Easy answer then
They should be defined as tax resident both in Ireland and the US and taxed by both (retrospectively) and until such time as they put a rational tax arrangement in place of this sham.
Apple has been operating practically tax-free in Ireland since 1980, a former exec has claimed. The ex-Cupertino veep spoke out as the fruity firm was accused of being a "tax resident nowhere in the world" by Senator John McCain (R-AZ) during a hearing of the US Senate's Permanent Subcommittee on Investigations. The iPhone …
Correct. More than enough sitting around and bitching has been done about this. If the various governments involved actually ploguhed their energies into researching and closing these tax loopholes for companies based (or operating) in their own countries, they may have actually made some headway by now.
1. Good. Hopefully they close a few loopholes and we can see an end to PFI etc as well.
2. I never said it did, but Apple (like any company) has no requirement to be ethical; merely legal and hopefully profitable for their shareholders.
(And for the avoidance of doubt, the "shut up" in my comment was aimed at our gum-flapping, elected officials).
The problem is that laws need not follow the rules of logic. The US and a few other countries have so-called General Anti-Avoidance Rules (GAAR) that essentially state that it is illegal to game the system, even if you only use legal means.
This flies in the face of logic, but remember, lawmakers do not have a program to tell them that what they write does not compile…
Apple aren't under an obligation to pay dividends. They are under an obligation to provide a return on the investment. If that return is in the form of increased share price, that is as much a return as a dividend. In fact, in some cases in the US, boards have been sued because they paid dividends instead of pursuing business plans that would have expanded the share value and generated even larger share price returns. The issue being that increases in share price are not subject to the income tax the company has to pay, only the capital gains tax to which the dividends are also subject.
It has nothing to do with morality. I posted this elsewhere but it fully applies here, so apologies for the repost:
Let us suppose it turns out unbeknown to you, you had a rich aunt and you have found out about her because she has died and lawyers have contacted you to inform you she has left you a fortune. Let's say this rich aunt has dual nationality (not British). Let's say due to a some simple uncoordinated international tax rules and due to obscurity over her place of residence you have, within the rules, a choice as to the jurisdiction applied for inheritance tax on your aunt's estate. On the one hand you can choose the jurisdiction where you would pay 40% or on the other hand you can pay 5%. What rate are you going to choose ? Especially considering you have no particular allegiance to one or other jurisdiction (Apple is a US company, not British or Irish). Pretty much anyone who says "I would choose to pay 40% because it is the moral thing to do" is a liar. Moral in relation to your responsibility to pay inheritance tax where?
All senior company executives have a fiduciary duty to do the best for the shareholders they can. Despite what people want to think there is nothing deceptive or manipulative about Apple's tax arrangements. If the politicians don't like them they should do their jobs properly and change the rules.
There are ethically questionable tax avoidance schemes and the rule of thumb to identify them is if a company employs a complex instrument usually employed for purpose x, when there is no benefit from employing the instrument except to avoid tax. Examples include setting up complex rotating loans (loans being an instrument to obtain finance but providing a mechanism to exploit tax laws when one subsidiary provides a loan to another subsidiary in the group as a way to shift the "jurisdiction" of incurred costs and minimise corporation tax, rotating loans are renewed ad infinitum) and offshore banking in countries where they are doing no business and gaining no advantage from interest rates etc. but only tax advantages.
Google incidentally admits employing these questionable instruments. Despite what many people want to think (do no evil etc) what Google are doing *is* ethically dubious. Though, again, they are within the letter of the law.
"All senior company executives have a fiduciary duty to do the best for the shareholders they can."
This is a meaningless statement wheeled out from time to time to justify any and all actions by a company's board. "So the best" is generally undefined. I'm a shareholder and I need money fast to pay off the mob before they break my legs. Clearly the best thing is to sell all the company's assets and share the cash out between the shareholders. No? OK, how about if I'm a long term investor and want to see growth over 30 years by building a brand associated in the public mind with ethical actions and honest dealings? You don't like that one either? Well, how about....
And so it goes on. "The best" is totally subjective and varies wildly depending on the term of investment shareholders are interested in. As such it comes down to "do what the shareholders want to do" and that is the bottom line that the "All senior company executives have a fiduciary duty to do the best for the shareholders they can" bullshit is actually attempting to hide - people are making decisions to do these things to line their own pockets. No one is being forced by fiduciary duty to do diddly squat and the responsibility - and the jail time - lays upon individuals making conscious decisions to lie about what they are doing.
If a board tells the US that they're resident in Ireland, and tells Ireland that they're not then they are lying to someone and there's no need to even waste time working out who they are lying to - simply charge them and throw them in jail.
" simply charge them and throw them in jail." Sorry, old chap, it doesn't work this way - it's " simply charge them, _try them_ and throw them in jail _if they are found guilty_." And you can bet your boots that they can afford top lawyers at a lower cost than actually paying the taxes!
Meaningless to you perhaps, even more so because you misquote it, but quite meaningful to even the least capable lawyer who has passed the bar.
