Apple to Pay £3.8m Tax on £1.2bn UK Sales
digit.fyi
digit.fyi
Now the article does mention Apple paid a £13m dividend to its parent in Ireland, which presumably is the money Apple is sheltering from taxes but even then that would only be roughly £1.3m in additional taxes, which admittedly would be a roughly 30% increase but still seems like a small issue.
Am I missing something here?
Nobody questions the right amount of tax is being paid on the declared profits. People question that the declared profits are actually the actual profits that the Apple operation generates in the UK without any sort of financial shenanigans, e.g. transfer pricing, etc ...
If you want to believe that these companies genuinely generate these kind of profit levels for their UK operations that's up to you, but I don't think that belief is based on evidence.
Is your argument that Apple is breaking this law, or that the UK law is simply poorly drafted? If the latter, have you contacted your MP?
I understand your concern about their profit margin, what I'm curious about is why you think any answers lie with Apple and not some branch of the UK government.
To be fair, my position varies between blaming the companies for the financial shenanigans and blaming the politicians for the messy tax code, not that I said anything about this in my previous post.
It appears that it's very tough for governments to stay ahead of the tax shenanigans of enormous multinational corporations with immense resources at their disposal.
The UK tax laws could certainly do with improvement, but in my opinion this is deeply unethical behaviour by Apple, even if it's difficult to establish whether it's actually illegal.
For example, suppose the UK operation needs money to buy inventory. One possibility is to sell its own shares. Then it has "free" money, zero borrowing cost, so it makes profits. Another possibility is to go to a lender and borrow the money at interest. Then the interest payments eat its profits.
That difference in treatment is intended. The idea behind the distinction is that loan interest doesn't depend on the success of the business. If the business does poorly the investors make less profit but a lender isn't owed less interest. If the business does well the investors make more profit but a lender isn't owed more interest. That's the difference between profit and interest.
But in this context the retail operation has highly predictable costs and revenues, and it's easy to adjust things in real time as sales volume increases or decreases. It's not like R&D where you have to spend for five years before you start making potential returns. So it's easy to borrow exactly the amount of money you need at market interest rates in an arms length transaction, and have the interest eat up your profits.
And none of that is "wrong" -- profits come from investment. If nobody made any initial investment into the UK operation and it had to borrow all of its operating capital, it's completely expected in an efficient market that the borrowing costs would eat all its profits. The expected return (profit) on investing no money is no money.
The problem isn't transfer pricing. The amount they're paying can be the amount you would pay in an arms length transaction and still have it eat all their profits. A retail operation that has taken no investment will legitimately have minimal profits.
Consider the possibility that they just not operate in the UK at all. They sell iPhones to a global retailer in the US, the independent retailer imports them into the UK and sells them to customers there. Apple sells exactly the same number of iPhones to exactly the same end customers, but now they're not subject to UK jurisdiction at all.
If that's all it takes to avoid the global "profit tax" then that is what would happen. But that makes no sense. There is no sense or benefit in making the global tax contingent on whether the final low margin retailer in your jurisdiction is a subsidiary or not.
But if you still want to impose the same kind of global tax even through an independent entity then you have to go all the way back through the whole supply chain or it can be trivially avoided again, at which point all you've basically done is reinvent VAT.
> or should we be dividing UK revenue by global revenue and demanding a tax on that percentage of global profit of Apple Inc?
This also doesn't work for another reason.
Suppose a company (not necessarily Apple) has two lines of business. One is high volume low margin manufacturing commodity hardware, the other is a high margin software development. The hardware business is responsible for most of their revenue but only a small fraction of their profits, because the margins are very low.
If they sell a lot of hardware but not a lot of software in the UK then your formula is unjustly allocating profits from the global software business to the UK where they sell mostly hardware, and then they would have the incentive to stop selling you hardware because the tax would be more than their actual margin on the hardware. But if you let them apportion profits accurately based on different lines of business then we're right back to them being able to shift them into whatever jurisdiction they like by engaging in high margin transactions in low tax jurisdictions.
There is no such thing as profit as distinct from revenue. All revenue is profit to somebody in the supply chain. If you want to tax profit throughout a supply chain, all you have to do is make sure that you only tax revenue exactly once and you're done. But that's still just VAT or sales tax. Pretending corporate income tax is something fundamentally different is just introducing exactly the sort of complexity that allows international corporations to avoid paying the same taxes that domestic corporations still have to pay.
You make an excellent point, and I agree fully. I wish more people understood it!
