EU have to pay an ongoing fine. It's not the cost of doing business. It's the cost of breaking the law.
The Apple problem is that its lawyers are deliberately avoiding using current tax codes, and instead essentially claiming that Apple is based in Ireland, then playing shell games with what counts as U.S. sales, U.S. profits, and also U.S. property. Apple ends up paying ~10% U.S. tax, rather than ~35%.
Where Apple is located is clear to me: Apple products say Cupertino and there's a gigantic new Cupertino headquarters in progress. Apple also has many subsidiary locations worldwide, and occupies real property, and hires real people; these locations should pay their respective country taxes.
Tim Cook and Apple have an opportunity and moral responsibility to help close these tax loopholes that are siphoning money out of the U.S., California, and Silicon Valley-- then do similarly with the EU and worldwide.
Specifically, the goal is to streamline tax codes to be more clear, more consistent, and more algorithmic. This would be unpopular with stockholders but it's the right thing to do for employees, customers, and countries.
What you legally owe in taxes, in a reasonable tax structure, has NOTHING to do with your moral compass. You should be able to plug numbers into a spreadsheet and get it.
I'm not saying that taxes are bad. We need tax revenue. I get that. But there should NEVER, EVER, be two legally correct answers to how much you owe.
The fact that you had to spend paragraphs making your case, makes mine -- when you resort to emotional appeal to try to get people to pay their taxes, the system is completely broken.
Edit: the original comment said that this was clear to anyone with a "moral compass"
The median corporate income tax rate, is higher than the median individual income tax rate.
Taxes that corporations pay are more complicated and they have more legal avenues to minimise tax payable.
[1] https://en.wikipedia.org/wiki/Hollywood_accounting
[2] http://www.theatlantic.com/business/archive/2011/09/how-holl...
However, if Apple (Italy) sells an iPhone to an Italian customer, the 'double Irish' arrangement lets them avoid paying corporate income taxes on those profits.
There are two issues here:
1. Some might argue that because Apple is based in the US and the R&D for these products occurs in the US, that when Apple (Italy) sells an iPhone to an Italian customer, Apple (US) should pay taxes on those profits. This is somewhat questionable, I think.
2. When Apple (Italy) sells an iPhone to an Italian customer, they should pay Italian corporate income tax on those profits, instead of being able to wipe those profits out using licensing agreements with Apple (Ireland). This is more straightforward and is the loophole being addressed by this settlement.
Except they don't, really. They use the same "double Irish" scheme in the US. Apple has offshore holding companies that own the IP for that iPhone. When a US customer buys an iPhone, much of the actual profit gets shifted to the offshore subsidiaries as an expense. That's how they ended up with $200bn offshore and only $10bn or so in the US.
Wrong. They initiated a capital return program a few years ago and ran down their US cash holdings while taking on debt "against" part of their overseas holdings. Once you account for the debt issues, their net cash holdings are a lot lower (though still substantial). Please don't make wild accusations if you don't know what you are talking about.
http://appleinsider.com/articles/15/07/22/as-apples-offshore...
They still can't repatriate that money without paying taxes. And as of two quarters ago they still have $200bn offshore and $10bn in the US. That offshore tax horde is still growing and it's still growing as a result of Double Irish flim-flam.
Don't accuse other people of not knowing what they're talking about unless you know what you're talking about.
I won't respond to you again in this thread because I can't deal with people who lack basic reading comprehension, logic, and fact-checking skills.
So the 'film-flam' as you call it avoids no taxes with regard to the cash-horde.
"The offshore company continues to receive all of the profits from exploitation of the rights outside the US, but without paying US tax on the profits unless and until they are remitted to the US."
https://en.wikipedia.org/wiki/Double_Irish_arrangement
"However, tax experts say that strategies like the Double Irish help explain how Apple has managed to keep its international taxes to 3.2 percent of foreign profits last year, to 2.2 percent in 2010, and in the single digits for the last half-decade, according to the company’s corporate filings."
http://www.nytimes.com/2012/04/29/business/apples-tax-strate...