Management and Board (all of it, not just senior but only the top executives are typically held accountable because once you get too far down the chain there's no extra money to recover) have a fiduciary responsibility to the shareholders. "Fiduciary" means financial interests. No other. And if you don't take it seriously, you will be sued. I know this based on sitting on the Board for a 501(c)3 [not profit making to you Brits] where the lawyer brought this up every session because we were all "amateurs" in the field of corporate governance. And lawyers get antsy when the budget amateurs are handling approaches $1 million (I hear through the grapevine that they are now approaching $3 million).
Let me pose you a problem from the other side.
Let's say someone points out that, due to a loophole in the way the latest rape law has been drafted, it's actually, by the letter of the law, legal to commit rape in the town where you live.
The Law Lords confirm this unfortunate situation.
Parliament is in recess, and it's going to be at least a week before they can fix it.
Do you go out and commit rape, because it's not against the law?
If you're thinking "no", then I hope you can see that the argument "it's not against the law" is not enough.
And the duty of directors to maximise shareholder return, within the letter of the law, period, is not enough, and needs a modifier, eg "while still doing what 'twelve good people and true' would consider morally right for the human race, which includes paying reasonable taxes (for the sake of humanity), not trying to circumvent the intent of anti-pollution laws (ditto), only using suppliers that can show they treat their employees reasonably (ditto), [you can add your own examples here]"
I'm trying to show you that if you're used to saying "tough, the duty of directors to maximise shareholder return, within the letter of the law, period", that that is actually not enough, unless you're one of the people who would indeed go and commit rape in my hypothetical situation. (Are you?)
Because there's an unspoken clause in your current belief, which people don't like to face - you're supporting the idea that the "duty of directors is to maximise shareholder return, within the letter of the law, period, however bad for the human race it is" - and that's self-evidently something the human race should not be supporting.
So please stop supporting the idea that "it's the law, tough", 'cos there's more to it than that.
I agree with Steve your argument is a ridiculous comparison. However I understand you are trying to underline a point of principle and I don't wholly disagree with your broader point. However I return to the example I have already given you and ask again - would you personally voluntarily pay more inheritance tax given the scenario I outlined?
Higher tax isn't in and of itself a moral good. Indeed forced money transfer often results in great inefficiency and often becomes a handy excuse for people to not help the neighbour in need next door.
As it happens, I agree Apple paying virtually no tax in Ireland is a problem. However bear in mind there is stored up tax potential in those funds because when they want to move them to do something useful with them (e.g. to the US), then they have to pay tax on them. Cook is facing a very real headache that is a product of success and it is not merely a hypothetical problem. As soon as he repatriates the money, tax is paid and once tax is paid, if the money is needed somewhere else in the world for other Apple operations it cannot be transferred there tax efficiently. Why should all offshore funds result in US corporation tax being paid instead of say British corporation tax or Dutch corporation tax when there are also operations there and funds may be needed there.
The US has no moral priority in demanding payment of the tax.
Because most people don't operate trans-nationally, they simply don't get the extent to which any set of rules are quite arbitrary with regard to morally which tax jurisdiciton has priority. These are very real problems and *it is* the role of government to resolve them, not Tim Cook.
Irish politicians disingenuous to claim they have not contributed to this problem because there is absolutely no question they knew exactly what it meant to set up a near zero corporation tax zone. They knew it would result in many international businesses locating there and that is precisely why they did it. This is what disgusts me most about politicians. When they say something because they know the mass of the public only has time for the soundbite, and they know every time the public will "bite" on the claim "It's the fault of the greedy corporation making billions." So they deliberately mischaracterise because they only have to say it for the meme to stick. They know all too well how the dynamic of public opinion works and can be manipulated. It is one of the lowest forms of inauthenticity.
It is simply not realistic to expect Cook to cut down the potential of the cash hoard Apple have by billions because he personally feels more tax should be paid, but, eany, meany miny mo, let's pick the US. Governments need to coordinate to create a better ruleset than we have at present.
I don't know if you will believe me, and don't really care whether you do or don't, but in your hypothetical situation of the unknown aunt with lots of money and no connection to Britain, my calculation would go along the lines of a) which country did she spend most time in? If there is a clear preference, pay the tax there; b) If no clear preference is shown, find a way to pay the tax in both. After all, it is money I didn't know I was going to get, anything is a bonus, and being fair is a moral duty.
For the record, I do not claim tax back on anything I could - I regard the taxation system as generally fair, and actually think that income tax in the UK is too low, especially for higher earners (which includes me).
Every company in the world could do this but they choose not to because all rules can be worked around. In the US and UK, and other countries, we fund social and defence services from taxes. That is the purpose of tax. By actively working around the rules all you do is demonstrate lack of social responsibility.
"Have Apple (or Google or Starbucks...) broken the law? [Yes/No]"
In the Starbucks case, HQ have repeatedly told their US investors, on the record, that they are making significant profits in the UK, and therefore intend to continue expanding in the UK. Afaik it is illegal in the US to mislead the shareholders.
Round the same time they were saying this in the US, they were telling the UK taxman that their UK operations weren't making any significant profit, therefore there wasn't any significant tax to pay.
That may or may not be the same as what Apple and Google have been up to.
See any problem with that behaviour on Starbuck's part?
