As it is, the most rational choice for them is to keep waiting for that amnesty/tax holiday unless they badly need the cash.
The EU made a move to close the loophole, apple found another.
I suppose there are loopholes with them selling IP assets to subsidiaries. But that's a different loophole than the one with them floating money around different countries. That money wasn't earned in America, so why are you trying to "repatriate" it? The better term would be "appropriate" it as it was never here in the first place.
Until it costs more for apple to pay interest on a loan (and/or penalties and fines) than they would pay in taxes, that money will never come here.
This is one of the very few areas where brexit might actually end up a net positive for the world at large.
I don't know that it counts as a "loophole" exactly that the system for corporations works the way it does. "Loophole" sort of implies an unintended consequence, when the reality is that the laws are written with the express purpose of making this type of tax avoidance possible.
In fact this already happens at the state level in the US: http://www.howmoneywalks.com/irs-tax-migration/
If the new cut cut cut tax plan passes and Californian's can no longer write off state income tax on their federal returns, you will see even more people leave California.
Never forget that you implicitly assumed this is because taxes on that segment are too high, rather than because various aspects of our economy were rigged to give those people a disproportionately high share of the total taxable income.
In other words: there are two ways to reduce your tax bill, and only one of them requires Congress to pass a law that puts you in a lower bracket.
This is an entirely handwavy and unsupported assertion, whereas stating the percentage of tax paid by the top 20% is a statement of fact with no implicit assumptions.
The people of a country get the tax system written by the representatives they voted for, and are complicit in any "rigging" of the economy.
What we have is a tax code that is layer upon layer of exceptions that came about when Group A supported a tax on Group B to pay for a benefit for Group A. Sometimes group A is in the top 20% (e.g. taxes used to subsidize an industry) and sometimes group A is in the bottom 20% (e.g. taxes used for food stamps). The former arises from things such as regulatory capture and the latter arises from uninhibited populism.
No politically active bloc of voters is innocent. Everyone from the rich to the poor are special interests and all are equally as guilty of "rigging our economy". Only a flat tax that treats no group as special is fair.
I'm curious what you think of Nozick's Wilt Chamberlain example: http://resources.seattlecentral.edu/faculty/jhubert/wiltcham...
In it, absent any tax code distortions, Wilt Chamberlain would end up with most of the taxable income through entirely voluntary transactions. If thousands of people voluntarily pay Wilt Chamberlain to be entertained and Wilt ends up with most of the income, is that a rigged system? Power law distributions in income are a naturally occurring phenomena. No rigging is required.
If the system is indeed rigged, it's rigged in favor of the 45% of Americans that don't pay any federal income tax. They get all of the benefits at none of the cost.
Do you support this practice though? Does any other country try to tax people for income earned entirely abroad? This puts US citizens at a disadvantage compared to citizens of say, the EU.
In practice, the US has tax treaties with most other nations that permit foreign taxes paid (on income that would be taxable federally, so not on wealth taxes) to be taken as a dollar-for-dollar credit. That means that any country with a lower tax rate than the US will generally not increase your overall income tax bill. If you owed $X to a foreign country and $Y to the US for work done in the foreign country, you pay $X to the foreign country (regardless) and if Y is greater than X, you pay $(Y-X) to the US.
Another rational choice is to relocate the company, a la Burger King's move to Canada [1,2].
Then the government can counter with tariffs [3,4]. It's a balancing act, though.
[1] "Tax inversion", Wikipedia. https://en.wikipedia.org/wiki/Tax_inversion
[2] "Let's Abolish The Corporate Income Tax", John C. Goodman, Forbes, Aug 26, 2014. https://www.forbes.com/sites/johngoodman/2014/08/26/lets-abo...
[3] "Trump takes aim at Obama's ban on tax inversions", Larry Light, Moneywatch, April 21, 2017. https://www.cbsnews.com/news/trump-taxes-corporate-transfer-...
[4] "Trump to keep Obama rule curbing corporate tax inversion deals", Reuters, October 4, 2017. https://www.reuters.com/article/us-usa-tax-inversions/trump-...
At the end of the day, there is no way you as a corporation can entirely subvert a nation state. I find it odd even that rational individuals think its possible against an adversary (typically with effectively unlimited resources) that can tariff you, dissolve your organization, and even jail you.
I'm pretty sure China would be quite happy if the US punishes Apple. That means that their protectionist policy towards Huawei will be even more effective. It is difficult for me to imagine other nations either not rolling out the red carpet to bring Apple over, or giving virtually tax free giveaways to their own companies to gain smartphone supremacy.
If the US put onerous taxes on the purchase of Apple phones that might be true.
If the US instead just collects a larger share of Apple's profits then Apple is going to go on exactly as before and just not deliver quite as much cash to its shareholders.
Wrong
>They’re both costs on apple’s revenue.
Hardly. Make zero profit and you pay zero tax on that profit.
Raising your prices in response to not making as much profit as you desired is not often a winning move in business.
Pretty much. It would render their stock worthless, but there's nothing about a 100% tax on realized profits from preventing a business from operating exactly as before.
>How would they build new factories, develop new products or hire more workers
With relative ease. Corporation tax is paid only on realized profits. Reinvesting earnings has often been a way of avoiding paying it at all, which is actually supposed to be a feature.
Yeah, but why would they? Why would any employee or manager have an incentive to do extra work to do so? Where do they get the money from, and more importantly, why would they reinvest the money if there is absolutely no gain to doing so, instead of paying it out to executives and shareholders and just cashing out?