"Under a typical “Double Irish” structure, a U.S. parent company (USCo) forms two Irish subsidiaries, IrishCo1 and IrishCo2. IrishCo1 is a first-tier Irish subsidiary organized under Irish law but managed and controlled in a low-tax jurisdiction (e.g., Bermuda or the British Virgin Islands). While U.S. rules determine tax residency of a corporation based on its place of incorporation, Irish law often determines tax residency based on the country where the company is managed and controlled. Accordingly, IrishCo1 will be treated for U.S. tax purposes as an Irish corporation, but for Irish tax purposes generally will be structured so as to be treated as a nonresident of Ireland resident in, for example, Bermuda. USCo will retain all US rights in the relevant IP and will license to IrishCo1 the rights to develop and exploit the IP outside the US. IrishCo1 will then sublicense these IP rights to IrishCo2, which in turn will use the IP to manufacture/produce IP products and then sell those products to customers outside the U.S."
http://www.taxeswithoutbordersblog.com/2014/10/death-of-the-...
You clearly do not understand how the double Irish arrangement actually works or what taxes it is supposed to reduce. Hint: if Apple could wipe out their US income tax obligations so easily using this arrangement, they probably wouldn't have bothered to pay that $14 billion in corporate income tax last year.
http://graphics8.nytimes.com/packages/pdf/business/MemoOnOff...
>The Apple case study examines how Apple Inc., a U.S. corporation, has used a variety of offshore structures, arrangements, and transactions to shift billions of dollars in profits away from the United States and into Ireland, where Apple has negotiated a special corporate tax rate of less than 2%. One of Apple’s more unusual tactics has been to establish and direct substantial funds to offshore entities that are not declared tax residents of any jurisdiction. In 1980, Apple created Apple Operations International, which acts as its primary offshore holding company but has not declared tax residency in any jurisdiction. Despite reporting net income of $30 billion over the four-year period 2009 to 2012, Apple Operations International paid no corporate income taxes to any national government during that period. Similarly, Apple Sales International, a second Irish affiliate, is the repository for Apple’s offshore intellectual property rights and the recipient of substantial income related to Apple worldwide sales, yet claims to be a tax resident nowhere and may be causing that income to go untaxed.
That's not some guy in his pajamas, there. It's a Senate report. For most US companies the whole point of the lowered Irish tax rate is to pay that on profits you've moved offshore.
And while most of Apple's profit would probably still come from other markets if it weren't playing these kinds of offset pricing games, Apple has moved billions of dollars in profits out of the US to avoid taxes.
It's not just Apple, either. This is why the effective US tax rate for corporations is 12.6% even as the statutory rate is 35%. I suspect that figure would be a lot lower, too, if only multinationals were considered.
This is the elephant in the tax tent: The IRS has wide latitude when determining what's reasonable for companies to charge subsidiaries for goods and services (and vice versa). But it's easy to arbitrarily complicate these kinds of arrangements.
And it's pretty subjective to start with - how much should Apple pay Apple Sales International to use a patent that nobody else is licensing? How would you even determine the fair market value? There are rules, of course, but even assuming there's no undue influence by corporations (and you can't assume that), imagine writing a set of rules that covers every conceivable business arrangement between multinationals that doesn't leave any grey area. Can't be done.
That Apple uses various tax arrangements to wipe out profits from its international sales is not in question. However, these are sales made by Apple’s foreign subsidiaries to foreign customers. They weren’t moved offshore, they were offshore to begin with.
I can see how Apple (Italy) and Apple (Germany) end up transferring their profits over to Apple (Ireland). I don't see any mechanism for how this could apply to Apple (US).
And the more left-leaning part of the aisle has this idea that they will get to decide what that money will be spent on. So they support this. (I'm not rightist, in fact I'm probably extreme left by American standards, but I just don't believe the government is on the people's side anymore)
Of course there's a million different ways to say this, many are more polite, but it all boils down to this. They want money, they have the ability to take it.
It's not about "feeling that they can spend the money better", it's that government already spent the money, and Apple (and other companies) benefited from it, and now they need to pay their share.
It's hard to see any way to do the accounting such that Apple doesn't already pay for that and more.
And if you're going to start doing that kind of accounting, shouldn't governments credit Apple with the personal income taxes Apple employees pay?
Citizens pay taxes. Citizens get infrastuctures and subsidies.
> it's that government already spent the money, and Apple (and other companies) benefited from it, and now they need to pay their share.
It does not work like that. It has to be explicitly agreed by both parties.
One world government would be just as screwed up.
http://pennbpc.org/time-close-loopholes-delaware-loophole
Here’s how it works: A large multi-state corporation creates a shell company in a tax-haven state like Delaware. The subsidiary has no employees and is often nothing more than a post office box. The corporation then uses accounting gimmicks to funnel profits through the shell company, leaving no apparent income on the books in Pennsylvania. It may be legal, but it isn’t fair.