Significant profits *in* the UK or significant profits *from* the UK.
AIUI, The UK pay a "licencing fee" to Swiss Starbucks who then pay it to US Starbucks as profit having had the profit taxed in Switzerland.
If they're charging a lot to the UK for licencing then they can make significant profits from the UK whilst making a loss in the UK.
Starbucks is actually an amusing case. For when the accounts were pulled apart, it turns out that they really weren't making a profit in the UK. Add back in the royalty for the name paid to Holland, the premium on coffee beans to Switzerland etc and they still weren't making a profit.
The FT's alphaville did it once and Vince Cable had his department look at it as well: same answer both times.
Where was all the money going? Well, anyone who had read Ricardo on rent (or even Tim Halford's excellent description of it in "Undercover Economist", using the example of coffee shops)would say that it's all gone to the landlords. Who do, of course, pay tax on their rents 'coz there's no way you can hide a piece of land.
The reason that they could be saying something different to the shareholders is simply that tax accounting and shareholder accounting are not the same thing.
I suspect you the one loosely using the language in a filing. I expect what actually was told to the US investors is that the UK operations are generating significant net revenue and therefore they plan to continue expanding in the UK. They then told the UK taxman that they didn't have significant profit because they've invested that net revenue into expanding business. Typically this is an allowable business expense. And US investors will be happy with that because their shares will continue to appreciate in value, even if no revenue is taken as profit and returned to them after two taxmen take a bite out of the profits.
Frankly, to me that seems like a decent deal to the UK. They get more jobs as Starbucks expands, and they get more VAT revenue as more cups of coffee are sold.
"[starbucks] then told the UK taxman that they didn't have significant profit because they've invested that net revenue into expanding business."
Some folk might have given you and Starbucks the benefit of the doubt, but Starbucks misleading and entirely implausible use of transfer pricing means that Starbucks no longer deserve the benefit of the doubt.
"There's a tax that keeps on calling me,
Down the road is where I’ll always be,
Every buck I make, I’ll move out of reach,
Can’t stay for long, send me tax bills and I’m gone again.
Maybe tomorrow, I’ll want to settle down,
But if you tax me, I’ll just keep moving on..."
There. Fixed it for you.
I think currently the EU's finest are trying to figure if there is merely Tax Avoidance (can be immoral and not what intended but not actually illegal) or Tax Evasion (Illegal) or both and if both can be reduced.
But EU and USA need to co-ordinate and pressure Singapore, Caymans, Bahamas, Switzerland etc to have the same rules.
Stage one: Make everyone report earnings in Each country. Even Tesco when reporting UK results refuse to divulge Irish figures, lumping them into the UK figures! Sky Might be breaking VAT rules on Irish subscriptions.
I'll be surprised if some (many? all?) Large Multinationals are not technically doing Tax Evasion as well as Tax Avoidance.
Do you give the government more tax money than the law says you owe?
Why would anybody expect Apple to do so?
If you invested in Apple, do you want them to give more of your money to the government that the government says they have to?
If you don't like the tax rules, you should bitch at congress, parliament, the IRS, or whoever makes the rules...
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Do you give the government more tax money than the law says you owe
Obviously not, but I do pay the amount that's due unlike Apple, Google et al who by creative application of corporate residency and dodgy cross-border sales manage to pay a fraction of the tax money the law says they should owe.
If all companies actually paid all the tax they should then income tax could be dropped by one or two pence in the pound which would stimulate the economy a treat. I’m not saying the government would reduce tax, but they could.
Obviously not, but I do pay the amount that's due unlike Apple, Google et al who by creative application of corporate residency and dodgy cross-border sales manage to pay a fraction of the tax money the law says they should owe.
No, by creative application of corporate residency they pay exactly the taxes the laws say they should. If you don't like how the tax laws are set up, you shouldn't have voted in the clowns that set them up.
pay exactly the taxes the laws say they should. If you don't like how the tax laws are set up, you shouldn't have voted in the clowns that set them up.
1) I did not vote for this bunch of idiots we currently have in power.
2) The confusion here is the difference between the spirit of the law and the letter of the law, they may well follow the law to the letter (although some of the cross-border sales stuff might not be as legal as they might like) however they ignore the spirit of the law entirely.
DJO, you're wrong - they do pay what is due. They break no laws and they have a legal obligation to their shareholders to minimise their costs (within the law). NOBODY pays more tax than they have to.
I'm as angry as anybody else is about the low rates and financial gymnastics these companies manage to get away with, but the bottom line is that it is the line of responsibility goes like this
LAW > GOVERNMENT > (AS A DEMOCRACY) - YOU AND ME!
There are reasons that the tax rules are the way they are, and it's partly because the tax laws had good intentions. The idea was to stop double taxation, but then those clever accounts found legal ways of making that "no or low taxation" and the authorities did nothing about it, because basically every country has large companies taking advantage of it, and they are competing against other large companies in other countries, who are also taking advantage of it. If we changed our laws unilaterally then all we would achieve is ultimately putting companies like Vodafone and Rolls Royce out of business.
The laws need to be changed globally and I think thats what you are going to finally see happen in the next few years.
