3 Mindbending Ways Apple Dodged $13.8B In Taxes

[Cowperson]

The investigators determined that Apple cleverly . . . . . .

Not a crime to be clever.

FYI, the USA federal operating deficit has declined more than 30% year-over-year as mandated tax increases and spending cuts take hold plus the economy is gaining traction, raising revenues further.

That trend will likely continue. These periodic global financial crisis/deleveraging periods typically average about seven years from start to finish. You're probably in the middle of year five. Corporations are in great shape, the average USA household debt has returned to about 70% of normal and now governments, the third pole in the tripod, are starting to get themselves under control.

Probably time to bomb Ireland until they change their tax laws though.

Cowperson

[jammies]

Using shell companies to move around profits might not be illegal, but it should be. This is the same trick movie studios use so that massively profitable films somehow "lose" money.

It'd probably be easier just to look at other ways of taxation, though, like ending income taxes and moving to consumption taxes only. I, for one, would be perfectly happy with a 25-30% GST if my income tax went to nothing at the same time. However I would suspect I would be in the minority there, as people would rather have invisible taxes than visible ones, even if the latter are more efficient and thus less of a burden.

[valo403]

Originally Posted by sclitheroe

It's a bit of a simplistic view to have though - the very same loopholes resulted in Apple's bond issuance to initiate the stock buy back, and the gov will tax proceeds on that. Anything that keeps money moving through the system benefits the system.

On a tangent, are they really loopholes? Seems like these companies that keep money offshore do so within the legal tax framework established by the government, so if massive loopholes existed, why wouldn't they be ammended? I don't know enough about this aspect of the larger story.

Nope, they're largely there by design. That is until they make the news, then it's a case of evil corporations taking advantage of hard working Americans.

[CaptainCrunch]

Wait until the story comes out that they use puppies and kittens as a primary ingrediant in their motherboards.

Do you think Sally Struthers will tear up as they feed Fido and Misss kitty paws into an industrial grinder?

[mrkajz44]

I'm not a US tax expert, but I am of the understanding that if Apple actually wants to bring the cash and profits back to the States (say to fund the massive stock buy-back it announced recently), the repatriated money is taxed at that time.

It seems to me the Ireland game is more of a tax deferral, rather than plan avoidance. Again, not a US tax expert.

[Northendzone]

i wonder what any countries financial picture would look like if it were to institue a "fair" and simple tax code.

I.e. a flat 15% (or insert whatever number you wish) plus the usual sin and sales taxes and everyone paid thier fair share.

[oilyfan]

Originally Posted by mrkajz44

I'm not a US tax expert, but I am of the understanding that if Apple actually wants to bring the cash and profits back to the States (say to fund the massive stock buy-back it announced recently), the repatriated money is taxed at that time.

It seems to me the Ireland game is more of a tax deferral, rather than plan avoidance. Again, not a US tax expert.

Except Apple just issued bonds to fund the dividends/buy-back, thereby avoiding the taxes

[Ducay]

Originally Posted by oilyfan

Except Apple just issued bonds to fund the dividends/buy-back, thereby avoiding the taxes

Understanding of taxes have you not. They still have billions of cash stranded around the world. Saying they avoided taxes by issuing bonds is relating two unrelated transactions.

[FanIn80]

Opening statement at the Subcommittee hearing, from Kentucky Republican Senator Rand Paul:

I am offended by the tone and tenor of this hearing. I am offended by a $4 trillion government bullying, berating and badgering one of America’s greatest success stories.

Tell me one of these politicians up here that doesn’t minimize their taxes. Tell me a chief financial officer that you would hire if he didn’t try to minimize your taxes legally. Tell me what Apple has done that is illegal.

I am offended by a government that uses the IRS to bully groups such as the Tea Party but I am also offended by a government that convenes a hearing to bully one of American’s success stories.

I am offended by the spectacle of dragging in here executives from an American company that is not doing anything illegal. If anyone should be on trial here, it should be Congress.

I frankly think the Committee should apologize to Apple. I frankly think Congress should be on trial here for creating a bizarre and byzantine tax code that runs into the tens of thousands of pages, for creating a tax code that simply doesn’t compete with the rest of the world.

This committee will admit: Apple has not broken any laws. Yet, they are forced into a show trial at the whims of politicians, when in fact; Congress should be on trial for chasing the profits of great American companies overseas. You haul before this committee one of America’s greatest success stories and you want applause?

