Owing to its source it doesn't sound like this idea is going to be popular on hacker news, in spite of its blatant rationality.
Apple is in compliance with our tax laws. The laws, not Apple, are the underlying problem.
In other words, for tax there is no distinction between the spirit and letter of the law. They’re one and the same.
That said, when it comes to most tax law the mischief rule doesn't apply (because in principle it needs to be dealing with a limitation of the common law). The golden rule rarely comes into play with tax law (though consider the case of murdering a parent and the consequences on inheritance tax, for example). So yeah, the literal rule almost always applies.
Should we force companies to repatriate all foreign-earned profits?
If yes, then the US will lose its economic advantage. No international company would be insane enough to incorporate in the US.
If no, then we have our current situation.
IMO the tax law itself is broken, not Apple’s response to asinine laws. Remember that Apple has not violated the law. I also agree with the comment you replied to - for tax law, there should not be a difference between the law and the intent. What is written is what needs to be followed. And right now Apple is following it to the letter of the law.
The GAAR takes the spirit of the law into consideration when considering whether the law has been broken.
The Ramsey Principle (first stated with respect to a case governing circular transactions) also raises the spirit of the tax law being superior to the strict rules based interpretation.
HMRC's essentially disagreed with the spirit was being followed in this case and Google paid up:
... then the US would immediately end up losing all it's multinational companies to less insane countries.
I’m not a tax expert but IME the people who are blaming Apple don’t know what they’re talking about. Only the US has such an insane attitude towards international profits.
And remember that there’s no loophole to close, unless the “loophole” is deciding what to do with your capital. Who is the US to tell Apple that its foreign subsidiaries must return their foreign-made profits back to the US?
Also remember that with our current laws, repatriating the money before a tax holiday is arguably a violation of Apple’s fiduciary duty to its shareholders.
Maybe repeating a string of specious arguments that have already been debunked or refuted elsewhere in the thread isn't the best approach for your brand-new HN account.
I admit I haven't provided much in the way of evidence. However we're talking about a complicated tax situation so it's hard to stick to the concrete.
Do you agree that the only way to "close the loophole" is to force companies to repatriate their earnings? I don't see another way to address it.
Right now the issue is that iff Apple repatriates its money, it must pay taxes. So Apple has been fulfilling their fiduciary obligations by opting not to repatriate (which would destroy 30%+ of the value, I don't know the actual number but I believe I am being conservative), instead choosing to take on cheap debt domestically to fund share repurchases.
Thus I don't see a "solution" to the "loophole" (obviously I don't believe it's a loophole because it's the law) that doesn't involve forced repatriation.
If there's something wrong with what I've said or something I haven't considered, I'm all ears.
They're looking for ways to close some of these loopholes that are keeping a ton of tax money out of the coffers belonging to We the People.
Please don't conflate "closing tax loopholes" with "making it illegal to operate internationally".
The "loophole" as far as I can tell is that a company can choose not to repatriate their earnings, which is completely legal.
Are you walking that back, and want to talk about loopholes now?
I do want to talk about loopholes. How do we close the "repatriation loophole"?
For obvious reasons, no other developed country in the world has a corporate tax system like the US. We should try to reform it, not make it worse.
A lower repatriation rate seems like a good idea to get money back into the US for local spending as well as collecting a bit in taxes.
There are no bugs, only features?
Also, the spirit of the law argument seems more like a pass to politicians for doing crappy legislative work. If you make proper laws, this shouldn't be an issue.
At a physics conference Wolfgang Pauli heard a talk that was so misguided that his comment was that “it wasn’t even wrong.” IMO your comment isn’t even wrong.
But right now that money isn't taxed at all. That money is what the Irish subsidiary owes Apple US for the license to Apple IP. So the Irish subsidiary isn't paying taxes on it, and Apple isn't paying taxes on it in the US because they are refusing to "bring it home".
That is why Apple is lobbying so hard for some sort of "tax holiday". They want to pay 0, nada tax on those overseas profits.
You seem to be missing this little detail.
I am not convinced that new laws are necessary, in fact, I think this just used to distract from the issue and to allow the polishing of that old chestnut about more laws creating more loopholes.
It is my opinion, but I do feel the argument that the problem is the law, and not the large corporations who can afford to flout them, is disingenuous. Apple is under no obligation to pay as little taxes as they can convince themselves is reasonable.
You don't just get to reinterpret the law because you don't like what effects it has. The courts are only really able to interpret ambiguities. Where the law is clear (and it is pretty clear here), you need to change the laws.
There are lots of other good questions, and it may not turn out to be the case that everything Apple has done is legal. For instance...
Is it legal for Apple to attribute all of their intellectual property to their Irish subsidiary?
Is it legal for Apple to avoid paying taxes in Ireland by sending the money to a fictitious head office with no physical location?
And so on and so forth.
https://blogs.wsj.com/briefly/2016/08/30/apples-irish-tax-bi...
The law says “if you bring your foreign-earned profits abroad, you must pay taxes”. (I left it vague because I’m not an expert but my understanding is Apple would be responsible for around a 30% or higher tax rate).
Apple says, “okay we’re not going to bring the money back at that rate. Instead we’ll leave it invested in liquid assets abroad and take on cheap debt in the US to fund our share repurchases”.
So what’s your proposal? Forced repatriation? I hope it’s clear why that isn’t a good approach.
Our international tax code is completely fucked. Apple’s not the problem.