[1] For example, 50BC with the Roman Empire, Han Dynasty and this interesting map about Greeks in India, that I found just now. http://www.historyfiles.co.uk/FeaturesFarEast/CentralAsia_Ma...
Global corporations fiddle this by moving money around so it appears that they don't make a corporate profit in that country, hence they pay no corporation tax. For example, companies like Vodafone continuously buy other companies that are making losses deliberately to offset their profit making mobile operators.
A simple way to solve the problem is to levy an internet sales tax, which is the same percentage as the corporation tax that these companies should have paid if they were operating solely in that country in the first place.
This would have some added advantages to companies that have bricks and mortar stores, who currently struggle to survive and compete with online competition. They provide the customers advice and the ability to try on their goods and then the customer price compares and buys cheaper online.
Whilst customers are benefiting from lower prices in the model we have today, we face the real risk that in twenty years you will only be able to buy a book from Amazon. There won't be any other book store.
Ah, but how does something like Google work, then? They don't sell a product to people all over the world (where tax can be collected); people all over the world are the product, and they sell that product to advertisers mostly from the US. Google uses the population of a country to make money without actually receiving any money from anyone in that country.
If their US company is wearing all the expenses then they get a tax saving there.
They are trying to have their cake and eat it, and declare expenses in high tax regions and profit in low tax regions. Hence Ireland being popular.
It's not complicated unless you actively start trying to move money around to avoid tax, which is what they all do.
You have sales tax, then this company invest into the country and hire people, paying rental for stores, advertising and spending. Once you take away all that, the country has to take 35% of your profits?
The case for Apple isn't as convincing as they are the most profitable company in the world. What about company that operate on laser thin margin? As most company are these days.
I am not again Tax, but it needs to be fair and reasonable. And in most cases it is not. As per your example, how about Vodafone, or many other SME who invest their profits into property market, driving up the cost of property which are every days needs for people in their country, and yet does not pay a single dime of tax.
Kind of like saying "I'll only play monopoly if I don't have to pay anyone elses rent, but you pay mine".
But we have that. Take profits and multiply by 0.35. Done.*
The fact that Apple effectively pays less than %10 corporate tax rate in the US is, I think, what the parent poster was referring to.
For it to be this simple, you're declaring that every company paying less than 35% tax is in breach of the law. Which is obviously not the case in the eyes of the IRS -- there is totally legitimate foreign income, deductions, etc etc.
Whether you think those things are a GOOD idea doesn't matter, there are plenty of companies paying way less than 35% which are not going to get prosecuted, and the IRS would declare in the clear.
Can you source this claim, please?
The only sources I've seen that make this claim arrive at this number by treating Apple's worldwide sales as if they were entirely US sales, which is an absurd basis for this calculation.
Basically, if someone decides to take that money overseas--don't throw up you hands, and expect U.S. Soldiers to save the day.
So we live in this new world economy. Fine. If things go haywire; your company is on its own. Don't use our military. Don't use our government, and courts. Don't complain. You're on your own.
The problem , I see, is even if these companies didn't expect any favors from the United States in times of crisis; the United States would still try to rectify the problem. Tim Cook knows his money is safe anywhere. Why not pay close to nothing on profits? I wish we weren't the ambasitors of right/wrong, or the world's police.
We both want a reasonable tax structure. But Apple is exploiting the unreasonableness of the tax structure, e.g. by using outdated codes, shell games, tax havens, etc.
Apple leaders have the opportunity and moral responsibility to stop exploiting, and start helping.
One of the advantages of GAAP, as you seem to be arguing is the reduction of risk since the rules are clear, unfortunately, the downside is the ability to circumvent them.
it is also funny how investors feel about accounting standards when it is THEIR money at risk and not the governments.
https://ifrsusa.wordpress.com/2011/04/05/which-is-better-%E2...
The ideal (IMHO) is to improve the principles and rules together, and Apple is in a unique leadership position to do this.
Bullshit, the concept of fairness is a universal moral.
The report found that Irish officials essentially “reverse-engineered” Apple’s tax bill by first discussing with company representatives the size of the profit they wanted from the Irish branch. Apple’s own tax adviser acknowledged there was “no scientific basis” for the figures, the report said.
http://www.nytimes.com/2014/10/01/business/international/eur...
