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Comment by cryptoz | Hacker News Reader

I still don't understand why companies avoid local taxes. It doesn't make any sense to me. Their fiduciary duty is to act in the best interests of their investors. Unless the investors all consider their best-case-scenario to live in a world of anarchy and lawlessness, it is obviously in everyone's best interest (financially and otherwise) to pay taxes as expected. Anything else is an affront to the structure of modern civilization.

It is not in the best interest of Apple shareholders for the quality of life in the US/California/etc to deteriorate due to missing tax dollars. Long-term, stable societies are much more useful for making money than a few billion in secret stash tax havens.

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By your logic, everybody should pay far more than the taxes they owe.

The honorable judge Learned Hand (yes, really) once said

> There is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.

As long as companies are staying within the bounds of the law, it's perfectly reasonable for them to keep their tax bill as low as possible, and one might even argue that (for public companies) they're required to do so in order to perform their fiduciary duty to their shareholders. If you have a problem with the "loopholes" that companies use to lower their tax bill, you should take it up with the people who make the law, not the companies that follow the law.

Stop posting this damn quote. Just stop it. It's disingenuous and dishonest in the extreme, and whatever relevance it may once have had is long gone. I'm so sick of hearing it in every Hacker News discussion of corporate tax, by ostensibly intelligent people.

Here's why: for tax regulations created through a transparent democratic process and a popular mandate, this quote might be proper, but that's not what happens. The kinds of tax loopholes that allow for companies like Apple to dodge their obligations are created through corruption and regulatory capture, and would be choked off in a heartbeat if the general public actually had any say in the matter. Worse, they're simply not available to schlubs like you and me, so it's not a level playing field. To set up these loopholes in a corrupt way, and then use this quote (and the broader attitude of "It's legal, so it's OK!") to gag people from complaining about it, is despicable.

> created through corruption and regulatory capture

Who is corrupt, who creates the regulatory capture, and how do the people in a democracy correct that? Or do we just throw up our hands?

We definitely should not throw up our hands! But one of the first steps in fixing the problem is to convince more people that there actually is a problem, and that it is not bad or hypocritical to oppose the use of tax loopholes. That's why I bristle whenever that quote shows up here; it's a deliberate effort to convince people that there's not even a problem. Hacker News seems to have no problem understanding that "legality != morality" when it comes to drugs, so I don't understand why it's so much harder to grasp re: taxation.

I think the quote is used to point out that Apple did nothing (legally) wrong by following the existing law. It seems to be appropriate.

Do I think corporations should be paying more in taxes? Sure. But Learned Hand's point is still worth considering, especially in a climate where many think everyone should pay more taxes.

I say, OK, you first. There's a line on the tax form where you can voluntarily pay more. Put your money where your mouth is, I say.

> I think the quote is used to point out that Apple did nothing (legally) wrong by following the existing law.

I think you're simply wrong here. The quote very clearly refers to morality, not legality[0], so I criticize it on moral grounds.

> I say, OK, you first. There's a line on the tax form where you can voluntarily pay more. Put your money where your mouth is, I say.

Funny you should bring this up! This is the HN corporate tax argument I hate second-most, after the Learned Hand quote. It's a tu quoque fallacy that's simply used as a gag order to pre-emptively shut down any debate on the issue, since obviously no one meets that standard.

[0] And even if it didn't, that's how it's used in practice when it's posted here.

Learned Hand's remarks are moral in the sense that he says there is nothing sinister (wrong or evil) in following the tax law by arranging your affairs to pay the least, and also that those who say it is immoral to do so are wrong (in the legal sense). But it was a legal opinion rendered by a Supreme Court justice. (Sorry, I don't recall the particulars of the case he was addressing.)

As to the tu quoque fallacy, that is a moral argument, not a legal one. If you want to pass laws that only target some but not others, there is a moral judgment there. If you argue against doing so by pointing out that the advocates of such laws would not like to have them applied to themselves, that is a reasonable response to such an argument to highlight the hypocrisy of that position.

The bigger issue is what is usually implied by the quote, which is a sort of naturalistic fallacy of law. Namely, that whatever is legal is moral, and therefore by implication changing the law would be immoral.

Yes, I agree. But let's not slander Learned Hand by attributing to him the intentions of those who quote him. In fact, compared to some more recent justices, I am confident that he would have filed outraged dissenting opinions in recent cases where the law made by representatives was set aside and, in some cases, new law was imposed from the bench.