There is no legal requirement on any company to minimise costs, their only obligation is to run the company honestly according to the appropriate laws; profit and other performance issues are between the directors and the shareholders (owners) - if the latter aren't happy they can replace the directors as and when they choose.
In Apple's case it appears that shareholders have missed out on a lot of income over the years due to the way the company has organised its finances; presumably they haven't complained because they've done nicely out of the rise in the share price.
"Commercial expectations of directors
- As directors, you are generally expected, in the ultimate test, to drive
the bottom line and provide appropriate shareholder returns."
"NOBODY pays more tax than they have to."
Not true. Mitt Romney did exactly this for the US presidential election :D
In all seriousness though, anyone who does not declare every last deduction (or take advantage of every last tax haven) is technically paying "more than they have to" - and this does happen, all the time. Kinda tired of hearing that argument thrown about when it's backed by nothing.
" because the tax laws had good intentions."
How extraordinarily naive! the tax code is the way it is because big corp paid the gov for it to be that way. The only conceivable reason for anyone to create such a complex system is so 'clever accountants' can game it.
"DJO, you're wrong - they do pay what is due."
Prove it. My feeling is that even if you want to pay what is due (and they don't) when you're a large multi national it's probably impossible to work out what that amount actually is.
"They break no laws and they have a legal obligation to their shareholders to minimise their costs (within the law)."
No they don't. They have a legal obligation to act in the interests of the shareholders, and those interests are the subject of voting. It is completely rational for "the interests of the shareholders" to include "not being seen to be dodging tax in a recession and thereby alienating customers". There is no legal obligation at all to minimise costs if the shareholders think that doing so would cause long-term harm to their investments.
"NOBODY pays more tax than they have to."
Many many people do, in fact. I know I do. What you mean is that most people can't afford the time it takes to find all the ways of avoiding tax - legal or not - which they can get away with. Apple can.
I'm quite sure that if any country in the chain truly felt they were being taken advantage of, they would change their tax laws. The fact of the matter remains that Ireland (who seems to be the linchpin in the current arrangements) felt they would gain by changing the tax law to force Apple to pay more than they currently do, they would. By whatever calculus they are using, the Irish deem their law fit for purpose.
"If all companies actually paid all the tax they should then income tax could be dropped by one or two pence in the pound which would stimulate the economy a treat."
Don't you realise that they are stimulating the economy by not paying a tax, just like paying less income tax would stimulate the economy. The whole point is that a government can never stimulate an economy. That's because they only way they can do it is to spend money, but money they have taken from taxpayers. It's a lot more efficient for the public to do the stimulating themselves by spending their money as they wish than for the government to spend it on big wasteful projects like HS2 (which will only start years after the recession has finished).
The Axe, this is patently incorrect. Any government with monetary sovereignty need not exclusively spend money collected from taxpayers. Why, a few months ago, I’d even posted a proposal where a government could stimulate an economy on a long-term basis without using any such money, and even without increasing its debt. (And despite the tongue-in-cheek topic there, the same procedure could be used to solve more immediate infrastructure problems.)
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Can anyone explain why it is so high? You would have thought that with the influence they wield big US firms could have had this reduced. Does it vary by state? Are there special exemptions? Is it useful in keeping the upstart little companies in their place as they can;t afford the accountancy skills to work round it?
What's the deal?
Because nobody pays it - well nobody that matters
Instead of reducing it down to a reasonable level it stays high but farmers lobby for a tax exemption for farming - because it's vital to the national interest. Boeing lobbies for a tax exemption for aircraft builders because they are vital to the national interest, Ford because they are vital to Detroit etc
Modern high tech companies prefer to pay tax lawyers than lobbyists and just hide the money offshore
So lots of politicians get vital campaign contributions from lobbyists, they can tell their voters that they fought for the exemptions for whichever industry is in their state and the only people that suffer is small business that can't afford lobbyists - but who cares about them ?
Professor, in broad terms, the 35% flat rate of US Federal corporate income tax applies in two situations: either where a corporation has taxable income* of over $18,333,333 (for 2012), or for any “qualified personal service corporation”† with any taxable income at all. For other corporations, there are a series of tax brackets, much like those for individual income tax; the lowest bracket is at 15% (for up to $50,000 taxable income), and progresses through 25%, 34%, 39%, 34% again, 35%, and 38% brackets as taxable income rises.
The Federal flat rate can remain at its current level because the tax code can be used to reduce taxable income from its starting point of revenue minus costs. If you’re interested in introductory nuts-and-bolts details of minimizing US taxable income, you can download the instructions (as a PDF) for Form 1120, the US corporate income tax return, from here.
Each state can also have its own state corporate income tax, and there is no requirement that there be any sort of synchronization between Federal tax rates, brackets, exemptions, &c. and their state analogues.
An upstart little corporation like my own, which has never gone beyond the 15% bracket, is not likely to need to explore Double Dutch/Irish Sandwich shenanigans, since the overhead of setting up and maintaining these subsidiaries would far outweigh their potential savings in both time and money.
* — Please note that taxable income is not a synonym for revenue minus costs in the US tax code; applying the tax code to make sure that they’re not synonymous is how tax accountants earn their keep.
