Microsoft Has Nearly $93B in Overseas Cash | Hacker News Reader

Microsoft Has Nearly $93B in Overseas Cash

businessinsider.com

45 pointscl8ton68 comments

This is a good case why the US should lower corporate taxes to a rate that is competitive with other jurisdictions, or just get rid of them all-together. Corporations don't actually pay taxes even when they do; it's the consumers who pay for them in the form of increased prices (tax is just passed on as an expense). Better to collect the tax at time of sale (VAT) - perhaps on a sliding scale.

Corporations don't actually pay taxes even when they do; it's the consumers who pay for them in the form of increased prices.

This assumes that prices are directly linked to cost of goods sold, and that firms have no pricing power whatsoever. Now, if every firm sold commodities, perhaps that would be true..

But firms do have some pricing power through vendor lock-in, the degree to which their product is differentiated from competitors, etc.

In Microsoft's case (for Windows, Office, and other products) there are no alternatives consumers are willing to switch to, and the price is not based on COGS, so a decrease in corporate taxes would only pad Microsoft's bank accounts.

Edit: shortened for clarity

> In Microsoft's case (for Windows, Office, and other products) there are no alternatives consumers are willing to switch to

Woa woa, when did you last visit a computer shop? OSX is a very viable alternative to Windows and consumers are very much willing to switch to it.

Turns out twenty-somethings in the City are an extreme minority. Huge amounts of mfst lock-in comes from the enterprise world. To move work between work and home virtually requires Office. I fought it for years until my IRB got delayed because the tables "didn't look right". At some point, $100 is worth less than just getting the damn research started.

It's an alternative, but they're not commodities. MacOS and Windows are highly differentiated and even have their own ecosystems. The situation is very different than that of two manufacturers of baking soda, for example.

Talking exclusively about PCs worldwide, in the last five years OSX has grown more than 100% from 3% to over 6%. However, also note that the dip in the Windows market share has been a mere 3-4%. In other words the parent's point is valid.

Lots of time, sometimes there is a little Mac corner, if one is on a big city.

Here in Europe, only for the consumers willing to shell out 1129 € over 400€, for a computer with non-replacement parts, get a Mac.

Specially hard in the countries were the average salary is around 1000€ and the minimum wage around 500€.

You need both, as this creates more loopholes.

var tax = 0.2

Company A has $100 Company A spends $50 building a product they sell for $100 Company A sells product for $100, now worth $133

Company B has $100 Company B spends $50 building a product they sell for $100 Company B sells product for $1 to company C in Belize, now worth $50.83 Company C sells product for $100, then moves cash back to Company B, now worth $150.83

Company B is worth more now in this case as Company B wouldn't be paying tax on bringing the cash on-shore. Company B will strike deals with other trade partners to lessen tax for everyone involved, especially when there is millions worth of savings to be had.

If the argument is that much of the value is created in the states, then that is already captured mostly in USA income taxes (after all, labor is a dominate cost for R&D).

The point is they're still avoiding paying tax they should be paying. I don't think the stance that one company should pay tax on their widgets while another company doesn't. Tax avoidance is robbing everyone.

They aren't, you are just being American-centric in saying they should pay tax in the states rather than invest abroad.

I'm not saying this is specific to America. If you look at corporations setup by these companies in other countries, ie New Zealand they paid $5.5m NZD in 2013.

Given the high tax bracket in New Zealand. For arguments sake:

1x iPhone 5S 16GB was $1000NZD + GST (which is paid by consumer). iPhone profit margins: 30% Profit per phone: $300NZD

Now, top tax rate in NZ: 35%

Tax paid on each phone in theory: $105 At $5.5 million, let's assume they only sold iPhone in New Zealand and we'll exclude all other products.

In reality there are more than 52,000 iPhones sold in New Zealand each year. Based on mobile market share, iPhones hold 30%. There are 2.5 million mobile users in New Zealand putting total number of iPhones at 750,000.

Hang on a second, at $105 tax on each phone, shouldn't they have paid tax of a total $78.8bn in New Zealand?

But to-date, the amount of tax Apple Corporation has paid in New Zealand is.. $27m

Don't you think there's something wrong with those numbers?

Oh wait no, because ACTUALLY Apple is just a company setup in Bermuda who pays other companies to make the phones and sells them internationally at 30% profit with no tax. In reality this is more like 11.5% because the bulk of their corporate-to-corporate payments are done through Ireland, but with larger companies this is funnelled through local companies at a 0.5% profit (to keep the lights on).