The quote doesn't say that whatever is legal is moral. It makes a specific judgement that arranging your affairs to keep taxes as low as possible is not immoral, and it points out that everybody does this, rich and poor, corporations and people alike, and that demanding others pay more than their required amount is hypocritical and sanctimonious.

They didn't follow existing laws, this the point. They got a special exemption.

How are you supposed to figure out the morality of something when there are hundreds of pages of very special case rules for how to follow the tax law?

The entire point of having a representative democracy is that the representatives are supposed to look out for the best interests of the voters when making laws and regulations. If they write laws that benefit multi-billion dollar companies at the expense of everyone else than the representatives aren't doing their job correctly and need to be set straight by the voters.

The reason why the quote about tax minimization is BS is that the government still has to pay its bills. If every rich corporation is taking advantage of every conceivable loophole, and lobbying for ever more loopholes then the share of the bill starts to fall on the shoulders of everyone else, who doesn't have the time or money or both to lobby for special treatment. And that is unfair.

OTOH, there has to be some balance especially with the amounts of money we're talking about, or corporations will stop trying lobbyists and start hiring white collar crooks to hide their money. Which is why the proper place to settle this is in the legislature where everyone gets at least some way to sort out who pays and how much.

Couldn't the democratically elected representatives decide to spend less instead of more?

I am just curious, can you find a concrete example of where the interests of the people and state were put above the interests of the lobby groups of the big corporations?

Taxes are evil. Taxes are theft.

Or not.

You're not going to change behavior by moralizing to people who consider what you think is moral to in fact be immoral, or who at least are amoral about the whole manner as corporations tend to be. Since we can't seem to agree on the moral issues of taxes, all that's left is the reality of law, and the incentives of the law. It's posturing to think we can solve the matter by any other means than top-down legislation and enforcement, if indeed there is a problem to solve. (Corporations and individuals both have many arguments for why they are paying enough taxes already thank you.)

You're not going to change behavior by moralizing to people who consider what you think is moral to in fact be immoral

You're right. Which is why I think a fair solution is to round up people who think taxation is automatically immoral (along with the rest of the "if a government did it, then it is by definition immoral" brigade), drop them somewhere with no government and no laws, limited resources and maybe a bunch of weapons, and let them put their philosophies to the test.

If there are any survivors, then when they make their way back to civilization they might have a different worldview.

It'd be a fun experiment, but I'm occasionally revolted by the supposed outcome people seem to fantasize will happen. Income tax, the tax people usually complain the most about, is only 100 years old, how did anything get done before it? If you did the experiment with Americans I'd sooner expect to see something like a 19th century Mormon settlement than Somalia or whatever hellish landscape is in your mind.

I believe these cases should be judged on case by case basis. If the entity acts in bad faith I think it's fair to held it accountable. The laws should not be treated as a compiler. If you make billions profit in a country and pay no tax I think it's fair to assume that you acted in bad faith.

Whether or not you agree with the quote, that does not make it the slightest dishonest or disingenuous, and I'm feeling rather insulted by your comment. Apple did not create the tax loopholes, and there should be no expectation whatsoever that they should pay a higher tax bill than they're legally required to do. Not only because of their fiduciary duty to their shareholders, but also because paying more taxes than necessary puts them at a competitive disadvantage against companies that don't pay more taxes than necessary. As I said in my original comment, if you have a problem with the laws, take it up with the people who create the laws, not the people who follow them.

> a few billion in secret stash tax havens.

Fyi, Apple's stash of billions in foreign corporate structures is not "secret".[1] The IRS, the California State government, and all the Wall Street analysts know the money is over there in Ireland. In any case, Apple is complying with the law and paying the relevant foreign taxes (which are lower than the USA rates).

Since their revenue shuffling is not illegal, the more accurate criticism is if Apple is abusing legal loopholes. A lot of people feel they are.

[1]https://en.wikipedia.org/wiki/Double_Irish_arrangement

The money is not in Ireland. It goes to Bermuda.

The shuffling was illegal, that is why they are going to be made to repay billions. It was illegal for the Irish to not charge them the standard rate, not illegal for Apple to try to do a deal.

Bermuda? Can you provide a reputable source for this? As far as I am aware, Apple does not have any subsidiaries in the Caribbean.

The Bermuda connection is explained in the wiki link I cited.