† — e.g. medical and legal practices; engineering, architectural, accouting, and actuarial firms; &c., where at least 95% of the corporation’s stock (by value) is owned by its employees, retired employees, or their estates.
Because just like the UK we've got enough professional activists that corporations have been deemed Evil regardless of what they do. So it's handy for the politicians to set a high tax rate to be seen as punishing the Evil Doers. Then they make exceptions for their pet companies who are Good Companies (TM pending). So many exceptions that neither the IRS nor the professional accountants who are supposed to provide advice know WTF the law actually is. Until you wind up in court and the last appeal at SCOTUS is heard.
Yes, it will vary by State. Hell there may even vary by county and city. And each of those districts may have as many exceptions to their general rules as the federal government does for theirs.
A mom and pop shop might be able to start up in most places. They can probably expand to a couple of locations. Start moving out of state (that'd be province in the UK) and things get trickier. The bigger you get, the more complicated it gets. But you have to be truly international to take advantage of the loopholes. The assumption is that as you get bigger you can afford more accountants and lawyers to work around the rules for you. Whether or not it is true is a whole different story.
That's my goal - to have a number of houses in different tax jurisdictions and spend my retirement in each of them - experiencing the 'eternal summer' and not being TAX resident in any one. I've been a net contributor to the tax pot all my life so far, so I will try and be a net drain on it in retirement. Fuck 'em.
It doesn't work for US citizens - you pay tax on your worldwide income.
You then get to deduct the tax you already paid abroad, which is often more than the US tax would be, so you don't actually pay any more to the US.
but although US corporations are citizens this somehow doesn't apply to them
Yet Another Anonymous coward, US corporations may be treated as legal persons, but no US corporation is a US citizen. US corporations can file IRS Form 1118 to see whether income tax paid to other countries can be applied as a credit to their US income tax bill.
Permanent nomad status.
But they'll only let you do this for a few years. They will eventually insist that you've got to decalre residency somewhere. Bahamas is a good idea: no income, profit, inheritance taxes. Horrendous, vast, VAT and import duties though. So be resident there but perhaps not live there very much......There's a weird bit of Italy surrounded by Switzerland that has an interesting system too.....
They are actually doing a remake of it called "The Biggest Hobo" - its basically the same show accept the dog now wears a black turtle neck and navigates using an iPhone with the obvious disastrous consequences!
The theme tune remains the same though "Maybe tomorrow iWant to settle down, Until tomorrow iJust keep keep moving on"
IBM moved my job to Ireland in the late 90's...they all go for the same reason.
Amusingly, Ireland did this to attract large amounts of business which otherwise wouldn't be there. It worked well but, before they could cash in by putting the tax rates up, all those businesses started moving to India.
If you attract the cheapskates, they'll always move on to the lowest bidder.
It used to be thought that a warm sunny beach and relaxed CFOs was the reason that companies in the Cayman islands and Dutch Antilles were so profitable.
Or perhaps the mountain air and triangular chocolate led Switzerland and Lichtenstein to be world leaders in corporate affairs.
Now we also have to factor in rain and Guinness.
Presumably if somewhere could be found that had mountains, hot sunny beaches and taste-free whiskey (with an e) it would lead to such managerial brilliance that all worlds problems could be solved
I see a lot of righteous indignation here, as if your next-door neighbor is only paying a couple percent in income tax instead of 30%.
But Apple is not your next-door neighbor. It's a corporation. All its income will eventually be distributed to its employees and investors and THEY will all pay tax on it. So how is charging an extra (corporate) tax justified in the first place?
Personally I'm an independent software developer. Due to local tax law I'm required to be incorporated and pay corporate taxes on my income, in addition to the personal income taxes I already pay on said income. It's double taxation, plain and simple, and I don't see the point of it or understand how it's fair. And if everybody who's angry about low corporate tax rates re: Google and Apple have their way, I'll end up with very little of my own income at all at the end of the day.
It is not double taxation unless you can't deduct the money your company pays to you as a company expense.
The reasons limited (liability) companies pay tax is that there's a simple principle that every taxable entity pays tax on its net income.
1) Calculate income
2) Calculate expenses
3) Calculate net income using (1) - (2)
4) Calculate tax on (3)
There are fancy rules around all of this for different situations and basically it's people who work that get shafted but the idea that limited (liability) companies shouldn't pay tax is utterly ludicrous.
"But Apple is not your next-door neighbor. It's a corporation. All its income will eventually be distributed to its employees and investors and THEY will all pay tax on it."
The problem is, not all income is distributed to employees and investors. For that reason it's more equitable to tax a corporation's income, rather than its expenditure.
Apple was worth $2700 in 1977. The corporation now has a net worth of $624 billion. Clearly, over the years Apple retained a smidgeon more income than it distributed.
"The problem is, not all income is distributed to employees and investors. For that reason it's more equitable to tax a corporation's income, rather than its expenditure."
Okay, I'll bite. Where do you think undistributed income goes, ultimately? If you think Apple is making billions of dollars that will never, ever be owned by anyone anywhere, then it's time for a cranial MRI.
