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Comment by DINKDINK | Hacker News Reader

Point of debate:

Why should Apple have the US government lay claim to the revenue/profits that it generates in non US countries?

From the article: "This allowed Apple to funnel all its sales outside of the Americas - currently about 55% of its revenue - through Irish subsidiaries that were effectively stateless for taxation purposes, and so incurred hardly any tax."

If you support the taxation, do you also support the IRS taxing the wages of expats living abroad?

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Doesn't it already? I've been under the impression that is one of the big "things" about being an American. You will always pay taxes to the US:

"If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside."

Per https://www.irs.gov/individuals/international-taxpayers/taxp...

EDIT: To answer your question, no, I don't like that, but I don't think "companies" should be exempt.

Yes, the US taxes the income of citizen's that live and work abroad. Those citizens' are taxed twice: once by the country they live in and again by the US[0]. From the article:

[0]: https://www.irs.gov/individuals/international-taxpayers/taxp...

You get an offset though for the foreign tax you paid, right? So you aren't taxed twice as much as you are just taxed at the higher rate of the two countries.

Up to a certain point. Above that point, not only do you have to pay the tax to the foreign country in which you earned the money, but you also have to pay American income tax on that as well. I believe the cutoff is around $90,000.

You can choose to either take a foreign income tax exclusion (up to the first ~100k earned), and deduct income taxes paid beyond that point (like paying state taxes), or get a credit for foreign taxes paid.

So if you earn less than 100k, you need to file US taxes, but will only pay the foreign tax rate. If you earn, say 200k, then you’ll pay at least as much as the US would have taxed you on that income.[0]

There are still absurd pieces of this law: for instance, if you buy a home using foreign currency, then sell the home for the exact same amount, but the foreign currency became a lot stronger, you owe US taxes on the change in USD to your home’s value.

[0] https://www.irs.gov/individuals/international-taxpayers/fore...

Yes it does already, and the US is particularly unique in this regard.

For the US to start taxing Apple's foreign income abroad is not like taxing an American living in Ireland (and even that is crazy). It's like if the US started taxing an Irish person in Ireland[1].

However obvious it is that EU Apple is a sock puppet of US Apple, directly imposing taxes on foreign companies operating in foreign countries would be met with retaliation. It is not a smart nor a profitable trade policy.

[1] This actually does happen: https://en.wikipedia.org/wiki/Accidental_American

>>For the US to start taxing Apple's foreign income abroad is not like taxing an American living in Ireland (and even that is crazy). It's like if the US started taxing an Irish person in Ireland[1].

I'm not sure I follow. Apple is an American company.

It would be more akin to the US taxing a dual American/Irish citizen living abroad. Which they do. You cannot just pretend not to be a US citizen when convenient.

Of course, typically you aren't taxed on the first $100k of income abroad, but likely businesses have similar carve-outs...

No, Apple US is a shareholder of Apple EU. The US can tax Apple US for whatever income they get from Apple EU, but they can't tax Apple EU

First some background... VATs (value added taxes) are pretty solid for distributing this money fairly between the national entities involved in producing this wealth. Currently companies cheat the system a bit to do the bulk of their value adding in nationalities that don't tax it highly (the famous putting stickers on computers in bermuda in apple's case).

I think it is fair for a nationality to claim that there is a certain minimum amount of our production we wish to divert to social causes, in that case I also think it is fair that, for products sold in that nationality the government can claim any shortfall in paid taxes on the value accrued to that point. Let's assume that China has a 10% VAT on 5% of the value, Bermuda .5% on 90% of the value and USA 8% VAT on 5% of the value. The tax owed to the US might be calculated by ignoring the first 5% of the value, since china already collected a sum exceeding the sum the US would collect, then the US would collect a 7.5% remainder tax on the middle 90% and a full 8% on the last 5%.

These collections would only be owed on products sold or incrementally improved in the US, any items that never entered the US could live by their own rules.

Regarding the IRS taxing the wages of expats living abroad, it follows much the same system. An expat is only required to pay the difference between the taxes they are paying and the taxes they would owe if they resided in the US, this is a silly rule that probably shouldn't be on the books since expats living abroad gain none of the benefits from their citizenship.

VAT is paid by customers, not companies

That's not entirely accurate. Companies do pay VAT, but then can deduct it if they're not the end users. This is unlike sales tax, where only end users are taxed (there's usually no sales tax payment in the sales chain).

Technically VATs are almost always collected from customers, and paid by companies. A higher corporate income tax will affect consumer prices too. The bigger difference is that VATs are taxes on consumption, and not on earnings which alters consumer and corporate incentives and behaviour.

As a U.S. citizen who has lived abroad, all expats have to report and pay back their taxes to the U.S. Given, there's a bigger exemption (I don't remember the exact number, but you start paying taxes at 40-50K).

So I agree, Apple as an American company should pay taxes on the money it makes abroad. And again, I would vouch for a larger tax break, but still pay on their income abroad - as expats do.

The US is the only country which does this though. From an outsiders perspective, it seems unreasonable. The rules have become significantly harsher in recent years. Banks may avoid dealing with Americans, and there is a lot of paperwork to prove you owe zero.

Although most of its sales are outside the US, I believe that in reality Apple generates the vast bulk of its profit in the US - specifically in California.

Let's say an iPhone is sold in the UK, generating a $200 profit. How much of that profit was really generated in the UK and how much in the US? The answer is to consider what would happen if Apple's US and UK operations were two distinct, independent companies: Apple in California would determine almost everything about the way iPhones are sold in the UK - where the Apple stores are located, what the stores look like, what their TV and billboard advertising should look like, what happens when a customer returns a product, etc. Apple US would then take this list of requirements and negotiate with a UK business partner. In that negotiation the UK partner has very little leverage - if the UK partner doesn't like terms Apple US is offering, Apple US can just find another partner. The UK partner then sells phones according to Apple's specification. The result is that the UK partner will have thin margins and almost all profit will flow back to the US.

Now perhaps I'm being hard on Apple's UK employees - maybe they are doing more than simply working to a specification given to them by their California colleagues. In this case it would be fair to say that a somewhat larger portion of that $200 is actually generated in the UK - so the total tax Apples pays on that $200 profit would be a combination of US and UK tax rates. But there is absolutely no reason why Irish tax rules should apply to the allocation of profit on the sale of an iPhone in the UK.

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