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How Apple Sidesteps Billions In Global Taxes
An anonymous reader writes "An article at the NY Times explains the how the most profitable tech company in the world becomes even more profitable by finding ways to avoid or minimize taxes. Quoting: 'Apple's headquarters are in Cupertino, Calif. By putting an office in Reno, just 200 miles away, to collect and invest the company's profits, Apple sidesteps state income taxes on some of those gains. California's corporate tax rate is 8.84 percent. Nevada's? Zero. ... As it has in Nevada, Apple has created subsidiaries in low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands — some little more than a letterbox or an anonymous office — that help cut the taxes it pays around the world. ... Without such tactics, Apple's federal tax bill in the United States most likely would have been $2.4 billion higher last year, according to a recent study (PDF) by a former Treasury Department economist, Martin A. Sullivan. As it stands, the company paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion last year, a tax rate of 9.8 percent."
No they haven't. They probably haven't been even taxed once.
Your dividends have been, sort of....
Personally though I don't think corps should be taxed at all. It gives them too much ammo to say things like 'taxation without representation' etc.
If we didn't tax corps then I think it would be easier to ban political speech by corporations.
The income to individuals from corps would then be taxable as ordinary income and we wouldn't have the whining about dividends being taxed twice, or the baloney about US taxes on corporations being high.
We also wouldn't have the baloney regarding local jurisdictions competing for corps based on tax give backs.
All in all it would be a nicer world....
Meh. If it wasn't tax give backs it would be other incentives to encourage companies to create jobs.
Wait.. Apple paid ~10% in federal taxes? But I thought 'Merica had the one of the highest corporate tax rates in the world and companies were fleeing to banana republics to avoid them!!
So many injustices..so little time..
There are little things called ethics and morality. One would find entire paragraphs in corporate employee handbooks about how an employee is supposed to act ethically at all times. Whether Apple's tactics are illegal is up to court to decide, but their employees who set up the whole scheme definitely act unethically, and, by my standards, immorally.
I can't comment on the law in the US, but in Australia, that loophole doesn't exist. If I own shares, I can borrow against those shares. But the key question is, what did I use those funds for? If I used them to invest - buying more shares, buying property, buying bonds - the interest is tax deductible. If I used them for personal matters, the interest is not tax deductible.
In addition, the moment I sign a contract to hand over my shares to the lender, I trigger a capital gains tax event, and I have to pay CGT on the value of the shares at the time of the handover. The fact that money didn't change hands along with the shares is irrelevant; it's still a CGT disposal, and tax is still payable.
In my opinion, the US needs to be broken up into the individual states, and the federal government disbanded (so the state becomes the country, and what's currently the country disappears completely.) Perhaps two or three states might band together to form a larger country, but the US as a whole is too big; it encourages cronyism and corruption.
If we didn't tax corporations, then the corporations themselves could be used as tax havens. CEO would have multiple "company cars" and live in a "company owned house" all of which might depart the company on him when he left - or just be granted to his use, depending on his exit.
It would just make more work for the IRS and the SEC, while probably making things worse.
Apple's legal and finance departments know their stuff, and the company is fulfilling its fiduciary duty to the shareholders (like me). I don't see why the legacy media dregs at the NYT have any issue with that, but who cares what they say?
Every dollar that Apple can keep out of government's hands is a dollar that won't be spent on killing people I have no quarrel with, paying goons to grope old ladies, or harassing terminally ill patients who need pain relief.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
It's not like Apple's the only corporation guilty of evading criminal amounts of taxes. Google never pays higher than 5%, News Corp never pays more than 2% (the same guys who use Fox News to complain about taxes being too high on the rich), General Electric paid nothing and got $3 billion in tax credits, oil companies receive stupid amounts of subsidies, Amazon still ignores most sales taxes, Microsoft always pays in the single digits as well; the list goes on and on and on. Over 2/3 of major US corporations have NO tax liabilities.
Yet these same corporations still pay MOST of the taxes they owe in other OECD countries. The difference between the US and the rest of the developed world is that we're the only country with a tax system that considers GLOBAL business activities liable to taxation (obviously there are exceptions in other countries, such as INCREASED taxes for foreign employment or pollution). Other OECD countries only tax businesses based on DOMESTIC business activities. But in order to avoid having our global taxing system cause foreign business activities from having negative net profits from piled tax rates, Congress throws in a bunch of loopholes to negate the whole thing. Only it ends up negating almost all taxes on domestic activities too. This isn't an accident.