There's nothing objective the concept of fairness, particularly when it comes to taxes. Taxes are almost completely arbitrary, depending more on what the government in question thinks it can actually collect than anything else.
It's pretty easy to make the case corporations shouldn't be taxed at all. A corporation is nothing more than a group of people that have pooled their resources to make money, after all, and they're already taxed as individuals when profits are disbursed. How is that fair?
But if we borrow a lesson from moral philosophy just to help us with that thought – Descartes universality principle might help us: If everybody (corps, and individuals) avoided tax, would our system still work? Would it be a system that encourages growth (a requirement for capitalist enterprise)? Would our governments revenue system completely dissolve? Thus our governments completely dissolve? Is "Taxes aren't a moral issue" equivalent to "I want pure free market anarchy"?
Great business idea: Create a corporation that represents employees, with offices in every country. It then signs your employment contract, pays you in a 0 income tax territory and does all the same funny money games Apple et al do.
Everybody should avoid taxes as long as they stay withing the law, particularly corporations that have a fiduciary duty to do so.
It's moral, usually, to follow the law. But companies like Apple are following the law. Apple already pays billions in tax, far more than it uses in services. Even by that argument Apple isn't doing anything immoral by avoiding more tax.
You are preaching utopian idealism, but a high school ethics assignment of "stealing medicine to save your mum" undoes your "one set of rules to apply to everything" point.
What you can do is insure that you follow all applicable laws, and within that simple admonishion are two "get out of jail free" cards, one "Does this law actually apply?" and the other "What does this law actually say?". And after paying cash to the IRS on gains which you didn't actually get (looking at AMT here) you start wondering, what is the law here trying to do, other than suck as much money as possible into the government? And once you enter into an adversarial mindset it is you vs the government over whether or not you need to pony up the money.
So while I agree with your first claim, and do think Apple should "not" be taxed (tax people, not corporations), I don't agree with your second statement.
As far as public infrastructure etc. is concerned only a minuscule portion of over taxes get spent on actual government functions such as protection of property rights and Liberty. Most of the money is currently going in wars we cant win or end, military junk and welfare. If I had a choice I would pay government to run a police force and courts but not for these things.
US gov already gets sufficient tax money to run its basic business. I would appreciate if the cut their spending instead of stealing money from me and Apple.
These aren't "tax loopholes." They're legitimate rules to answer this fairly complicated question.
That's because it's a tax on profit, not a tax on design, sourcing, manufacturing, assembly, or sales.
Suppose I have an idea for a piece of hardware. So I hire one of these body shops in India to design the hardware. They make hardly any profit. Then I pay a Chinese company to manufacture it. They make hardly any profit. Then I sell the hardware through some retailer in Germany. They make hardly any profit.
But the enterprise is very successful for me and I'm sitting at home in my mansion driving my Ferrari because I've made all this profit. And you don't have any idea what country I live in because it doesn't matter -- if I move to a different country because it has lower taxes then the profits are still mine. Which is what international corporations do.
Stop trying to tax profits. They have no physical presence which means they just disappear into whichever jurisdiction has the lowest taxes. Tax something that physically exists in your jurisdiction and be done with it.
> Specifically, the goal is to streamline tax codes to be more clear, more consistent, and more algorithmic.
Your original post said (I don't have it saved), that the goal was to make all income from US companies taxed as US income. COMPLETELY different.
It is very dishonest to completely change your post after there's a whole comment tree under you.
> that the goal was to make all income from US companies taxed as US income. COMPLETELY different.
I'll explain more detail so my goal is better-understood. My goal is to have Apple, the U.S., and Ireland come to an agreement about the the U.S. Senate report "Offshore Profit Shifting and the U.S. Tax Code (Apple Inc.)". Here is a specific paragraph that introduces one of the important issues.
"In addition, the hearing will examine how Apple Inc. transferred the economic rights to its intellectual property through a cost sharing agreement with its own offshore affiliates, and was thereby able to shift tens of billions of dollars offshore to a low tax jurisdiction and avoid U.S. tax. Apple Inc. then utilized U.S. tax loopholes, including the so-called “check-the-box” rules, to avoid U.S. taxes on $44 billion in taxable offshore income over the past four years, or about $10 billion in tax avoidance per year. The hearing will also examine some of the weaknesses and loopholes in certain U.S. tax code provisions, including transfer pricing, Subpart F, and related regulations, that enable multinational corporations to avoid U.S. taxes.
