Finally! I love Apple but taxes should be paid. There is a difference between legal and ethical and US companies should begin to understand that. So hopefully others will follow suit.
Apple and Ireland can count themselves lucky not to be additionally fined, since the likelihood that Apple's or Ireland's lawyers were unaware of the existing EU state aid laws are very slim.
Even if the above isn't true (not a lawyer) we cannot rely on ethics alone, it will have to be enforced by law, otherwise nobody will do it
There was a recent incident in France in which people protested outside an Apple store for them to "pay their taxes."
Apple wasn't explicitly breaking the law, however customers are entitled to vote with their wallets, and showing their vote will likely have some effect on the company.
Customers vote with their uncaring brains, which will pull out the wallets just as they did before.
I'm not saying that one protest will have a massive impact on Apple's bottom line; just that:
1. protesting is a sign that the tax issue is an area customers care about, and those out protesting are likely a very small minority of those who feel that way.
2. the act of companies' feigned goodwill for a net profit could extend to any area customers care about, including legal vs ethical tax practices.
I've never considered central banks printing money to acquire majority interests in public companies in order to compel them to pay their taxes while preventing shareholder actions against them for doing so until this comment.
I hear this argument often with tax avoidance and I'm not buying it. Has this ever happened to any company out there?
Well yes, but you know there's a shade of gray between engaging in complex, aggressive tax planning schemes and handing out unsolicited donations to the IRS.
A company's board is perfectly within its mandate to say it pays tax for its profits where it is incorporated, when the profits are made (and not delaying foreign profits in a tax havens). Because this is the very normal thing that almost all normal corporations do. The board is just as well within its mandate to say they do it for PR reasons to demonstrate corporate social responsibility.
For example, Nokia during its heyday happily paid a fair share of its taxes in Finland, eventhough they definitely had access and capability for all the tax dodging schemes in the world.
If Nokia had instead gone to the lengths Apple does to cut taxes and invested that money back in the company they might still be thriving as an independent entity today...ultimately generating far more benefit for the Finnish economy over the long run than being a shrinking Microsoft division.
It isn't anything more than a misleading misreading of corporate law.
Sure, this COULD happen, but it is so rare to happen that it is incredibly unlikely. And has there even been a case of shareholders suing for a company not evading taxes enough? I doubt it, since all companies DO NOT do this.
0: https://www.nytimes.com/roomfordebate/2015/04/16/what-are-co...
Activist shareholders are the bigger source of risk.
Has it ever happened before where shareholders have sued because a company was paying "fair" taxes?
Specifically for this case: there is no obligation to establish a super-complicated tax structure to lower your tax rate to 0.5%. Otherwise, 498 of the Fortune 500 would run afoul of it.
We probably can't rely on ethics, or, to use the term I prefer, "integrity" (doing the right thing even when nobody is looking). But that doesn't mean that we cannot fault companies for behaving unethically. If we expect people not to always exploit each others weaknesses in the pursuit of money, why not expect the same from companies? Corporations are people, after all.
I think Apple has enough market power to put shareholder return and tax benefits to its nation of origin at similar priorities. It would be interesting to see what Apple's shareholders would say, if asked.
But we can still make damn sure we expect ethical behaviour, and lobby for change where we can, and make our displeasure known through our purchasing habits and more direct communication.
I don't see this as an ethical issue on the part of Apple (or, for that matter, any other taxpayer). I don't think anyone does any soul-searching about their tax deductions, nor should they. The soul-searching happens when we decide what the taxes and deductions are in the first place.
All of those nations have significantly lower effective rates.
[1] http://money.cnn.com/2013/07/01/news/economy/corporate-tax-r...
[2] https://www.nytimes.com/2017/03/09/business/economy/corporat...
[3] https://www.politico.com/interactives/2017/35-percent-corpor...
Most countries don't tax their companies foreign earnings at all, so the rates don't even compare.
The real corporate income tax rate should be zero. There is no reason to tax investment, it's hugely counterproductive. Raise the capital gains and dividend tax rates to personal income tax rates, and eliminate corporate income taxes, you've eliminated double taxation and restored progressively to our tax system.
There is zero reason an 80 year old retiree living on a fixed income should be paying over 60% in taxes on her Apple dividends.
https://espnfivethirtyeight-files-wordpress-com.cdn.ampproje...
Apple's shareholders are currently subject to 40%+ total tax rates on dividends paid from US profits, and 60%+ total tax rates on dividends paid from foreign profits. Lowering the portion that's corporate income tax rates makes these rates far more reasonable.