Wake up. Almost all corporations do this. HP does this. IBM does this. Dell does this. It's not called 'hating America,' it's called 'loopholes.' If you were beholden to shareholders and you were in charge of a corporation, you would do it too, I bet. And if not...you would never be in charge of a corporation for long.
Completely agree. Apple is actually far better than most: many companies pick up and move all their people to a cheaper part of the US or worse, move all operations overseas, bringing only the best and brightest and outsourcing the rest.
California is still making billions in taxes off Apple, with 13,000 employees at Apple Campus and all the property taxes and money the employees spend generates sales taxes. Just be glad Apple is in California at all because how many phone manufactures still keep 13,000 employees in the US? Apple sells phones, computers, tablets, and a online store, they could be in the middle of China employing 13,000 people if they wanted and we would still buy iPhones.
Apple is probably the worse possible company to choose as an example of a "tax dodge". Why don't you go after Samsung, HTC, or any of the other phone manufactures that make billions in sales in the US market but have all of their operations based overseas.
my karma will be here long after I'm gone
You borrow money from a made up corporation and you buy their stock, by the time their stock goes down by the amount you borrowed, your loan will be deleted from the books, ensuring the corp. operates at a loss and so their stock goes down. You use the stock loss to offset your other stock gains. Now you've got free money, tax free.
I live in a country where corporations have market in operational loss to distribute profit/loss among themselves to avoid paying taxes. There is no accounting trick in the book or not in the book that would surprise me.
If programs would be read like poetry, most programmers would be Vogons.
You don't understand it because it's bullshit.
The essence of the argument is that if millionaires had more money to spare they would use it to employ people regardless of the ROI for that employment. That if a corporation encounters another 50 grand extra cash it will hire someone with it. Never mind that money spent on starting up a new idea can already be deducted from your taxes and that Reagan dropping the highest tax rate from 70% to 35% didn't lead to any dramatic job creation. There's an argument to be made that certain activities which are currently not viable because they don't generate enough revenue to be worthwhile might cross the border into viability with a lower tax rate, but the number of those activities would be vanishingly small and would still have fairly crappy returns and high risk.
It's essentially an argument which ignores supply and demand. So called "job creators" act on the supply side of the equation, they produce goods or services which are consumed by others. As anyone with even basic economic knowledge knows, expanding supply without commensurate demand drives down prices. Now we can presume commensurate demand does not exist because if it did tax rates wouldn't be stopping companies from meeting that demand, so we can also assume that no one is going to increase supply regardless of how much money they might have.
There are a couple relatively obvious ways the federal government can create jobs in the private sector. The simplest is income redistribution, give money to poor people and they spend it increasing demand and creating Jobs(though not necessarily American jobs). In the US we don't like this because it's the wrong kind of socialism. It's perfectly ok to provide a moral hazard by socializing risk and privatizing gain if you're talking about rich people, but doing the same for the poor is unacceptable.
Another involves increasing workers rights by essentially eliminating "at will" employment. This doesn't as such directly increase demand, but it would make it easier for employees to say no to doing the work of multiple people, which would mean that the false efficiencies companies are currently enjoying would disappear. This is partly unpopular for all of the above reasons, but also because while there would be a net job gain, there would probably be job losses in some sectors.
Many other ways exist which would serve the same purpose, but they'd all be rejected in the current American political climate because in the US the wealthy have sold a bill of goods to the population convincing them either that they will one day be rich enough to be affected by the buffet rule and so should vote against it or that, and I honestly have no idea how this works, private enterprise would take care of them much better than the government does, how this meshes with the accusation that the US has become an oligarchy or the entirety of American history I do not understand. Libertarians seem to believe that the US has become a corporate dictatorship so as a solution they want to remove the middle man and go straight to a corporate dictatorship. Mind you, we are talking about the same voting population who 4 years after Wall Street caused the biggest global economic melt down in close to a century through pure greed and stupidity is objecting to the implementation of any kind of regulation of the baking and finance sector. The GFC should have thoroughly discredited neoconservatism since the ideology proved to be wrong in every respect, but 4 years later we're still having the same arguments.
That's why you put all your assets in what's called a perpetual Family Trust.
Those are tax free (seriously!).
Costs all of about $1,000 (including attorney fees!) to set up, too.