This is exactly what they pay currently.
> Do the same for all countries.
This is what they just settled with the Italian government about; previously they thought they were legally in the clear paying Irish corporate taxes for profits from across the EU.
> The Apple problem is that its lawyers are deliberately avoiding using current tax codes, and instead essentially claiming that Apple is based in Ireland, then playing shell games with what counts as U.S. sales, U.S. profits, and also U.S. property. Apple ends up paying ~10% U.S. tax, rather than ~35%.
Apple does pay standard US corporate tax on profit from all US sales, the same 35% as any other company, and makes no claim that Apple, Inc. is located in Ireland. The Irish subsidiaries are money pools that collect Apple’s foreign profits, so that e.g. in Europe Apple pays VAT in each country but only small amounts of corporate taxes. They can then take that money and use it to acquire foreign companies, run their foreign retail/support operations, invest in manufacturing capital, fund overseas R&D offices, et cetera, or just hoard a pile of cash. In the US, Apple has simultaneously taken out big loans (because they currently get ridiculously low interest rates) which money they can use for capital expenditures in the US or dividends or whatever.
But Apple isn’t playing any shell games about US sales, profits, or property, per se. In my opinion you should do some basic research before making such obviously false accusations.
There’s plenty about the Irish tax setup that is questionable, and arguably Apple should repatriate more of its foreign profits back to the US and pay US corporate taxes on them. However, the discussion should be focused on what they currently do vs. what they should be forced to do by an improved tax code, not on some imaginary scenario based on what some other companies do.
I've done research. Here are examples from news summaries and the U.S. Senate report.
"Apple Inc. transferred the economic rights to its intellectual property through a cost sharing agreement with its own offshore affiliates, and was thereby able to shift tens of billions of dollars offshore to a low tax jurisdiction and avoid U.S. tax. Apple Inc. then utilized U.S. tax loopholes, including the so-called “check-the-box” rules, to avoid U.S. taxes on $44 billion in taxable offshore income over the past four years, or about $10 billion in tax avoidance per year. The hearing will also examine some of the weaknesses and loopholes in certain U.S. tax code provisions, including transfer pricing, Subpart F, and related regulations, that enable multinational corporations to avoid U.S. taxes."
"In annual reports between 2009 and 2011, the company told investors it was setting aside $13.7 billion to pay federal taxes—but it has actually paid only $5.3 billion. "
"The report alleges more than just the avoidance of US taxes on foreign sales of Apple’s products. It also argues that Apple is effectively sending US profits to its Irish subsidiaries, too. How? Transfer pricing. Apple has set up a cost-sharing agreement with its Irish subsidiaries that gives them a disproportionate share of the profit from research and development that occurs in the United States. From 2009 to 2012, Apple allocated $4 billion in R&D costs to its US unit, which had $38.7 billion in profits, while its Irish subsidiary had $4.9 billion in R&D costs—and $74 billion in profits."
Here's a Forbes summary URLs that may interest you for more specifics that I'm reading-- feel free to provide counter-examples or point to better research if you're aware of it.
http://www.forbes.com/sites/beltway/2013/05/21/the-real-stor...
Apple, and the rest of them, are following these laws. If governments are unhappy with the the amount of tax Apple pays after following the rules then they should change them.
You mention Apple's Ireland operations, and you allude to the "earnings stripping" that is commonly achieved through such foreign companies. In some cases, the subsidiary is a pure tax play. But in other cases, it's simply a matter of having foreign operations that perform services that are charged out to affiliates in various countries. Deciding how much to mark up these services is a classic facts-and-circumstances inquiry. There's no one-size-fits-all rule that can adequately capture the spectrum of activities.
Compounding the problem is the fact that there are multiple taxing authorities involved, and if one gets greedy then others are affected (through foreign tax credits, for example). Sometimes a company just ends up getting stuck in the middle of a turf war between tax agencies in two countries.
Lastly, Tim Cook does have a "moral responsibility" with regard to taxation: maximize shareholder value. Granted, he could reasonably decide to take actions that do not minimize tax liability in the near term, on the grounds that he would generate goodwill with consumers and increase sales. But if he announced that he was going to dismantle Apple's foreign subsidiary structure so that Apple could pay more taxes, you can bet he'd face shareholder lawsuits in no time flat.