"Apple was worth $2700 in 1977. The corporation now has a net worth of $624 billion. Clearly, over the years Apple retained a smidgeon more income than it distributed."
It has a *market cap* of 418B (not 624B). Surely you understand that's the current value of the stock they've issued, and is not under their control, and has almost nothing to do with the amount of money they actually raised by selling said stock? Better call your doctor about that MRI sooner rather than later.
Vastly and disproportionally increased money to executives, whilst both investors and productive employees are cut to the bone.
This is the con trick the executive class has managed on the rest of us, and, if you like, a perversion of capitalism. These financial decisions are no longer made by the actual investors - increasingly pension funds and the like - but they are made by their agents, who are other members of the executive class, and that have an interest in ever increasing executive pay at the expense of everyone else.
@AC : OK, I'll bite back ... Let me offer you two pieces of advice that you may find useful next time you feel the urge to share your thoughts.
Firstly, refrain from personal remarks - they are neither clever nor witty. Secondly, know something about the subject you write about. People are more likely to engage with you constructively and you will avoid the embarrassment of a public display of your ignorance.
You are obviously unaware of the fundamentals of economics, such as the distinction between net worth and market capitalisation. Perhaps you should read a simple accountancy book over the half term hols. It will stand you in good stead in later life when you grow up and leave school. In the meantime, keep quiet and let the grown-ups talk.
"You are obviously unaware of the fundamentals of economics, such as the distinction between net worth and market capitalisation. Perhaps you should read a simple accountancy book over the half term hols. It will stand you in good stead in later life when you grow up and leave school. In the meantime, keep quiet and let the grown-ups talk."
Look up "net worth" on any financial site (I recommend Investopedia--it came up first when Googling). It provides the obvious and correct definition of assets minus liabilities. Now look at Apple's most recent filing report for the period ending on Sept. 28, 2012. They have $176B in assets and $57B in liabilities, giving them a net worth of $119B. That is a small fraction of the $600B+ that you claimed. Thus the obvious assumption that you really meant market capitalization instead of net worth... I assumed that you misspoke and your numbers were only off by ~50% instead of a factor of ~6x. If you really want to personally attack me for giving you the benefit of the doubt in this way, I guess that's your call.
Anyway, this should all be obvious to even a casual observer since Apple has been in the news recently re: their plans to distribute ~$100B of their "cash" assets, since that amount is considered to be inappropriately excessive. Simple common sense indicates that they can't possibly have north of $600B+ of assets if everybody is so excited about this $100B. Besides, what assets do you think Apple could possibly have that are worth $500B? They are basically an electronics design company that contracts out the vast majority of their manufacturing. They have some office buildings, some data centers, maybe some contracts with manufacturers that are worth something... none of this could possibly amount to anything close to $500B.
BTW--I notice that between your insults and "advice" to me, you didn't answer my question re: where you think "undistributed" income eventually ends up... I'll give you a pass on that since it was a rhetorical question to prove a point, i.e., it obviously ends up distributed to someone and taxed as their income.
@AC 21:34 So you'd be quite happy to sell Apple to me for, say, $120 billion? Fine, I'm not going to argue with you. There's one born every minute.
As for the where 'undistributed' income eventually ends up - evidently you're unfamiliar with the concept of retained earnings.
BTW - You mention by my 'personal attack' against you. What response did you think your childish comments on MRI scans would illicit?
"@AC 21:34 So you'd be quite happy to sell Apple to me for, say, $120 billion? Fine, I'm not going to argue with you. There's one born every minute."
Look, we were arguing over the definition of net worth. Either you were right or you were wrong. In this case you were wrong. You obviously know that you were wrong because instead of citing definitions you are now bringing up irrelevant hypotheticals. So I'm not really sure why you would post about this again unless it's to apologize.
"As for the where 'undistributed' income eventually ends up - evidently you're unfamiliar with the concept of retained earnings."
Of course I am. What you are apparently unfamiliar with is the concept that retained earnings are eventually distributed... or do you think they go to earnings heaven, where it's always sunny and they can run and play with other earnings and nobody can ever spend them on goods and services?
Apropos, Apple currently has ~$100B of retained earnings which it is in the process of distributing.
And evidently you're unfamiliar with the name "Carl Ichan."
If you're not familiar with him from US news reports and his antics in the 80s and 90s, I would have thought you'd at least be familiar with him from some recent Reg stories.
Hey AC, I shouldn't pay tax either. Because with the money I earn, I buy stuff. And there are all kind of taxes on the stuff I buy. And I hire a cleaning lady, and she pays taxes on the money she makes. So that's why I don't have to pay taxes on the money I make. Because I'm precious!
Anonymous Coward of 17:17 GMT, if you’re resident in the US, then you should review your current corporate structure. Both LLCs and S corporations default to being passthrough entities; they were intentionally designed to have their income passed through to the individuals who own them. If you have a LLC, you could file IRS Form 8832 to have the LLC taxed as a C corporation; that would allow the separation of the LLC’s income from your individual income. If you have a S corporation, then you might want to consider reörganizing as a C corporation (if you’re willing to meet the C corporation’s additional legal requirements).
