3 Mindbending Ways Apple Dodged $13.8B In Taxes

[valo403]

Originally Posted by Five-hole

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tax codes of all the jurisdictions in the world overlap, the fact that the international tax system is about 100 years out of date, the fact that there are quite a few economies in the world that depend almost entirely on corporate registrations and fees and so charge no corporate income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.

I'm a bit confused as to how any of this counters my point that it's Congress' rules that allow it. If they wanted Apple to be required to pay increased US taxes they have the ability to make that happen. What you're talking about is Apple's likely response to avoid those increased taxes. No doubt that part of the reason the rules exist as is is the convoluted situation you've described above, but that doesn't change that this is outrage for political purposes above all else.

[oilyfan]

Originally Posted by Ducay

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.

I was replying to your assertion about using the cash to pay for the buyback, Apple didn't, it used the proceeds from the bonds.

[oilyfan]

Originally Posted by Azure

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.

I think companies are still scared of a double dip recession and are protecting themselves by sitting on the cash.

[Ducay]

Originally Posted by oilyfan

I was replying to your assertion about using the cash to pay for the buyback, Apple didn't, it used the proceeds from the bonds.

My assertion? My reply to you was my first in the thread. That said, your comment read as if you were saying the bonds were done to avoid tax.

[oilyfan]

Originally Posted by Ducay

My assertion? My reply to you was my first in the thread. That said, your comment read as if you were saying the bonds were done to avoid tax.

Ducay - that's exactly what I am saying. What other reason is there for issuing bonds when you have a hoard of cash on your balance sheet?

[jammies]

Originally Posted by oilyfan

Ducay - that's exactly what I am saying. What other reason is there for issuing bonds when you have a hoard of cash on your balance sheet?

You can make more money investing the bonds than you pay in interest?

[oilyfan]

Originally Posted by jammies

You can make more money investing the bonds than you pay in interest?

That does not make sense.

[jammies]

Originally Posted by oilyfan

That does not make sense.

Sure it does. Why use your own money when you can use someone else's at a rate of interest barely higher than inflation? Especially if you are a multi-national where you might get to write off the interest as costs for an overly-profitable division, and you are investing in capital projects you can amortize to further depress their profits long-term.

When people say Apple has "cash", it's not like they have a big vault full of it like Scrooge McDuck, where their executives go to swim in money. Freeing up that "cash" to use has an associated cost, so it can make perfect sense to leave it where it is and borrow money sometimes, especially with the historically low interest rates they can get.

[oilyfan]

Jammies - while your scenario is possible I don't believe it is the case here. Apple has a horde of "cash" or instruments easily converted to cash. The shareholders have been clamouring for the company to start paying it out. If Apple had a good use for the cash it would have reinvested it into the business, but what they are doing is admitting that it has no better use it but to return it. But knowing that repatriating this cash will cause a large tax hit, it instead issued bonds accomplishing the task without paying the taxes.

[oilyfan]

Double post

[Five-hole]

Originally Posted by valo403

I'm a bit confused as to how any of this counters my point that it's Congress' rules that allow it. If they wanted Apple to be required to pay increased US taxes they have the ability to make that happen. What you're talking about is Apple's likely response to avoid those increased taxes. No doubt that part of the reason the rules exist as is is the convoluted situation you've described above, but that doesn't change that this is outrage for political purposes above all else.

US: Apple, we're going to tax you 25% (or whatever the US corporate tax rate is).

Apple: No problem. We don't have any income here anyway because our licenses for all our stuffz are in Ireland and we gotta pay them all our profits!

US: That's not fair, you're overpaying! Affiliates have to pay a reasonable arm's length price for services or goods.

Apple: Oh, that's not our affiliate. It's this company in Barbados who pays royalties to this other company in Ireland, who pays another company in Ireland, who pays a company in the Netherlands, who pays a company in Luxembourg. Some of those are ours.

US: All of those are yours! C'mon Luxembourg, fess up.

Luxembourg, Switzerland, British Virgin Islands, Mauritius, etc.: Nope. No thanks.

Apple: Also, you can't tell us what a reasonable arm's length price is for a unique patent, so nyah nyah.

And on it goes. Rules already exist to enforce the payment of taxes way beyond what Apple is paying now. I suppose you could call it semantics and say it's still their rules that allow any of this to go down but I'm telling you there is no set of rules that any one country can enact to stop multinationals from doing what they're doing. It requires multilateral tax treaties, and it requires countries who have every desire not to cooperate in such things to sign them.

[valo403]

Originally Posted by Five-hole

US: Apple, we're going to tax you 25% (or whatever the US corporate tax rate is).

Apple: No problem. We don't have any income here anyway because our licenses for all our stuffz are in Ireland and we gotta pay them all our profits!

US: That's not fair, you're overpaying! Affiliates have to pay a reasonable arm's length price for services or goods.

Apple: Oh, that's not our affiliate. It's this company in Barbados who pays royalties to this other company in Ireland, who pays another company in Ireland, who pays a company in the Netherlands, who pays a company in Luxembourg. Some of those are ours.

US: All of those are yours! C'mon Luxembourg, fess up.

Luxembourg, Switzerland, British Virgin Islands, Mauritius, etc.: Nope. No thanks.

Apple: Also, you can't tell us what a reasonable arm's length price is for a unique patent, so nyah nyah.

And on it goes. Rules already exist to enforce the payment of taxes way beyond what Apple is paying now. I suppose you could call it semantics and say it's still their rules that allow any of this to go down but I'm telling you there is no set of rules that any one country can enact to stop multinationals from doing what they're doing. It requires multilateral tax treaties, and it requires countries who have every desire not to cooperate in such things to sign them.

Well then I guess it's a matter of semantics, because I wasn't arguing that any of that is incorrect (actually spent a couple hours at a cross-border tax seminar yesterday). At the end of the day the outrage Congress is showing is purely a political puppet show, they know the game but are pretending that Apple is somehow fleecing Americans.

[mykalberta]

This happens in Alberta as well. Companies like Safeway use a tax dodging measure called the "Ontario Shuffle" - and what would you know, the courts deemed it to be legal.

http://www.calgaryherald.com/busines...486/story.html

Also you would be surprised the number of companies in Alberta that are owned by pension funds and use their parent ownership to pay 0 taxes.