So here's the specific reason why this is difficult in the case under discussion:
The EU runs as a "single market". It is intended to function such that you do business "in the EU" rather than "individually in every country that is part of the EU". There are no tariffs on moving goods between countries in the EU. Having imported something into the EU, you don't then have to pay more tax to sell it in a different EU country.
Except... the tax rates are not fixed across all EU countries. That was a bridge too far for the politicians when this was being set up. So under the rules as written, it's entirely legitimate - and intentional - to pick which EU country you want to operate in and pay your taxes there. This worked fine until some EU countries realised that they could compete against the other ones to offer more favourable tax regimes and attract businesses to themselves.
This isn't really a fight between companies and governments. The companies are the ball being played. This is a fight between governments over who gets to collect how much of the tax (to call it Germany versus Ireland would be unfair but not entirely imprecise). I do not see a way for it to be settled other than agreeing on tax rates being set by the EU, but that is politically challenging at the moment.
> Tim Cook and Apple have an opportunity and moral responsibility to help close these tax loopholes
I strongly disagree. I do not think that US corporations should be trying to settle arguments between EU governments. That is a level of political involvement which seems grossly inappropriate.
The whole problem is, what are "U.S." profits?
Google pays a bunch of engineer salaries to design Google Docs. Most of the engineers are in the U.S. If they declare that huge expense in the U.S. then it will cancel all the U.S. revenue for Google Docs, which they're happy to do because the U.S. has a high corporate tax rate.
Meanwhile the parent company in Ireland now owns a bunch of valuable new code that can be used world-wide and be licensed to Google UK and Google France etc., creating lots of profits for Google Ireland where taxes are low.
No part of this is doing anything "wrong" -- whichever corporate entity is the one that owns the rights to the code is the one that will make all the profits, because the code generates more revenue than it costs to create. And there is nothing that ties that entity to a particular country, especially when the expenses aren't actually all in the same place. The product is created by huge teams spread all over the world. Which corporate entity in which country "owns" the profits is completely arbitrary. So they choose the one in the country with the lowest taxes. What would you expect?
Technical reasons why that doesn't work - basically it makes it too easy to avoid all tax by keeping the money in corporations.
What we need is a unified global tax regime for international corporations so they can't play off each countries tax loop holes.
You could leave it on the company's balance sheets forever, but that's pretty stupid, especially if you're trying to avoid taxes, as then you just get none of the money instead of most of it.
Why not just tax the people that make up the corporations? They have to spend 51% of their time somewhere, and all taxable stuff winds up in their hands (don't tax reinvestments), so figuring out their tax obligations is simple, relatively.
In practice the IRS will treat use of the yacht as taxable income paid to the user.
In fact, eliminating corporate income tax would discourage this, since it makes alternatives (namely taking a profit and reinvesting in the business) cheaper.
Which companies did that? Can you provide a link to more details?
A easy solution is to admit that creating ethereal entities is a stupid idea, get rid of it, and just has owners and investors. It would scare away the larger corporations, but it would make life much easier for everyone else, eliminate a bunch of complicated laws, and make international trade much easier since you then only deal with corporeal beings.
The VAT is OK as long as it is fixed and low (10-12% without discounts etc.), the issue is with corporate taxes.
Source: http://wyborcza.biz/biznes/1,100896,15540136,Podatek_od_przy...
For all governments? UK corporation tax receipts were £40B in 2013-2014, to be matched there would have to be over 4 trillion pounds in revenue to tax. GDP seems to be less than half of that. While you're providing a source, does this extend to other countries? What other impacts are there? Does everyone need to switch over to this approach at the same time?
Are small businesses selling in a chain hurt because there are multiple sales, therefore promoting huge single companies where there's only one sale?
> The VAT is OK as long as it is fixed and low (10-12% without discounts etc.)
Well, that's not what happens now (UK is between 0 and 20%), so again you're glibly making huge changes to large tax setups without looking at the consequences. Increases to basic staples would hit the poorest harder, for example.
GDP is total INCOME not revenue. GDP is total value of FINAL product, so all steps in the shipping chain are not calculated, just the last one.
>Are small businesses selling in a chain hurt because there are multiple sales, therefore promoting huge single companies where there's only one sale?