>or just get rid of them all-together

We should, indeed, eliminate taxes on foreign corporate earnings. Most of that money would wind up back here, in the relative safety of US banks & investments. A substantial portion of that money would go to paying dividends, which would directly generate capital gains taxes, and much of the rest would wind up being invested here in the US.

We would be doing what we should be as a center of innovation: importing cash from the rest of the world and using it to improve the US economy. Considering that today this money not only generates $0 in taxes, but does not benefit our economy in any way in terms of investment etc, this seems like something that even politicians could wrap their heads around. Yet, it is unlikely that it will ever happen.

Five minutes later the argument would be "why should we pay taxes on US earnings but zero overseas? Why discriminate against US consumers? Why are US products cheaper overseas?"

Yeah, it's actually very logical once people drop their emotionally charged attitude towards "the corporations". I'd rather see US corporate cash in US bank accounts to be spent on a mix of continued innovation, local job creation and dividends to investors.

There's the other side also - the US would effectively become a corporate tax haven. That in combination with our long standing excellent legal system, would likely be an impetus for foreign companies to incorporate in the US opposed to say Hong Kong or London.

You'd think the attitude of the "land of the free" would be "open for business" instead of so adversarial.

If tax laws are changed such that economic activity transacted within the US, among those present in the US, are taxed as being within the US, rather than using Double-Dutch, and Irish loopholes, to avoid taxation, then there's no need at all to reduce corporate tax rates. Rather, they can be raised to levels more consonant with where they were in the 1950s.

Taxes are a transaction fee. The benefits of corporate profits accrue most decidedly to those who own or participate in that profit stream: stockholders and banks, principally. Among whom you'll find an income and wealth distribution skewed remarkably upward from that of the population at large.

Consumption taxes are inherently regressive: the poor spend far more of their money on purchases. Without an offsetting credit, VAT only exacerbates the underlying inequity problem.

This is why it should be a progressive VAT. Essential goods have no to little tax (the same goods that say, food stamps would cover), consumer goods a higher tax and luxury goods the highest tax. Second-hand goods would have no VAT tax at at all, which is what low income earners should be purchasing in many cases.

Also, no tax system will solve inequality; the cause stems from other places (culture, education, government structure).

> This is a good case why the US should lower corporate taxes to a rate that is competitive with other jurisdictions

U.S. corporate taxes are and long have been lower than the OECD average.

Really? It's the highest one on both of these lists:

- http://www.heritage.org/federalbudget/corporate-tax-rate

- http://www.kpmg.com/global/en/services/tax/tax-tools-and-res...

You are confusing the highest marginal rate with the amount of tax actually paid. The term you want to google to inform yourself is "effective corporate tax rate".

This is relevant: http://www.forbes.com/sites/jonhartley/2014/08/25/burger-kin...

I wish I could use the same shenanigans that these companies get away with using to avoid paying their taxes. I could just imagine my conversation with the IRS:

"No, no, no, IRS, you don't understand! My employer didn't hire me. They hired my fictitious doppleganger who lives in the Bahamas, where there's no income tax. I license my name and know-how to him for a monthly fee. My invisible clone then does all the work remotely and earns the pay check. But, since we're really the same person, he should be able to transfer those earnings here to me tax free! Why should I have to wait for a tax holiday to use all this money? It's so unfair!!!"

These companies pulling this B.S. need to man up and pay their taxes like the rest of us.

If you lived in a different country for 3 months of every year, and you had a job, dual-citizenship, and bank account there, would you bring your money back to the US every time you came back so that the IRS could have their share? Or would you wait to spend it the next time you were away?

In the US we (individuals) pay taxes on our worldwide incomes. You'll have to file with the IRS every year and claim this income. There's no need to "bring your money back" for the IRS to get its share.

As usual, this is the key takeaway, imo:

"None of this is illegal. Far from it. A corporation owes it to its shareholders to keep its tax bill as small as possible."

I wonder if there's "tax evasion as a service". Register for the service, pass all your income to that company, get paid as its employee at a much smaller tax rate than your country.

I think that some countries make that impossible for physical persons, though.

It is not tax evasion; this money has probably already been taxed at least once. But the USA is very unique in making tax claims on world-wide income, so if the tax rate abroad is lower than the tax rate at home, you are supposed to pay the difference when you move the money back (the converse isn't true, however).