I'd also suggest an alternative way of looking at it: Rather than, as you suggest, taxing every dollar that is spent exactly once (thereby ending up with a VAT), you could instead tax every dollar that is earned (by a real person) exactly once. In this model all income would of course be treated the same. The current scheme where investment income receives a lower rate is required in order to make up for the cut already taken via corporate taxes, and once again, the second you start allowing different rates for different dollars earned by the same person, you end up with complex shenanigans whereby people find ways to shuffle dollars into the more favoured category. If you abolish corporate taxes, you can abandon special rates for investment income and capital gains, which removes the need for a ton of tax planning and structuring.
I'm not suggesting that as a good policy, I just find the logic interesting. Either way you look at it, corporate taxes create enormous scope for distortions and games that make us all worse off on net.
This has exactly the same jurisdictional problem, though? The "real person" will end up domiciled in Monaco or Panama.
Countries that currently have lax rules about tax domiciles do so in large part because it has no real impact due to other loopholes, but if you start to remove those, then tightening up residency rules will have a much larger payoff. Nothing stops the UK from saying that spending more than, say, 20 weeks a year in the UK makes you liable for UK income tax on your entire worldwide income (which is, very very roughly, the rule the US has).
That being said, it's always going to be easier to hide income, which is the practical advantage of a strong, universal VAT. It's much harder to hide consumption than income. (Or even better, land value taxes!)
One of the problems with income tax is that there are a lot of things you don't really want to tax. For example, suppose you don't want to tax childcare. With VAT, you simply don't require childcare providers to collect VAT. With income tax, you need every individual taxpayer to file a tax return at the end of the year identifying how much childcare they paid for, and they have to accurately predict ahead of time how much that will be or they may overpay or underpay their taxes.
It's also an invasion of privacy -- you end up having to tell the IRS all about your life in order to get the tax deductions, instead of just not taxing those things to begin with.
Meanwhile there are a lot more individuals than businesses, which increases administrative costs and overhead.
If it's all the same in the end anyway then why choose the wasteful complicated invasive one?
No, that’s madness.
Lol, no. Most of what they're sheltering takes the form of IP license fees. That's in the hundreds of millions.
Would they sell their products for 20% less; or would they decide consumers were happy to pay at that price so keep the price the same and keep the extra as profits?
I run a VAT registered business… I discount all the VAT I pay my suppliers against the VAT I charge my customers, and send the balance to HMRC
Every VAT registered company does the same - non VAT registered businesses and individuals pay VAT
The problem is the same as it has always been -- profit is easy to move around, so it ends up in the jurisdiction with the lowest taxes.
Then people get upset that they have billions in sales and are paying minimal taxes, but whose fault is that really? Nobody is preventing you from collecting tax on sales. If you instead only collect tax on profits, and the entity which is actually in your jurisdiction has minimal profits, blame yourself for choosing that tax structure, not the company for responding to it.
It's simple enough for a legislature to replace corporate income tax with VAT if they really want to tax based on sales. And if they don't then what are they complaining about? Would the UK really be in a different position if the US had a lower corporate tax rate and Apple reported its profits there instead?
Apple as a whole? Definitely not. Apple as in the UK division? I don't even know. Which is to say: also definitely not, but I don't even know if "profit" for a division of a company like that is a well-defined term. Profit is money received - money spent, but they don't make the phones in the UK, they don't design the phones in the UK, so how much should they have made?
Yes, stated profits are highly malleable.
The figures can be adjusted so that the company runs at a slight profit or slightly loss quite easily, by adjusting how certain things are accounted for, and how much profit is reinvested, distributed to staff, or paid to subsidiaries in tax havens. So just stating the revenue or profit isn't really enough to understand whether this tax is equitable or fair. It's definitely a grey area, and one in which good accountants could easily massage the figures.
The trick is that taxable profit is a quantity that can be 'optimised'.
A large international company like Apple is in fact many companies incorporated in many countries and as such they can 'move' profits to low tax jurisdictions by, e.g. having their Irish subsidiary provide services/goods to their subsidiary in the UK. That creates a cost for the UK company, whereby decreasing its profit and creates an income to the Irish company, whereby increasing its profit.
What kind of journalism is that ?? Unless the journalist has something on johny ive leaving because of apple shady tax schemes, what is the point of linking the two info ???
Profits should be calculated as the global profits (of the main form and all its subsidiaries), multiplied by the ratio of revenue in that country vs global revenue.