SMBs are actually the ones that will profit from this the most. Since the tax is on all revenues and there is no tax credit, the tax amount on final product between large shopping chain and small shop is rather small. Large chains undercut small shops now by using advanced accounting, something that small shops cannot afford to do. This way of taxation was used before in communism to some extent to help to ease tax burden. It was quite successful - and now would be even better with country-wide usage of banking to handle revenues rather than cash.
The amount of sales does not matter - only thing that matters is the amount of middle man in the shipping chain. Small shops would be encouraged to get products from local producers and directly from warehouses that avoid middle man in order to save on taxes. This would encourage direct transactions between farmers and vegetable shop owners for example boosting local markets and distributing employment more evenly. Large companies would need to fight the market with higher quality products, better marketing and unique products - driving technology up.
>Increases to basic staples would hit the poorest harder, for example.
With overall products being cheaper and local markets being boosted, the distribution of wealth would be easier. Also government instead of reducing VAT on certain products which creates a lot of creative accounting by corporations, could for example provide "food stamps" for certain products to the poorest. Additional £25 a week in food stamps for groceries from government to poorest families would have way better affect than decreasing tax equivalent to £25.
There's a reason why it's stupid and complicated, it's a political and economic compromise. Compromise is exactly why it's ugly. There is no possible meritocracy here. It won't ever happen, it's politically untenable.
Also, corporations have fought to be recognized as persons when it comes to political free speech, so tough noogies they can pay tax like a person too.
Don't know what it is Italy's got going for it, but they're doing something right.
Not sure if the article brings up the same discussion and conclusions as the Forbes one though.
p.s.: you should use microadblock origin over ABP -- search past HN discussions for why it's preferable :)
Edit: ok I also get the issue after I clear all the cookies for forbes.com. I added a new filter to fix this.
So they negotiated that down to about 40%. Yes, that's how it works for the big guys, they get to negotiate their taxes.
I'm also sympathetic to the argument that the United States should lower its corporate tax rate, in exchange for corporations actually paying at that lowered rate, but because U.S. politics are broken, this is never going to happen. The next best thing is legal judgments against tax dodgers, and I'll take it.
Next up (I hope) is a similar agreement regarding Apple, the U.S., and Ireland.
The primary goal is to get Apple to pay each U.S. taxes on U.S. sales: when Apple sells an iPhone in the U.S, the profit should be realized in the U.S, not in Ireland in a Irish shell company. Then do the same for all other countries, so Apple pays fair taxes on fair profits to the right countries.
Forbes has a good introduction: http://www.forbes.com/sites/leesheppard/2013/05/28/how-does-...
The linked Forbes article is a great introduction, but unless I'm reading it wrong, it covers how Apple avoids US taxes on foreign sales, not US taxes on US sales. How exactly are they avoiding US taxes on US sales?
The US practice of taxing entities (corporations and people) on their global income based on citizenship instead of residency is just stupid, so Apple is in the legal and moral right here in my view.
- Apple avoiding paying taxes on foreign income to the USA
- Apple avoiding paying European taxes to anybody
Your argument holds weight on the former. However, it obfuscates the second, where Apple pays taxes on its European income at a rate of 0% to Ireland. That's a true outrage.
Similar to basing a company in a US state without corporate income tax, and not owing income tax on sales made in other states. Though the difference is that Federal taxes in the US are much larger than state taxes, while there isn't a broad EU corporate income tax, is there?
Apple doesn't write the rules. It's ridiculous to criticise them for them.
Being outraged at Apple is like being outraged at the weatherman about the weather.
"ASI [an Irish Apple subsidiary] buys Apple products from a Chinese manufacturer, resells them at a “substantial” markup to other Apple affiliates and retains the profits, the report said."
[1] http://www.macworld.com/article/2039299/senate-report-apple-...
Not that they're the only ones to play this game. A FMCG company I'm familiar with does something similar by having billions in raw and finished good materials owned by a Switzerland-based subsidiary for tax purposes.
The article you posted however gives no evidence that Apple is actually engaging in such practices, or I assume they would already be under criminal investigation. The closest thing in the article you cited is grandstanding by members of congress. (Who aren't even being serious, Congress could easily fine or stop Apple if they actually wanted to do anything).
"By running nearly all its non-U.S. sales through the Irish subsidiaries, Apple also avoids paying taxes on sales in other countries, including the U.K., Germany and France, the report said."
From what I can tell, this 'double Irish' arrangement does not apply to US sales.
Edit: Neither the Forbes article nor the Macworld article are discussing US sales, only worldwide sales.