Why don't they just scrap corporation tax and increase sales tax/VAT? That way, rather than being based on country of residence, it is purely based on sales per country.
Great, and the poor s*ds who buy their stuff end up financing the clowns in government, and the corporatioms have a field day!
(Hint - businesses don't pay VAT on their purchases, they just collect it on their sales!)
"Great, and the poor s*ds who buy their stuff end up financing the clowns in government, and the corporatioms have a field day!"
As opposed to the poor s*ds financing share holders?
Why do the corporations have a field day? It would create a level playing field between national and international companies selling within a country, all fight fairly with the same costs and those that prosper will have to cut margins, produce more efficiently etc.
Currently, some corporations do have a field day because they pay so little corporation tax compared to others.
I didn't say it was perfect, and obviously it has to be modified suitably.
1) Rule #1 of rules lawyering: No matter how clever you think you've been there's always at least one BOFH who is more clever than you are and they will prove it.
2) Because governments are even greedier and more corrupt than the corporations they work so hard to demonize. If you tried to get all that money in a single swipe from a sales of VAT tax, tax evasion would seem like a pleasant memory. You'd move straight to black market systems to get outside the government sphere completely.
... it's called drama (d-r-a-m-a)
When guvmints want to do something they either send in the forces or make a big broo-ha-ha in the media.
The little drama queens that they is?
They are all likely to draw out the drama for as long as possible (maybe increasing their personal wealth while doing so?) before doing anything tangible about it.
Remember the credit crunches and finance sector robbing us then getting bailed out by us?
Don't be fooled?
There are several countries who have had this problem... For example:
The IRS's requirement to withhold tax from a salary/payment requires a social security number. You only require an SSN if you are resident in the US, or a US citizen (and yes, corporations have something similar to an individual's SSN). You can happily work for a US corporation and be paid a splendid US salary but pay not a single cent in taxes to the US by not being resident in the US.
Now, if your country's tax laws were written such that only income earned locally needed to be taxed, then you effectively paid zero percent tax. Welcome to the Bahamas International Business Corporation (IBC). And, before the Bahamas changed their law which required the directors of the corporation to be publicly named (and in doing so eradicated the benefits of an anonymous tax shelter), you had a perfectly legal US bank account on which you didn't need to pay any tax, especially when that account was in the name of your IBC with you as signatory authority.
Unfortunately, laws have not quite moved on with the times, and chances are that in Ireland, the laws are still written such that only locally registered companies will be liable for the full rate, and in the US, depending on the state, the laws are written in such a way that no taxes (or just nominal taxes like a fixed amount) will be payable by companies registered who do not do any business in the state they are registered in.
So if Ireland changes its law to say "if you are not registered in this country but you are headquartered here, you will be considered tax resident here", Apple *will* be required to pay full whack on its international income in Ireland at the required rate (and Ireland is $9.5billion richer). This would be identical to how the UK considers people to be tax resident.
I say Ireland because they are more likely to get their law changed than several US states (like Delaware or Nevada) who have hundreds of thousands of corporations registered there who only pay nominal taxes and do business elsewhere.
"The IRS's requirement to withhold tax from a salary/payment requires a social security number."
Amusingly, for writers at least, this is the other way around. Providing an SSN means that the employer of a freelance writer will not with hold tax from your payments.
The law in Ireland isn't accidentally out of date - it's deliberately designed so that companies making sales in the UK, Germany, France etc using the public services of all those countries don't pay any tax to them but Ireland does manage to take a small percentage.
It's basically a parasite on the rest of Europe and the way to deal with it is to make sure that no eu money for nice expensive roads in the middle of nowhere goes to them - or just throw them out.
Suppose Middlesbrough council declared that anybody who visited the place and bought a T-shirt would be able to claim a special Middlesbrough investor status and not pay any income tax in the rest of the UK. It would bring more money into the 'brough and be perfectly legal - but London might object.
By my math, $74 Billion divided amongst the 4.8 million residents of Ireland is approximately $15.4 million each.
Now I'm not a tax lawyer (or any kind of lawyer), but I don't see how Apple can possibly claim that *none* of this revenue was from any other country in the world. And even if that's not illegal, it's certainly unethical (eg: lying).
BTW, for comparison, Ireland's GDP is $191.5 Billion.
Ireland joined the European Economic Community (EEC) in 1973, so I'm not sure how dropping any tax arrangements could have been a prerequisite to Ireland joining the EEC, given that it was already a member.
There was an arrangement where by exporting manufacturing companies (Irish or multinational) were given a 10% corporation tax rate while other companies paid significantly more. However, the EU didn't like that arrangement and Ireland moved towards 12.5% flat rate corporation tax across everything.
Other Irish taxes are absolutely huge though, and the overall tax take is 30.8% of GDP which is similar to Australia and Canada and 4% higher than the USA, but lower than the UK 39.0% etc.
The reality however is that all of these big companies are playing the tax regimes of countries off each other and combining them in such a way that they pay as little as possible.