One reason this is not implemented by some countries is this: the USA (or Ireland) wish to tax Apple on as much of their their global profits as possible, and France/Germany want to tax Airbus on as much of their their global profits as possible, not only the profits made in these countries. And the no double-taxation principle means that profits can only be taxed in one place.
This applies to "Apple Retail UK Ltd" only. "Apple Europe Ltd" is a separate company. Both probably pay substantial "IP license fees" (not visible in the public accounts) to the parent Irish Apple (https://www.theguardian.com/world/2018/sep/18/ireland-collec... ), which hangs onto the money to avoid remitting it to the US where it would be taxed.
The problem is that Apple and other big corporations have lobbied all around the world to minimise the amount of taxes they pay.
That they follow the law becomes kind of irrelevant when they have helped to design the law.
Meanwhile, 130,000 people died in the UK because governments are cutting on healthcare. (https://www.theguardian.com/politics/2019/jun/01/perfect-sto...)
To be legal is not the same that to be moral or even sustainable in the long term. Someone has to pay for education and health care. If the middle class have to support everyone else, who will buy the next iPhone? Long term and capitalism are at odds. We need some more thinking into it.
This is a global regulatory issue which no country or union is big enough to solve solo.
It is not always the case that law makers had the intention to create most loopholes (sometimes they do) which are being exploited. You are technically correct but it might still be morally wrong.
Agreed its a global regulatory issue though.
Translation:
"We pay all that we owe (but only after we pay tens of millions of dollars to a dozen of the best legal firms in the world to find us the most cutting edge accounting and legal loopholes so that we can avoid paying most of what we really owe)."
This is Apple Ethics™ for you.
If I buy an iphone as part of a Vat registered business I can claim that vat back. So does that Vat get booked twice?
It is paid by consumers because they are the ones that ultimately pay it. Businesses that pay vat can claim it back so that the 'value added' only gets taxed once. Apple has added value, but so have others.
VAT is paid by businesses, who collect it on behalf of HMRC on any sales they make.
Yes, it adds 20% to the price of goods sold. But you could say this of any tax: if Apple was paying £200m in UK corporate taxes then it's a fair bet that prices would increase to compensate.
What is unfair, however, is the way that multi-nationals can shift profits across borders to low tax countries, putting them at an advantage relative to domestic competition who pay full UK corporate tax rates.
That unfairness is inherent to corporate income tax. Apple reports profits in Ireland because the rate is lower there, but if the rates were lower in the US or China or some other place where they actually have major operations and they reported profits there instead, the argument that the profits don't belong there falls away even though you have the same end result. And the same disadvantage for domestic companies compared to international ones.
The solution is to stop trying to tax "profit" to begin with and only tax the thing that actually happens in your jurisdiction (e.g. sales, employment, property ownership).
If you are trying to consider whether it is fair then you would dump corporation tax in an instant and start considering capital gains and dividends as normal income.
Taxing dividends as income seems sensible, capital gains should be distinct. You can make a loss for a start. The income tends to be lumpier, if you sell you business for $100k should you be taxed as earning $100kpa when that's your income from 5 years work?
It's easier for big companies to avoid it giving them an unfair advantage over their smaller competitors.
Also, at least in the UK, it's often used as a way for employees to avoid paying income tax. The tax authorities have been trying to stop this for years with questionable success.
The recent dividend allowance changes have I believe negated the advantages, that's what they're supposed to do at least, you're always going to have problems when the rules are written down, and people can choose when and how they pay themselves in a way that most advantages themselves.
We seem to be on the same page re corporation tax. I wouldn't say its the tax itself that's unfair, just the people 'avoiding' it.
You could equally say that if Apple didn't exist, people would buy a smartphone anyway, so the Vat would be paid anyway.
This is trotted out every single time and is a gross misrepresentation of Ford V Dodge and in any case cannot result in jail time.
This is extremely untrue. Apple themselves do a whole spiel about this when they talk about their environmental practices.
You can totally choose to not try to minimize your tax bill agressively. hundreds of thousands of businesses do this every year (if only by not having the army of lawyers and accountants and lobbyists that Apple does)
"It's legal" doesn't make it moral or ethical, and if you don't have a more nuanced defense of it we're totally within our right to judge Apple for it.
There’s new efforts to simplify the code and make it easier to ensure that businesses like Apple and Amazon and others have some tax to pay with the EU internet giants tax of something like 3% on receipts made in the EU is just taxed. Period. That for example could be a viable hedge against things like moving revenue generation to other countries.
These figures published are part of the public record of the company.