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Comment by matt_wulfeck | Hacker News Reader

The question is why was there ever a dilemma in the first place. We were the only country to tax corporations this way, which made us incredibly uncompetitive -- but worse kept money from being invested in the US. This is great news for the USA and bad news for everywhere else in the world that would have otherwise received the investment. We should be doing everything possible to bring that money home.

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kept money from being invested in the US

Not really. Much of the money "kept offshore" is invested in the US[1]. Apple's money, in particular, is managed by their subsidiary in Reno called Braeburn Capital. It just happens to be owned by a Caribbean subsidiary.

[1] https://www.hsgac.senate.gov/subcommittees/investigations/me...

*An Irish subsidiary, that is now tax resident in the UK Crown dependency of Jersey.

Think for a minute about the circuitous steps Apple must take just to invest in the United States with overseas revenue. Everyone in the United States should see this as a huge win.

I haven't seen anyone here argue that it's difficult to invest foreign money in the US. Apple's only complaint is that they couldn't funnel the profits from such investment back to their US shareholders, without paying taxes.

Which should be really alarming. The money should go back to shareholders who then individually decide how to best reinvest it. Instead, Apple is making investment decisions on behalf of all of those people. Individuals deciding which endeavors are most worthy of investment is a very democratizing function of the market, and it's undermined by this state of affairs.

That’s the point. Being unable to pay profits to shareholders makes your business very unattractive. If Apple had directly returned its profits every year, over 60% of their profits would be paid to taxes.

Citation on the 60% tax rate?

Foreign corporate income tax, which averages around 8%.

CA Corporafe income tax, 9%.

Federal corporate income tax, 35%.

State personal income tax, 0-12%.

Federal dividend taxes 15-20%.

That money are the proceeds from Apples sales outside the US where they paid off Ireland to get essentially a 0% tax rate. No tax at all has been paid on these profits, and you are now asking for it to be transferred to the US for no tax either.

Now the proper thing would be for that money to be taxed in Europe, and the EU commission has been working on that to get Ireland in line, but right now you are essentially asking for the biggest company in the world to pay a 0% tax rate on their overseas profit.

> Now the proper thing would be for that money to be taxed in Europe

Of course Europeans like this argument, but is it really correct for those profits to be taxed in Europe? Did substantial value creation occur there? I'd argue not really, and at any rate Apple will have generated substantial sales, import/export, income tax revenues etc for those foreign countries in which they do operate. The IP that lead to these profits is however clearly mainly created in the USA.

I'm not stupid enough to pretend I have a good answer for this hugely complex problem, but it's clear that arguing that "the proper thing would be for that money to be taxed in Europe" is a gross over-simplification. When we talk about the EU we are talking about 28 separate sovereign States, each with their own separate tax collection laws and organisations. The body whose work that lead to those profits is for the most part 5000 miles away.

It's 5000 miles away, to the east in China or to the west in California? I think we can spend years discussing where that value is created.

From a purely practical point of view, Apple will only be able to sell their goods in the EU and pay no taxes on the profits for as long as they can keep finding another Ireland. And those seem to be in short supply in the future.

> to the east in China or to the west in California?

To the west in California. In China, Foxconn makes very little profit (ie. adds little value) for each iPhone they manufacture.

> I think we can spend years discussing where that value is created.

If you consider what would happen if Apple's EU sales operations were a separate company, it becomes clear which company would make the bulk of the profit (ie. which company produces the most value).

> From a purely practical point of view, Apple will only be able to sell their goods in the EU and pay no taxes on the profits for as long as they can keep finding another Ireland.

Why couldn't Apple just spin off its EU operations as an entirely separate company? Apple US would have a very strong bargaining position when selling iPhones - it could charge Apple EU a wholesale price which was very close to the retail price. Apple EU would therefore make very little profit and pay very little tax to EU authorities.

What is the mechanism by which it has kept money from being invested in the US?

If they bring the money back here to pay people or buy things in the us, they get taxed, but they don’t get taxed if they pay people in other countries. So it effectively makes the US more expensive for that money.

When Apple or Google had billions of dollars kept overseas like this, they could still invest it outside the US with no additional tax burden. So when these companies were building new datacenters or hiring new employees or doing any sort of investment in their business, there was essentially a 30% discount to do it internationally rather than in the US.

Not the whole 30%, they will get a credit for taxes paid overseas, though because different tax systems don’t match up very well, double taxation is inevitable without a decent treaty in place.

It’s actually 5 levels of taxation, and no treaty can change that. Foreign corporate income tax, us corporate income tax, state corporate income tax, federal personal dividend tax, state personal income tax.

To be fair Apple has over 90% offshore and over $100B US debt in addition. Versus Google has 60% offshore and less than $4B debt.

So equating the two is not really correct.

A lot of that debt is bonds where they borrowed against their own cash for tax reasons. Interest rates are so crazy low it's cheaper to borrow your own money than pay taxes on it.

If America is so noncompetitive why are 8 of the 10 biggest companies by market cap based in America? The other 2 are in china.

This is a logical flaw. It's like saying "You say that billionaire is wasting money on lottery tickets and alcohol. But if it's a waste, how can he have so much income?"

It's possible for america to be popular for other reasons, but for the taxation of international revenues to be a negative factor.

I think the point is does it really make the US "incredibly uncompetitive" -- the original claim -- or is it closer to what you said, "a negative factor"? I think the person you responded to would agree it's a negative factor, but by pointing out 8/10 of the top companies by market cap are US-based is evidence that the US is not "incredibly uncompetitive".

Ah, I should have read the original post being replied to more carefully.

The easy solution would be to tax all earnings worldwide equally, but that doesn't work either because then they will create a subsidiary in that country which will store the cash and the mother cooperation will have no earnings on it.

Actually thinking about it, this way of taxing is pretty much the same in every country in the world.

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