It might be true for some of it, but all these companies are well known for using european tax codes loopholes[0] and pay little to no tax on this money

[0] http://en.wikipedia.org/wiki/Double_Irish_arrangement

It's still not tax evasion.

iirc there was also something called the Dutch Sandwich that was recently made unavailable.

Sorry, s/evasion/minimization/.

Relying on the exceptionally thin cover that an action is technically not illegal because it's in conformance with the laws you've paid to have written and passed with the wealth you're hoarding by way of those very laws is not a very intelligent line of reasoning to pursue.

The art of legal and financial manipulation to socialize losses, privatize profits, to artificially move transactions to jurisdictions with favorable tax laws, and then lobby for eventual tax holidays to allow for tax-free repatriation of those funds may fall within the techncial gloss of "legal". It's not moral, ethical, fair, nor economically or democratically defensible.

Self-reply: Having watched votes on this comment bounce around quite a bit over the past few hours, I'm curious as to just what it is that seems to engender a fairly strong split of opinion on what I've written here.

It's not tax evasion.

And all of that money was earned overseas. It is up to the company to repatriate it or throw it back into overseas operations. This is kind of fair: if say Germans pay money to buy Windows, why not use some of the profit there in Germany rather than bringing back to the states?

Because it wasn't earned overseas in the way you're suggesting. It was "earned" overseas. Often companies route sales through overseas shell companies. See the StarBucks debacle in the UK. Microsoft's explanation of them being a "global" company is BS. They will wait for a corporate tax holiday to bring it back at a much reduced rate, or a chunk of it at almost no rate.

> It was "earned" overseas.

I work for Microsoft in Beijing doing R&D; I disagree and am kind of offended by your assessment.

what about all the copies of windows in use in non-US countries? Those arent considered global?

Right, and do you need to create a company in Ireland to sell copies of Windows in France? The money is most certainly funnelled into a select few "companies" set-up in very specific countries. This is classic big business accounting and perfectly legal. It's also utter BS to spin it any other way than trying to avoid paying taxes on the money.

This makes sense to me. If you make this money overseas... shouldn't you use the money in whatever nation you made it in to make that nation better ???? I think people who talk about taxes really miss this point. Because the taxes talk is all predicated on a foregone conclusion that bringing money to the US is the best thing you can do for shareholders. I'm not sure that's true.

In the case of Apple or Microsoft, most of the value (r&d) is generated in the US, so it would be fair to tax them there. Other countries already have sales tax.

Most? Microsoft has 128,000 employees worldwide, 61,000 of them in the USA.

If I understood correctly, the problem is that the money made abroad, is made by using the intellectual property owned (and presumably gained) in the U.S and some people think the U.S. should get a share of those profits.

However:

1) while it's true that good part of the actual work has been done in the U.S., great part of the value comes from the effort (marketing, sales, R&D, ...) that happens in the subsidiaries; it's not easy to quantify, but certainly those people are actually doing something, aren't they?

2) as far as I understood, the U.S. income tax is not paid until that money gets back to the U.S. In fact it stays abroad, deferring the tax payment. The subsidiary could use that money to invest and expand the foreign market, with indirect but substantial domestic benefits.

I believe the issue of tax loophole in the country where the actual subsidiary works, is a different matter; but I don't understand what's the problem per-se with having stashes of oversea money held by a foreign subsidiary of your company.

As someone who's from India, but lives in the Palo Alto area, this is an especially astute comment. America's still clearly the innovation leader in many markets, and I think it's fair to expect that many young people (if not governments) look to these corporations to do what's right.

It's hard to know what's right, especially in a global marketplace. But this is certainly a good option.

Regardless of fairness, in a time of high unemployment, the US government should encourage US corporations to repatriate the money and invest it domestically, since that's good for our economy.

What about the German, Chinese, Indian economies? Besides, do you know how hard it is to hire programmers in the states? Why not take advantage of programming talent in other countries by opening up R&D centers outside of the USA. Google also does this to a huge benefit.

Is Hackernews USA only? Some of these posts are confusing, like everyone is posting from and about the states.

> What about the German, Chinese, Indian economies?

This particular cash is not doing anything productive for any economy, except of generating interest and a bit of taxes upon it.

The cash listed in the article is Microsoft's entire overseas cash supply, including, I would rightly suppose, the money that pays my salary (since I work for MS outside of the USA). Are you saying that's not true? Or are you claiming that I'm not doing anything productive?

The money used to pay salaries, rents, equipment etc. is definitely negligible when compared to the vast buckets of cash just sitting around on Irish and other obscure bank accounts.