I say, instead of Apple executives, you should have brought in a giant mirror, so we could look at the reflection of Congress because this problem is solely and completely created by the awful tax code.

If you want to assign blame, the Committee needs to look in the mirror and see who created this mess, see who created the tax code that drives American companies overseas.

Our corporate tax is more than double Canada’s. I never thought I would be complimenting Canada’s tax code – our tax code is double Canada’s. Our corporate tax is over ten points higher than Europe. Instead of saying theirs is too low, why don’t we set about to work that ours is too high.

Apple has 600,000 jobs they’ve created, American jobs and we want to drag them before this committee to chastise them. I find it abominable. Just in my state, we have $700 million in sales from Dow Corning. They make Gorilla Glass.

They were virtually out of business. In the 1990s, Apple struggled – if I had to guess, unfortunately, I didn’t guess enough to invest in Apple, but the thing is that in the ‘90s, people were worried they might go out of business. You know they had one computer that wasn’t doing well and then all of a sudden the innovation that came about. And we want to bring them forward and chastise them for their success.

A couple years, we did repatriation of foreign capital. If we want the capital to come home, don’t double tax it. We tax it 35 percent. Let’s tax it at 5 percent.

I have a bill that would repatriate profits from foreign companies at 5 percent and put it into infrastructure. Our country is woefully short of money for infrastructure. But you’re not going to get it at 35 percent— you are getting zero. Let’s make it 5 percent and create and infrastructure fund.

There are probably 70 votes for that in Congress but nobody will bring it up. Why? They saw, “Oh it’s the sweetener for overall tax reform, which is illusive and a hill too tall to climb that it never seems to get here.”

Why not tomorrow pass it? Why do you think people are frustrated with Congress? Because we don’t do the right thing. Everybody admits, even those that want to drag Apple before this committee, they admit that the tax code is our problem.

But if we had repatriation at 5 percent, then they would bring money home. Why don’t we just pass it? Instead it has to be revenue neutral, scored by the CBO – just pass it if it’s the right thing to do.

I would say what we really need to do is to apologize to Apple, compliment them for the job creation they are doing, and get about doing our job.

Look in the mirror and let’s make the tax code better, fairer, and more competitive world-wide. Money goes where it is welcome and currently our tax code makes money not welcome in our country.

Thank you, Mr. Chairman.

At least one Subcommittee member is able to identify the real problem at hand. As an aside, I still can't get over 35% repatriation.

[Vansmack]

I have always been slightly confused by the entire corporate tax outrage that seems to pop its head up around the internet. It is probably because I don't really understand what the hell is going on, but doesn't this just mean greater profits for the shareholders who will inevitably be taxed at a rate that is higher than the corporate tax rate? **

**I am a self-admitted moron who really doesn't know what the hell I am talking about.

[Cowperson]

Originally Posted by mrkajz44

I'm not a US tax expert, but I am of the understanding that if Apple actually wants to bring the cash and profits back to the States (say to fund the massive stock buy-back it announced recently), the repatriated money is taxed at that time.

It seems to me the Ireland game is more of a tax deferral, rather than plan avoidance. Again, not a US tax expert.

Many companies like this will patiently explain to you that they are global companies and no longer American companies.

So, the money might not ever come to the USA.

Cowperson

[Bill Bumface]

Originally Posted by Cowperson

Many companies like this will patiently explain to you that they are global companies and no longer American companies.

So, the money might not ever come to the USA.

Cowperson

They need a place to spend it, whether the US or otherwise, and there will be tax implications when that time comes.

They certainly won't suddenly start performing billions in R&D or manufacturing in Ireland.

It's very common to use this strategy to hold the money until it's needed, or gradually repatriate it during down years when the tax implications are minimized.

[MarchHare]

Can somebody smarter than me explain why we have corporate taxes at all? Why not move that tax burden to individual shareholders by reducing corporate tax to zero (thus eliminating the need to move money to shell companies around the world in a legal-but-sketchy manner like Apple and other companies do) but increase taxes on dividends and capital gains? That is, as long as the money stays in the corporation's accounts, where it is used to create jobs and fuel the economy, it is not subject to taxation. As soon shareholders gain on a personal level, then it is taxed.