The fact that Apple didn't pay 12.5% in Ireland, means that Irish citizens picked up that bill by paying really quite high income taxes (the marginal rate is 52%) and VAT (sales tax) is an eye watering 23%
The corporates based here do contribute in terms of income tax paid by workers and employer contributions to PRSI (Social insurance) but slipping out of that 12.5% corporation tax really is pretty bad, particularly when the country's actually in an economic crisis and cutting serious amounts of money out of spending on health, education and all sorts of basic services.
I don't really think pillaring Ireland's going to achieve much, it's entitled to operate whatever combination of taxes it wishes. One could point out huge issues with the UK's tax codes around the financial services sector, or France using state subsidies etc etc etc
However, I do think we need to iron out the international tax loopholes that allow weird combinations of different countries' tax systems to be used like this.
other than being completely wrong you might have a point
Ireland is stuffed full of companies enjoying stupidly low corporation tax rates, HOWEVER they are totally reliant upon EU countries propping up their screwed up economy despite being a tax haven
I TOTALLY resent being a UK resident (i.e. non Euro) that my tax £ is being spent to prop up such scummy companies, the sooner the UK is out of the EU and better off without the tax overhead the better
and P.S. PLEASE do not lecture me about UK exports as the UK is NET EURO IMPORTER so FRO and check your facts eh? think I'm wrong? come the vote watch the French / German leaders come over here to 'explain' to us!!!!!!!!!
My comment wasn't addressed to you so if you think I'm lecturing you, you've a very active imagination.
My comment about the UK was in reference to financial services. The City of London is regarded by some as a quasi-tax haven on a vast scale. Im just simply saying that very few large multinationals pay much tax anywhere by thr looks of it. There are quite a few countries in the EU arguing that it is undermining their financial services sectors through a combination of light taxation and light regulation.
I never mentioned UK exports.
My main point was that a lot of facts in the article and also facts being quoted in the media about Ireland are truisms that haven't any basis in actual reality.
All of these companies exploit international loopholes by stacking favourable aspects of various taxation systems to achieve minimal tax rates.
The Irish rates payable on stuff they can actually charge for are a pretty straight forward 12.5%. The problem is that apple and others are charging income generated all over the place against IP charges elsewhere. Ireland can't levy tax on companies that aren't registered on Ireland.
The facts of the situation are a hell of a lot more complex than Ireland's low corporation tax rates!
change to the tax laws would be.....
In order to sell your product here, your company must have a branch office here that is registered with companies house, and declares its accounts just like every other company.
Of course your multinational phone company will have to pay suppliers for its latest shiny shiny, but if it declares its paying the supplier £400 per phone to avoid taxes on its operating profit, yet elsewhere in europe its claiming to pay £200, then it gets hammered for twice the difference.
Just like us PAYE and self-emloyed folks do when we try to claim £50 tax back on tooling/protective gear
But then that would lead to plenty of MPs having to pay more tax... and that would never do
Tramp... because it looks like only us poor folks will end up being taxed
There is a concept called "arm's length" which means that transfer prices between divisions (your phones) should be at whatever the commercial rate is. For phones, fine. It's easy to see the price as they are commodities. Likewise barrels of oil, frozen orange juice and pork belly futures.
Now, what about, say, the left wing of an aircraft? What's a fair price for that? If has no market. It's worth more than scrap, but less than half an aircraft.
Or, the right to use the logo or IP, again, there is no market so there is no "guide price".
As a result it gets difficult to establish what is "arms length".
This is the very point that's a problem with the law. With your suggestion, I just say "that's cool, you've set the price of our phones. But you should see the Management Fees I get from my [offshore] office for being allowed to have the franchise here. It's wiped out all my profit, so no tax to you I'm afraid". Perfectly legal.
Don't forget multinationals have many internal and external people messing with this all day, every day. HMRC is understaffed in comparison, and undermined by Hartnett agreeing stuff over a nice dinner, rather than by a more conventional method.
Ireland demonstrates the problem with a race to the bottom tax rates, and as another notes above if people come to you because it's cheap, they will leave if somewhere cheaper pops up. Better to sell yourself on something a little less transferable.
"In order to sell your product here, your company must have a branch office here that is registered with companies house, and declares its accounts just like every other company."
That's what the current law is!
Your "branch office" is defined under the "permanent establishment" rules. If you've got one of those your profits in hte country are subject to the local profit tax. If you don't then you don't.
And obviously, it's got to be possible for people to make some sales in country without actually having a permanent establishment in the country. Some e-bay seller shipping you an antique Hornby for you collection from Germany (or whatever). We're not going to say that he's got to have a UK company now, are we?
At the other end the company owning the land upon which a shopping centre is built pretty obviuously does have a permanent establishment in the UK.
All of the arguments that are going on are about this definition of what is and is not a permanent establishment. For example, international law has said for well over half a century that using a warehouse to aid in selling isn't a permananet establishment. So, Amazon's not actually in the UK then.
Saying that you must have a branch off that is registered is just fine. But now define branch office: that's exactly what the problem is.
Actually, all they need is an office within the EU. It's a single market!
They've no requirement to have a branch office in the UK, France or anywhere else as long as they've a foothold in the EU.
You can also be very sure they wouldn't be keen on paying Irish 23% VAT on all sales either do they're channelled through some other route!
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