Slashdot Valentines Beta Massacre: iT WORKED! The boycotts killed Beta!!
Vote? Even if there were real, viable choices, have to do more than vote. The Democrats are only slightly better than the Republicans. Democrats are merely corrupt. Republicans are corrupt and crazy. Don't think voting is enough to excuse you from being reflected in that mirror. Politicians can't afford to be honest if we won't back honest players.
I see people still banking at Bank of America, Chase, Wells Fargo, and Citi. Still buying from Apple, Microsoft, MAFIAA members, GE, BP, AT&T, Comcast. Still gambling that health insurance won't deny and drop us the minute we need it. We could destroy these companies astonishingly fast if we'd all just quit doing business with them. They wouldn't be so stupid as to push it that far. In mere days, they'd crawl on their bellies begging us for forgiveness, and they would quickly do all those things that they claim are so difficult to do, such as paying taxes, resisting the temptation to buy legislation, reducing executive compensation, treating customers fairly, and making up for mistakes. They do appalling things, and people shrug it off, or bend over and take it.
I'm in a little battle with a local city. They're operating one of those red light cameras programs. Naturally, they have rigged things to cause lucrative violations, rather than reduce them. They carefully chose intersections for which the yellow was already too short so they could truthfully claim they didn't shorten any yellows. How can I make them wish they hadn't done it? I went to a hearing with evidence that their yellow lights were too short, but no joy. Judge told me I could take up the matter at a later date in municipal court, as if going to a hearing scheduled at their pleasure wasn't already enough of an imposition on me. I declined. Now I don't shop in that city anymore. How many people have joined me in this boycott? Zero of course. I've tried to persuade others, but all that does is get them thinking I'm crazy for making such a big deal out of a petty traffic violation. A few concede that I've got a point, but still won't do anything. I should pay up, shut up and stop annoying others with my whining, and get on with life. Then some turn around and mutter about their cell phone contracts, or the cost of cable TV. Even the ones who also have been burned by these red light cameras still won't fight. Some even rationalize it, convincing themselves the system is fair.
An effective approach to clean up bad neighborhoods is a zero tolerance enforcement and clean up operation. Litter, graffiti, broken windows, and burned out lights no matter how trivial are all cleaned up and repaired as fast as possible. Serves notice that petty crime is not going be overlooked. The same would work against these corporations and governments. Don't let a red light camera ticket go because it's only a little money, and too much trouble to fight. We blow off even the most insane EULAs because we feel pretty good that most of the nonsense in there can not be enforced. We should instead make software companies clean that crap up. No EULA at all. At least we fight back against DRM.
Intellectual Property is a monopolistic, selfish, and defective concept. It is "tyranny over the mind of man"
Here's the simple reason why corporations engage in the behavior outlined in the New York Times article: _our income tax system based on Title 26, the Internal Revenue Code, encourages such activity_.
Thanks to all those complicated loopholes in the Internal Revenue Code and all the additional rulings that add up to around 70,000 pages of tax code, this is why you have millions of jobs, thousands of factories, hundreds of corporate headquarters, and possibly as high as US$15 TRILLION (!!!) in American-owned liquid assets out of the USA for tax avoidance reasons. Maybe it's time to gut the entire tax code and start all over again in one of two ways:
1) A 17% flat-rate no-loophole income tax, where the only loophole is a very generous initial earned income (wages and pensions) exemption to protect lower-income taxpayers (e.g., as high as US$46,000 for a two-adult/two legal dependent family), and get rid of the alternate minimum tax, estate tax, maybe the FICA tax, gift tax, marriage penalty, self-employment tax and taxation on bank account interest, capital gains and stock dividend payments. This is what Steve Forbes proposed back in 1996.
2) Completely phase out the income tax in favor of a 23% national consumption tax on all new goods and services sales, where business-to-business sales, used good sales, and college tuition are exempt from the tax. To help lower-income people, any legal household will get a monthly payment to cover the cost of the tax up to the Federally-defined poverty level (US$580 per month payment for the family I mentioned earlier). This is the FairTax proposal, H.R. 25/S. 13.
Under both of these proposals, American companies have all the incentive to keep as much of their liquid assets and operations in the USA as possible, since it is tax-advantageous to do so. An it also means vastly lower yearly tax compliance costs, meaning hundreds of billions of dollars spent per year in tax compliance are now freed up for more productive activities. In short, such a change will result in the next American economic boom.