> Corporation tax is paid only on realized profits.
I’m not sure you know what this means. A new factory is an asset, taxes are definitely paid on it if Apple buys a new factory with retained earnings. Are you claiming that a corporation can gain new long term assets without paying any tax unless investors put more money into the business or banks loan them money?
I'm sorry if I sound shocked, but I actually file corporation taxes for a small business. Corporate profits are taxable whether they get paid out to shareholders or reinvested into the company.
Coz they get paid.
>why would they reinvest the money if there is absolutely no gain to doing so, instead of paying it out to executives
It's true that with a higher profit tax you'd may see execs paying themselves higher and higher salaries and shareholders would be less inclined to prevent it.
>I’m not sure you know what this means. A new factory is an asset, taxes are definitely paid on it if Apple buys a new factory with retained earnings. Are you claiming that a corporation can gain new long term assets without paying any tax unless investors put more money into the business or banks loan them money?
>I'm sorry if I sound shocked, but I actually file corporation taxes for a small business.
So do I. Actually, the year before last I personally paid more in corporation tax than Facebook did (they paid £4,000).
I'm pretty sure they were taking neither investment nor loans.
There are countless examples of this happening, from the East India Company (who essentially ruled India for a century) to the United Fruit Company to present-day Shell Oil.
The first sentence there ends with "this clearly established Parliament's sovereignty and ultimate control over the company". So not a very convincing example of company independence over its host nation.
[Influence and control over another, relatively weak country is clearly a separate issue, but that's not always clearly separable from the host country's influence]
Only when there's almost no cost to leaving, which in itself is a tax loophole. If you declare that residency is about where you do the most business and has nothing to do with which letterbox has the word "headquarters" on it then their reaction would be limited to tantrums in Wall Street Journal op eds.
>or overseas corporations outcompete them
That's not how corporation tax works. It's paid on profits and does not affect the competitiveness of the firm.
>Only when there's almost no cost to leaving, which in itself is a tax loophole. If you declare that residency is about where you do the most business and has nothing to do with which letterbox has the word "headquarters" on it then their reaction would be limited to tantrums in Wall Street Journal op eds
Or to the other two arms of the disjunction in the text that you elided.
>>or overseas corporations outcompete them
>That's not how corporation tax works. It's paid on profits and does not affect the competitiveness of the firm.
It has to come from somewhere. It can come from owners, workers, or consumers. If it came from consumers (higher price or lower quality for products and services) this would affect the competitiveness in a straightforward way. [1] and [2] claim that it instead comes from owners and workers, with considerable uncertainty about the ratio between those. If it comes from owners, it increases the corporation's cost of capital – but only to the extent that investment is global. If it comes from workers, it decreases the ability for the corporation to compete for labor – but only to the extent that labor is global. So you're correct that it does not affect competitiveness in a sufficiently non-global economy.
[1] "Who Pays the Corporate Income Tax", Bruce Bartlett, New York Times, Feb 19, 2013. https://economix.blogs.nytimes.com/2013/02/19/who-pays-the-c...
[2] "Who Ultimately Pays the Corporate Income Tax?", Uwe E. Reinhardt (Economics @ Princeton), New York Times, July 23, 2010. https://economix.blogs.nytimes.com/2010/07/23/who-ultimately...
Owners. It comes from owners.
>If it comes from owners, it increases the corporation's cost of capital
There is currently an almost absurd overabundance of capital relative to aggregate demand.
The tax incidence falls on owners - probably at least until profit taxes reach ~80% or capital became magically very scarce for some reason that clearly doesn't apply to the present day.
I don’t think you’ve thought your solution through.
Corporations often need to raise money from investors, who will rationally only fund corporations that are expected to generate enough profit to produce a good enough return for the risk and so on. If profit is lower in some countries, that reduces the amount of money going to investment in that country as the potential reward has gone down. Therefore such companies are less competitive in fundraising.
But even in your personal purchasing, because you might shop around and even negotiate prices with sellers to get a good deal, does that make you an adversary of the economy? No, it makes you part of the economic structure, like the various corporate implements are part of various jurisdictions' tax structures, and the governments benefit from their presence in various ways, not just directly through taxes. That's what all the negotiations are based on.
Of course, I'm speaking of options that are legal, and it gets arguable (and sometimes flagrant) how some corporate actions get interpreted in that sense.
The idea that U.S. international tax policy is somehow hampering Apple is just not true. There's a big world out there outside U.S. borders.
What it is hampering is U.S. domestic investment and job growth.
A fine example is wire fraud. Existing fraud laws didn't really cover it, and innovative criminals made extensive use of the loopholes until wire fraud was criminalized. (For those interested, the Yellow Kid's autobiography is a fun read. [1])
Same thing with any sort of security hole, really. We'll always have on-line attackers, but that's not a reason to give up. It's a reason to keep plugging holes and improving state of the art.
[1] https://www.amazon.com/Yellow-Kid-Weil-Autobiography-America...
If anyone is knowledgeable in accounting and wants to point out some future loopholes that may arise, sure we can get those as well but... don't let the perfect be the enemy of the good.
On the other hand if you tell them, they get to look at your clever idea and decide to either allow it, change the rule for next year, or go to court saying you're wrong this avoidance method doesn't work so you owe taxes.
Though to be perfectly honest, I'd rather the state used the funds for the betterment of man, but then I'm a boring lefty
to bring business and money here, make the corporate tax rate very low (5%?) and have no writeoffs and no exemptions