Shit, it'd be really interesting to see what would happen if MS/AAPL got the possibility to transfer their entire overseas cash into the US without taxes. Probably 100B$ could provide a massive growth...

> Besides, do you know how hard it is to hire programmers in the states? Why not take advantage of programming talent in other countries by opening up R&D centers outside of the USA.

No, the better solution (for America) is to also allow more immigration of tech workers to the US, who can be employed using that repatriated cash. Then those tech workers will create all kinds of service sector jobs that unemployed Americans can work in.

By "earned overseas", it is meant:

-- a U.S. customer bought software written in the U.S. in a U.S. store and used it in the U.S.

-- "Microsoft US" paid "Microsoft Tax Dodge Inc." a fat fee for the use of the "Microsoft" name, which it had previously sold to "Microsoft Tax Dodge Inc."

-- as a result of these two transactions, no profit was earned in the U.S. but a large profit was "earned overseas"

-- curiously, the particular place where the profit was "earned overseas" does not tax foreign income, meaning no tax will ever be paid on this profit "earned overseas"

This is a definition of "earned overseas" that only a tax accountant would agree with.

That is not true at all. Microsoft actually sells things in other countries...imagine that...

If you're new to this discussion of how multi-national corporations avoid taxation, you probably should avoid posting on the subject until you're up to speed.

http://en.wikipedia.org/wiki/Double_Irish_arrangement

Microsoft is - after finagling - showing billions of dollars in annual profits in a Bermuda subsidiary consisting of some paperwork in a lawyer's office. (And they are far from the only offender.) No, this isn't because Microsoft is selling billions of dollars worth of MSOffice in Bermuda.

http://www.businessweek.com/articles/2014-03-20/companies-of...

None of those links accuse Microsoft of that.

Edit: if you want to point out something that does, feel free, but don't sling mud without.

Your reading comprehension is really embarrassingly limited, since both links are all about Microsoft and other companies doing that. Or I suppose you are just lying in order to troll. Not sure what the point of continuing here is; you are not entitled to your own facts.

Microsoft is so notorious for their abuse that they're attracting congressional reports on the issue:

http://www.businessinsider.com/apple-microsoft-avoids-taxes-...

Much of this is a consequence of the silly high corporate tax rates in the US, which are among the highest (by a huge margin) in the developed world.

In my opinion you could solve a lot of silliness by just harmonizing the corporate taxes/income taxes/capital gains taxes.

I am a shareholder in Microsoft who disagrees very strongly with this.

>Apple reported it had $137.7 billion in offshore accounts. The CTJ report also found that Cisco had $48 billion, HP had $38 billion, Google nearly $39 billion, and Oracle $26 billion offshore

Perhaps this is another incentive to start/incorporate companies in countries where larger companies have large cash piles and low taxes where a higher priced acquisition might happen compared to what would happen in the United States. I'm not sure, but Skype could be a good example here.

Don't they have to bring it back at some point if they want to pay that as dividends? (i.e. if the shareholders want that money?)

Or are they counting on an eventual tax break on repatriations?

Or acquire overseas companies. Microsoft has already done this with Skype.

I know this is oversimplified and there are unintended consequences I haven't considered, but:

Seems like a tax holiday, structured with the right incentives (ie X% must be invested in US-based stuff .. Real estate, jobs, etc.) would be a win for everyone. Politicians get an economic stimulus that doesn't directly cost taxpayers money from the budget/treasury, and the companies get to bring back that foreign $$ at a reduced rate.

No, it wouldn't be a win for everyone. What it's really saying is that once every decade or so, large companies that do not immediately need capital during that period, are free to repatriate their earnings at a reduced rate.

Meanwhile, smaller companies and companies that are less profitable (and need those funds to stay in business) are forced to repatriate funds at a higher/normal rate.

And that difference amounts to a subsidy to large established multinational businesses OR a surcharge to their smaller competitors (depending on how you want to look at it).

If the rates are so high that we need a tax holiday, then they are simply too high, and need to be lowered or restructured.

Is it possible for shareholders to force corporations to repatriate money back to US?

Within reason. They can elect a board who will tell the CEO to tell the CFO to make it so. This would probably require some sort of Icahn style activist investor shakeup to take place.

What incentives do shareholders have for doing this? How does getting a company to bring money back to the US and paying taxes on it benefit them?

Dividends.

LOLed at Tim Cook's photo on the article.

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