That Wikipedia article describes the general strategy of the "double Irish arrangement" as employed by many multinational corporations, but does not actually describe Apple's international corporate structure specifically, and to the extent that it mentions Apple, is actually rather misleading.

I'm just going to go ahead and state, as a matter of fact, that Apple does not have any subsidiaries in Bermuda or any other Caribbean country, and anyone who believes otherwise is mistaken. Apple's international tax structure was thoroughly documented when they were called up to testify before the Senate, which you can read about in the Senate Subcommittee Memo on Offshore Profit Shifting and Apple[1], and while they do have several Irish subsidiaries, they do not have any subsidiaries in the Caribbean or move any money into the Caribbean.

This is further reinforced in Apple's testimony before the Senate[2]:

> Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US in order to avoid US tax; it does not use revolving loans from foreign subsidiaries to fund its domestic operations; it does not hold money on a Caribbean island; and it does not have a bank account in the Cayman Islands. Apple has substantial foreign cash because it sells the majority of its products outside the US. International operations accounted for 61% of Apple’s revenue last year and two-thirds of its revenue last quarter. These foreign earnings are taxed in the jurisdiction where they are earned (“foreign, post-tax income”).

[1] http://www.hsgac.senate.gov/download/?id=CDE3652B-DA4E-4EE1-...

[2] https://www.apple.com/pr/pdf/Apple_Testimony_to_PSI.pdf

Apologies, the British Virgin Islands, not Bermuda.

"Apple has assigned partial ownership of its Irish subsidiaries to Baldwin Holdings Unlimited in the British Virgin Islands, a tax haven, according to documents filed there and in Ireland. Baldwin Holdings has no listed offices or telephone number, and its only listed director is Peter Oppenheimer, Apple’s chief financial officer, who lives and works in Cupertino. Baldwin apples are known for their hardiness while traveling."

http://www.nytimes.com/2012/04/29/business/apples-tax-strate...

Baldwin Holdings Unlimited appears to be a shareholder, not a subsidiary, with one share of ownership (amounting to .01%) of Apple Operations International and one share of ownership in a few other of Apple's Irish subsidiaries. Aside from holding one nominal share in each of the Irish subsidiaries, this company does not appear to be materially significant to Apple's international operations, and I can find no evidence that Apple's international profits have been transferred to this company.

From what I can tell, Apple's money remains in Ireland, where they already enjoy an extremely low tax rate, and therefore have no reason to move it out. (Of course, this is why the EU is going after them now.)

    > Apple is abusing legal
    > loopholes

Which they have a legal obligation to do, or be sued by shareholders, right?

I don't know if shareholders would take the drastic route of sueing Apple rather than pressuring them to fire the CFO that didn't use every tax loophole and replace him with one who does. The big holders[1] of stock like Vanguard, Blackrock, etc could influence other shareholders to vote a certain way and elect a new Board of Directors... the directors then fire the CFO and hire one who channels revenue through Ireland so they can save billions of dollars. That way, they can compete with the other companies[2] like Microsoft/Google/Oracle/etc using the aggressive tax avoidance strategies to save billions.

[1]https://finance.yahoo.com/quote/AAPL/holders?p=AAPL

[2]https://en.wikipedia.org/wiki/Double_Irish_arrangement#Compa...

No they do not.

There is explicitly Delaware case law where shareholders sued company for not exploiting tax loophole.

Shareholders lost, company won.

There is no legal obligation for directors to maximise profit.

That's relevant to this case? Citation, please

Here is an amazingly well written explanation as to why, how and whats likely to come of it.

http://www.cumber.com/the-euro-dollar-riot/

Excerpt: The US has peculiarities in its income tax code that create these incentives for companies to avoid repatriation. The last time those peculiarities were lifted was in 2004 when then-President Bush allowed a one-year repatriation tax break. Over $300 billion flowed back into the US. Discussions about repeating that tax break are stymied in the current administration. Estimates are that as much as $1 trillion in repatriation would potentially occur if the Congress and the White House could agree on this issue.

With the election approaching this is one issue on which Trump speaks eloquently.

>The last time those peculiarities were lifted was in 2004 when then-President Bush allowed a one-year repatriation tax break.

What a disastrous moral hazard. The Bush family truly failed this country; they've left scars that will be felt for generations.

> With the election approaching this is one issue on which Trump speaks eloquently.

