Slashdot Mirror
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."
Good citizens pay their fair share, so it must be asked: why does Apple hate America?
Just imagine all the mandates they can fund if they had all this money
Good for Apple.
sig has been sent away for a few small repairs...
I mean, I know it's the fashion to bag Apple now they're the biggest company in the world, but I thought it was common knowledge that virtually all big companies do everything they can to avoid taxes. In fact, I don't see how it's much different from pretty much every individual in the USA trying to pay as little tax as possible either. If an accountant said, "Oh hi there, I can help you avoid $3000 bucks in taxes and it's all legal" what would you say, no?
Apple has a fiduciary responsibility to avoid as much taxes as legally possible. This is more indicative that the laws are not written correctly, rather than that Apple is doing something "wrong". Of course, congresscritters might be hesitant to fix these loopholes, since a lot of their sponsors directly benefit from them. In fact, that may or may not be why they are there in the first place, but the saying "don't attribute to malice what you can attribute to incompetence" probably holds here.
--The universe will not be altered by forum threads, even those which are very wry. --Tycho Brahe (Penny Arcade)
Oh look, another story that is actually about virtually every major company in existence but it's turned into a story by replacing "every company" with "Apple" to make it sensational and generate page views. *yawn*
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..
You absolutely do not need to sell stocks. You can simply borrow against their value for your expenses. The only thing you end up paying is interest on what is basically revolving credit. That interest rate will be much lower than paying yearly taxes on the same amount.
You can take a loan against the value of your stock. This is not income, and is not taxable.
In many cases, the interest paid on that loan is tax deductible. If structured correctly you may never even make a payment, the interest is simply added to the principle (it is still tax deductible). When the time comes you sign over the stock (not selling it, mind you!) to the lender, having exchanged the stock for real property and taking years of tax deductions on the supposed interest -still without paying any taxes.
Its shady, but not illegal. Loopholes exist for the rich to take advantage of.
"You want to know how to help your kids? Leave them the fuck alone." -George Carlin
"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."
Now, you may think the law should demand more. I would disagree with you. I don't resent Apple their ability to avoid taxation, any more than I would resent a friend who managed to escape a thief or mugger with minimal damage or loss.
No, Apple sells a physical product, which limits their ability to minimize their taxes through holding companies in other jurisdictions. That is the one and only reason they pay more taxes.
Microsoft's product is all intellectual property which, even when licensed, has no physical manifestation in higher-tax jurisdictions. That means it can be held (and thus profit generated from it based) in low-tax jurisdictions. The company in the US then licenses its own technology, thus incurring a tax loss in the US.
You can't do that the same way with a physical product.
Most of the loopholes require a lot of money or assets.
It's kind of hard to live off of cash you borrowed against your stock holdings if your stock holdings are worth less than your living expenses.
And moving your money to an off-shore tax haven only makes sense if your tax savings would be larger than the accountant's fees you'd have to pay to do so, plus the amount of the risk of any changes in the tax code here or there.
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.
Sounds very high.
30 of 280 Fortune 500 companies paid no federal tax in 2008-10; 26 of those paid no federal tax in 2008-11; 24 paid less than 4% federal tax in 2011 alone; 15 paid 0% or less
Apple doesn't even make the list...
What part of "a well regulated militia" do you not understand?
that's borderline illegal AND morally corrupt.
No, the moral issue is the taxation. Your diatribe above presumes that a company's revenues belong to the state.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
Yup, because Apple in no way benefits from access to the Silicon Valley job market. They could hire all those programmers in Bangalore instead, but they choose to support the Silicon Valley economy out of a sense of generosity and community spirit.
Loopholes exist for everyone, including the guy you replied to. People smart enough to use them become rich. People that are not smart enough whine about it.
Bullshit. You have to be rich to begin with to use such "loopholes".
Tell me, struggling to pay my rent each month with no savings, how I am supposed to use loopholes to become rich"? I don't need less tax, I need more income.
You're ignoring the entire lifecycle. There is no free lunch (as those who borrowed against their homes based on inflated real estate valuations discovered).
Eventually you owe the money you borrowed even if you got a good interest rate because you provided good collateral.