Investment by the company in R&D, growth and training becomes more attractive in a higher tax environment.
But we are talking about investment in businesses by investors/owners. Imagine a successful US (California) company called Shmapple approaches you about funding a joint venture. You invest $10M for half of the shares in a subsidiary that will build a factory for a new product they've designed, they sell the resulting goods and split all profits with you.
So you ask, what will my share of the profits be? The company gives you very reasonable financial forecasts showing the factory should generate $3M a year in profit on average, grossing you $1.5M a year on your $10 million dollar investment, or 15%.
But wait, you say. I don't care about gross profits, only net profits after taxes. So you calculate it. First they have to pay California corporate income taxes (8.84%), about $260,000. Then they have to pay 35% federal corporate income taxes on what's left, or $1,180 more, leaving $1.78M (59%) left or $900k to you. But that's just the corporate level, you still haven't paid your taxes yet.
When the company pays you your share of the profits, you now owe income tax in your state, and dividend tax to the federal government. Lets say you also live in California, in the top bracket you average around 11%, or another $100k. And 20% for federal dividend tax, or another $160k. So you will net a little less than $640k, or a 6.5% after tax return on your investment.
But wait, it gets worse. Shmapple tells you that their business model is highly international. About 60% of the profits will actually be earned overseas, so they will also be forced to pay income taxes in every country products are sold in. So that's another 10% off the top. So you redo the math again, and now you only get $600,000 a year, or a 6% after tax profit (and you've lost $900k, or 60%, of your profits to taxes!).
So you say, hell no, I'm not funding that factory! I can make nearly that much risk free in treasury bonds, taking the huge risk on a new business for only an extra 1-2% a year would be colossally dumb.
So Schmapple says to you, okay, we've got a way to lower everyones taxes. Turns out we can defer the taxes on our foreign earnings if we don't bring them back to the U.S. We'll find a friendly country with an extremely low tax rate and deposit the profits there. And we'll wait for the US government to wake up and realize how awful their corporate tax system is, and pay the taxes then at a lower tax rate. In the mean time we can borrow against the foreign bank deposits and pay you dividends from that.
So you say, yea, even with all that hard work, my effective tax rate is still going to be close to 50%. You are just deferring, not avoiding, taxes, and when we pay them the future US corporate rate is still going to be pretty high, 20% or more.
So you make a counter-offer. Let's build the factory and incorporate the joint venture in Shmireland, a fair country across the sea. Sure the Shmirish might not be quite as good as workers as Californians are (maybe, maybe not, but they ain't much worse), but look at the tax savings.
Building in Schmireland means paying a 12.5% corporate income tax rate. Schmireland also doesn't tax world-wide income, just the income earned in Schmireland. We'll account for our profits being the same 60% rest of world (at an average 10% income tax rates), and 40% in Schmireland where we make the products. So our average tax rate is 11% TOTAL!. Now the net corporate profits are nearly $2.7M, and your share is $1.35M. After your California income and Federal dividend taxes, you will have around $960,000 left, or nearly 10% after tax. Now you tell Schmapple, do it in Schmireland and we have a deal!
This is what's happening in real life. If the U.S. tries to close it's "loopholes", say by no longer letting companies defer earnings in their foreign subsidiaries, they'll just make it even more attractive to invest overseas. It's already insanely more attractive now, how much do you think Samsung pays in taxes compared to Apple? It's Samnsungs biggest advantage!
In most cases though, as a non-US person it's the avoidance of taxes in the overseas countries that concerns me. It seems that many multinationals are finding creative ways to pay no tax in the UK. Starbucks, famously, but also amazon and others. Apple have this sweetheart deal in Ireland which amounts to a way to operate in the whole EU with no corporation tax owed. That's why both Apple and Ireland are in trouble here.
If you need to look at it in pro-business terms - it's skewed the playing market and left other companies less able to compete.
Hah! I meant either the playing field or the market, of course :)
Second, what Apple did was both legal and ethical. It had $200B in cash that it had already paid taxes on to the countries where it was earned. Ireland offered them a near zero tax rate on the interest it would earn if they deposited it in Irish banks. That was a great deal for Ireland, and a good deal for Apple, and hurt no one.
It hurt whatever country didn't participate in Ireland's race to the bottom, and would have been Apple's preferred base of operations when ignoring tax issues.
There isn't even a tax on bank deposits, in any country I know. So what, exactly, do you think this case is about?