For those curious.

http://www.bloomberg.com/news/articles/2016-08-24/trump-s-of...

> I still don't understand why companies avoid local taxes.

I would invite you to sit in local legislation and see how local taxes are enacted.

Specific to this scenario, you have a Sovereign nation (Ireland) that has it's tax laws, which Apple (presumably) is complying with. Then comes a bigger body, the EU, challenging Ireland's original tax laws.

If you're Apple, what do you do? You're doing business in Ireland, so why not follow their tax laws which have obvious benefits.

> Their fiduciary duty is to act in the best interests of their investors.

And if you paid every bill collector who came up with their hand out without first doing due diligence, you would be in breach of that duty.

Apple specifically did business in Ireland because of tax break incentives.

Apple, You, Me, and anyone else have no obligation to pay anymore than the barest minimum taxes legally allowed.

https://en.wikipedia.org/wiki/Tragedy_of_the_commons

You are assuming that the government is going to use those resources better than the company avoiding the taxes. Not everyone agrees with this. From this point of view everyone is acting rationally, they only might disagree about one specific assumption.

Maybe government is not as efficient providing citizens with firefighters, teachers, and other services.

Maybe that companies are extremely efficient giving money to their shareholders.

But I don't see your point.

Both of those things are paid by municipalities out of property taxes. They would not be affected in any way by Apple's corporate tax dodges.

This... is not about the US. Things work slightly different elsewhere.

cryptoz post (the parent of this whole thread) was about the US & California.

To be fair, the only place a jurisdiction was mentioned was the phrase "US/California/etc", and "etc" would seem to include other locations.

This is precisely the tragedy of the commons. Apple's share of the tax base, while enormous compared to say mine, is still small. Furthermore, Apple's investors are a very small portion of the population, so only see a small part of the benefit of tax spending. So it's clearly worth saving a giant pile of money in exchange for very slightly worse gov't services.

I'd rather pay taxes to Apple, Tesla, and Google than the US government. At least they're competent.

So, in case anyone else hadn't noticed, we have reached peak libertarian techie madness.

What op doesn't realize is that he already does. It's called the CEOs salary and its sometimes 30000 times that of the lowest paid worker, who of course survives with welfare.

It's almost as if none of these guys have ever read any nightmarish dystopian cyber-punk fiction. Megacorps as stand-in for governments == bad.

Or they don't happen to think that cheap sci-fi pulp, which is the vast majority of cyber-punk, are a good argument for or against anything.

"We live on an internet created by corporate persons, our government is hacked by Russian spies, and virtual reality is real now, dear." - https://www.youtube.com/watch?v=gazACJ0R1Hc

Really? At least with taxes your money is likely to stay local (whether you agree with how it is spent or not), whereas with a multinational corp like Apple, Tesla or Google your money is just as likely to go somewhere outside the country.

AI and clean energy, once researched and developed, will never go away. The vast majority of government expenditures are for mundane transient things like Social Security, Medicare, Medicaid, and bombing brown people across the ocean. None of which will last past beyond our lifetimes.

> mundane transient things like Social Security, Medicare, Medicaid

You might dislike some of the details but aren't those things there to stop people dying, starving or living in misery?

Doesn't the entire developed world have programmes similar to those you've just dismissed as 'mundane and transient' - presumably to stop the masses rioting in the street?

Which libertarian paradise should we be looking to for guidance here?

> aren't those things there to stop people dying, starving or living in misery?

Ubiquitous AI and clean, cheap energy would be more effective in accomplishing the same thing. Not to mention off-world colonies would stop the human race as a whole from dying.

Ensuring you and I and Grandma enjoy a little more comfort and security throughout our measly lifespans doesn't seem as inspiring and deserving of, what, $2 trillion a year?

You act like the choice is "Send Granny on an iceberg or we won't have Nerd Rapture for Everyone". It's not an either/or here and there's plenty of money (government or otherwise) to do both. Also, hundreds of millions of voters would disagree with you, so I guess the choice is "pay SS tax" or "move to sea-topia". Godspeed to ya.

You just hear less about their fuckups, because they're less transparent than governments.

> I'd rather pay taxes to Apple, Tesla, and Google than the US government. At least they're competent.

Welcome to the Cyberpunk era, where nations are private entities ... I can't wait to play CD Project game by the way.

This world isn't the 80s and 90s dystopia I craved. This is far worse.

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