If you had cash laying around when you originally borrowed the money, likely you would have used that instead of borrowing money. Obviously, though, if you can get, on a post tax basis, a better risk adjusted ROI on that cash than the interest rate on your loan, you should invest that cash instead -- in which case, it's not "cash" anymore available to repay the loan.
When it comes time to pay your loan, you therefore need to liquidate some assets to make the repayment - then, if you made any gains, you owe taxes. If you lost money, you would have been better off selling that asset earlier and generated some cash so you didn't need to borrow (as much) money in the first place.
If the stock you used as collateral goes down enough, you may need to repay the loans immediately - indeed, in some circumstances, the entity who made the loan has the right to sell the collateral to recoup what you owe if you don't come up with additional collateral on demand.That sale of course will, if the collateral has appreciated since you bought it, result in taxation.
The "dodge" you describe is really just leverage -- which can backfire.
Why is there an "insightful" mod and why isn't it "-1"? If I wanted insight, I wouldn't be reading
Speaking of bitching about paying taxes, I don't understand the mantra of "higher taxes means people won't invest in job creation" etc... Lets say you're a billionaire and pay 15% tax on your investments that earn you $50M/year. If the tax rate gets raised to 30% does that mean you're going to pull out of all your investments to avoid that extra 15% of taxes...and lose out on the frikkin 70% you still would have made!?!? Bullshit. I guess there is always the "they'll just take their money off shore crap.
You typically own capital gains tax on your gain in the collateral that was forfeited - just as if you sold the collateral and used the proceeds to pay off the loan. See, for example, this (specifically, the section entitled 6. Question: “What happens if I default on the loan?” or “What are the tax consequences?”) for what happens in one case of such loans.
If you really believe things work the way you describe, I suggest you check with qualified tax advisers before acting on those beliefs.
Why is there an "insightful" mod and why isn't it "-1"? If I wanted insight, I wouldn't be reading
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.
I wanted to mod you up, I enjoyed your passion, but I so want you to look at your reasoing.
I am not defending Apple, it is about time you all noticed that Apple is given a pass by the media for using the legal loopholes that other companise are villified for.
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Where do you git off blamming Apple or any other corporation for the disgusting acts of congress and the senate?
Those insane loopholes were mostly created years ago and are constantly polished by your elected officials to continually encourage donations to those self same public officials.
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You want to blame the person responsible?
Look in the mirror, then start voting like the future matters.
No brain, no pain.
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!!
Everything the GP said is correct.
1) Roads. Did you read that article you posted? I encourage everyone to do so, so that they can see the pure, unadulterated crazy that right-wing think tanks like the von Mises Institute churn out. "Thousands of people die in traffic accidents, therefore we should privatize the roads." Because unregulated private industry does such a great job at promoting safety. That's why organizations like the FDA and OSHA never needed to be created.
Learn some goddamn history. Corporations were quite happy to let people die to boost their bottom lines until the government stepped in and made such behavior unprofitable.
2) Schools are just, in your own words, "starter-prisons" that "indoctrinate" the youth. Corporate controlled schools, I suppose, would be beacons of free thought. That's why ITT Tech grads are so much better than UC Berkeley grads. Oh, wait, that's backwards. American education needs work, but suggesting it would be better if it was fully privatized is stupid.
Without public funds, it's not profitable to educate most people. Far better to keep them stupid and set them to work in a factory, while only providing education to the rich kids whose parents can afford it.
3) Product safety. I swear, have you ever even seen a history book? Product safety before the government got involved was nothing short of abysmal.
I notice you didn't even address his other points:
4) Regulating insurance companies and the like. Without government courts you can take them to, they could simply refuse to pay out one claim in every ten, and there'd be no downside. If they get a bad reputation, they just change their name.
5) Cops to keep you safe. I suppose you think that should be privatized as well? I'm sure they wouldn't spend all their resources defending the homes and offices of the 1%.
6) Toxic waste being dumped in public watersupplies. Are you gonna try to deny that this one happened over and over and over again? Are you going to try to deny that without government oversight, corporations have no reason not to exploit public resources for private gain?
Privatization is the mantra of the robber barons, seeking absolute authority over every aspect of our lives. They've been winning so far, taking more and more from us and giving us nothing in return. They don't need idiots cheerleading for them from the sidelines.
Wait, the US has the highest corporate taxes... but corporations don't have to pay them?
I'm not clear what point you're making.
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.