Full disclosure: My portfolio is heavily weighted towards Apple at an average cost of $120/share
Once profits collect in Ireland, Apple moves the profits to it's "head office", which not only is not in Ireland, it's not physical in any way. Thus they avoid the bulk of Irish taxes. The EU is suing Ireland and seem fairly serious, at least in this case it looks like Apple will pay some of the taxes, eventually.
https://www.reuters.com/article/us-eu-apple-taxavoidance-cou...
Is this the only way they are avoiding taxes? I strongly suspect it is not and that they are breaking the law in more than one case.
I surmise that you're stating that the two are linked. That's fair. However isn't Apple already paying taxes on its US-sold goods?
This thread seems to specifically be about the repatriation side of things, and the only way to force repatriation is to...force repatriation.
It isn't clear to me. Why is that?
How many times do we have to reiterate the point that large corporations and the people who own them spend a fortune on lobbying sitting politicians and bankrolling their election campaigns, and that the controls on such spending limits have been systematically dismantled over the years, in decisions like Citizens United, among others?
Trotting out these facile arguments like 'it's not corporations, it's the laws!' without acknowledging this point borders on trolling. Could you please do your fellow HNers the courtesy of acknowledging what they're actually saying instead of just repeating simplistic shallow comebacks?
> The company specifically outlined in its filing that a strong focus of its lobbying has been for immigration.
> In addition to immigration, Apple’s government filing indicates lobbying for climate change, patent reform, accessibility, health initiatives, diversity, and education.
Seems like worthwhile lobbying to me.
Right. And we're supposed to eat that up. Why didn't they add happiness, rainbows, and kittens to that list.
Play many board games? I have. With any sufficiently complicated ruleset, there are always cheats, exploits, holes.
To have a good time together, players often agree to play in the spirit of the game, vs the literal rules.
An hour later, this statement is proven hilariously accurate given the number of "rules as written having loopholes doesn't mean anyone's breaking the law" replies to this post.
It's literally cheaper for Apple to store the cash outside the US and then get loans for the money they can't bring into the country.
That's just wacky. For a country that is incredibly pro-business and pro-corporate the USA is very strange on this front.
Part of this I think may actually be intentional, to prevent the accidental creation of technically-legal-but-obviously-exploitative loophole tax strategies. If it's fuzzy, you have to weight your risk of audit, your ability to justify your choice, and so on.
Anyway, in the corporate case there are also fundamentally difficult-to-define areas. For example:
Company A transfers its global IP portfolio to Subsidiary B. B is incorporated in Ireland, but is controlled and managed by directors based in a low corporate tax jurisdiction such as Bermuda, the Cayman Islands or Andorra; crucially, under Irish law, this characteristic renders B tax resident in these havens and therefore subject to their relevant tax legislation. Subsequently, B grants licences to exploit the IP portfolio to Subsidiary C which is incorporated and tax resident in Ireland; it is this link between two Irish subsidiaries which yielded the name “Double Irish”. C is the actual operative unit of the Company A: it owns real estate, it employs workers, it exploits the IP portfolio, it sells advertising and collects payments, ultimately generating earnings. Nevertheless, C does not make profits, as it has to pay royalties to B for the IP licences; crucially, B pays very little corporate taxes because it is based in a tax haven. Thus this structure allows A to shift all profits emerging from its IP portfolio to a jurisdiction where they will not be subject to a significant rate of taxation.
This scheme depends in part upon the ability of the company to set royalties and IP transfer costs at whatever they like, independent of the real value of the IP. Clearly this is not quite right, but what is the real value? Who determines it?
For example, what if they said that the taxable location of the entity was a function of the output of a quantum state? This is a grey area, but is even this enough for us to say that they are clearly just trying to pull the wool over the governments eye?
What if the literal interpretation create unfair loopholes?
Then you change the law.
Specific laws don't preclude the ability to use common sense and judgement, and the law shouldn't be expected to explicate every possible permutation in order to be enforceable.
How could that be the basis for an intelligent taxation system?
In the case of Apple, many employees are high-income individuals. One way to tax them is to raise Apple's effective tax rate, by closing loopholes. Another would to move these individuals to a higher bracket, and tax them directly on income. The latter would allow the tax system to target only those employees who actually are high-income individuals. I don't know how that plays on Hacker News, but it doesn't seem to be politically feasible.
Apple's individual investors are probably mostly high-net-worth individuals. (Apple might have more non-rich investors than a blue chip like GE does. I know quite a few middle class individuals whose only outside of funds are in APPL or TSLA. They have brand loyalty even if [with TSLA] they don't own the product. It's like playing fantasy football.) (The individual investors with the greatest number of shares are super-high-net-worth, of course[3].) To a progressive, it seems fair to tax them more, which taxing Apple effectively does. Those individuals aren't going to pay taxes on stock appreciation unless the capital gains exemption is rolled back. Now that Apple is paying dividends instead of just appreciating, raising the income bracket could be an alternative to closing the loophole.
My understanding is that institutional investors in general are largely funds, endowments, and pensions. Apple seems to be mostly funds[4]. Funds are probably held by middle and middle-upper class individuals with mutuals or indices in their portfolios. (The poor don't own stocks. The rich own them directly.) The loophole benefits them. [Big disclaimer: I'm a novice in how to interpret this, and I wouldn't be surprised to be wrong.]
[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...
[3] "Top Apple Shareholders for 2017", John Edwards, Investopedia, October 6, 2017. http://www.investopedia.com/articles/markets/120115/top-5-ap...
[4] "Apple Inc. Institutional Ownership", NASDAQ. http://www.nasdaq.com/symbol/aapl/institutional-holdings