I'm sure there's a really obvious reason why this isn't feasible, so I'm hoping someone can explain it to me. It seems to me there will always be a country/state/province that is willing to lower its corporate tax rates below everywhere else in order to entice businesses to relocate there, so isn't the logical conclusion to have a corporate tax rate of 0% but capture that revenue by increasing taxes on the individuals who personally gain from the profits of the company?

[mrkajz44]

I'd say the main reason there is not a 0% corporate tax is this would allow for indefinite tax deferral if the money is never taken out of the company. So if a company reinvests 80% of its profits every year and pays out 20% in dividends, only 20% of the company's profits will ever be taxed. The 80% could be deferred forever*

*Well, maybe not forever, but a long, long time

[sworkhard]

Originally Posted by mrkajz44

I'd say the main reason there is not a 0% corporate tax is this would allow for indefinite tax deferral if the money is never taken out of the company. So if a company reinvests 80% of its profits every year and pays out 20% in dividends, only 20% of the company's profits will ever be taxed. The 80% could be deferred forever*

*Well, maybe not forever, but a long, long time

Pretty much this. A reasonable corporate tax encourages the company to invest in it's employees and dividends instead of hoarding excessive amounts of cash.

[MarchHare]

What benefit is there for a business to hoard cash? If a corporation is sitting on billions of unspent dollars, wouldn't the shareholders demand it be either distributed in the form of dividends or re-invested in the company to grow the business?

Sorry if these seem like stupid/obvious questions, but it doesn't make sense to me why a business would amass money for its own sake. Individuals want to profit, and businesses want to grow; hoarding cash accomplishes neither.

[Five-hole]

Originally Posted by valo403

Congress is feigning outrage due to how bad this looks politically, but at the end of the day it's their rules that allowed it.

No it's not. It's the haphazard way the tax codes of all the jurisdictions in the world overlap, the fact that the international tax system is about 100 years out of date, the fact that there are quite a few economies in the world that depend almost entirely on corporate registrations and fees and so charge no corporate income tax, the fact that if any one jurisdiction tried to "shore up" it's international rules, highly mobile companies whose core assets consist of intellectual property can simply declare their income elsewhere, the fact that countries would rather undertax corporations than risk double-taxing them and having them set up shop elsewhere, that tax treaties are not unilateral policy instruments, the fact that some of the smartest people in the world have dedicated their careers to lowering income tax bills of large corporations by hook or by crook, ... and on and on.

This problem is among the most complicated in the legal sphere.

I know you're a lawyer, so if you've got time (har) check out the General Electric Capital Canada v. R. case on transfer pricing. Even companies that want to comply with international tax codes get dinged with massive reassessments followed by astronomically expensive and lengthy litigation. It's a complete mess and with the mounting political will to "do something about it" it's going to get worse before it gets better.

[Five-hole]

Originally Posted by MarchHare

What benefit is there for a business to hoard cash? If a corporation is sitting on billions of unspent dollars, wouldn't the shareholders demand it be either distributed in the form of dividends or re-invested in the company to grow the business?

Sorry if these seem like stupid/obvious questions, but it doesn't make sense to me why a business would amass money for its own sake. Individuals want to profit, and businesses want to grow; hoarding cash accomplishes neither.

Declaring dividends is a pain in the butt, and securing financing is even worse. It's way easier to have $10B in cash sitting around for R&D (or whatever) than to declare it all in dividends then have to go back out to the capital markets when you want to spend.

[Azure]

Originally Posted by MarchHare

What benefit is there for a business to hoard cash? If a corporation is sitting on billions of unspent dollars, wouldn't the shareholders demand it be either distributed in the form of dividends or re-invested in the company to grow the business?

Sorry if these seem like stupid/obvious questions, but it doesn't make sense to me why a business would amass money for its own sake. Individuals want to profit, and businesses want to grow; hoarding cash accomplishes neither.

Companies in North America are sitting on trillions in cash. I don't understand it either, especially when they could invest so much of it in R&D, or other stuff.

[darklord700]

The problem if we may call it a problem is that modern trade has become so complex that it is impossible to ascertain how much profits arised in which country as in Apple or any large multinational corporations.

Generally, the larger and the more widespread the company is, the harder it is to say how much profits are made from which country and the easier it is for that company to shift profit from a high tax region to a low tax one.