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Apple's Luxembourg Tax Deals
Presto Vivace sends a report from the Australian Financial Review on how Apple uses a holding company based in Luxembourg to avoid taxes on its iTunes revenue. Quoting:
The 2011 accounts for iTunes Sàrl [the holding company] give the first inside view of how Apple accounts for its growing earnings from digital content. They are part of a massive leak of Luxembourg tax documents uncovered in an investigation led by the International Consortium of Investigative Journalists. Remarkably, the accounts show Luxembourg has been more effective in extracting tax from iTunes than Ireland has with much larger Apple sales. Turnover for iTunes Sàrl exploded from €353 million ($508 million) in 2009 to €2.05 billion in 2013. Secret appendices to the 2011 accounts break down some of Apple’s costs. It shows that Apple takes a third of iTunes’ revenues as its gross profit margin. The 2011 figures showed that a flat 50 per cent of this gross profit was paid in intercompany charges.
(Followup on a similar strategy from Amazon we discussed last week.)
Assign someone at the IRS to figure out what they should be paying, and are dodging, add the cost of doing this estimate, and a 50% penalty on top of both, and tax the portion of the company that IS HERE that amount.
Do this for all tax cheats until this nonsense stops and again whenever it pops back up in perpetuity.
Solved. Ya welcome.
Actually, it's a sensible behavior. America taxes 39% to corporations regardless of where they earn profit: an American HQ company pays 39% on everything it sells in China and Japan. In most other developed nations, it's different: a German company selling cars in the US pays taxes to the US on the profits from its US sales, but pays no taxes to Germany on those profits; it does pay German taxes on profits made from selling cars in Germany.
Americans are essentially crying about American companies not wanting to make $10 million selling to Britain, pay Britain $2.5 million in taxes, and then pay America $3.9 million in taxes; instead, these companies want to have a British arm headquarters, make $10 million in Britain, and pay $2.5 million to Britain and NOTHING to America.
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Until we get away from the definitions that:
1) a corporation exists only to increase shareholder value
2) it is managements "fiduciary responsibility" to only "increase shareholder value", i.e. make the most profits possible
3) a corporation is a legal person, with all of the rights but none of the moral compunctions
We are going to have corporations that act by definition as psychopaths: amoral, antisocial, remorseless, uncaring, uninhibited, greedy and evil. They will act as unlawfully as they are permitted to.
Nothing to worry about. They are way to fix it tax short falls. We just need to motivate 299 million slaves in USA
- retirement age increased up to 75
- 60 hours work weeks
- higher gasoline prices
- more money poured into security forces
etc.
Just use your imagination.
What would happen if the government of USA declares, "look guys, we are broke. You are not paying taxes to us anyway. So when it comes to patent law enforcement, you contact the people who collect taxes from you to enforce your IP rights. We are not going to spend our resources to enforce your rights, when you are not paying taxes to us ..."
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
The problem is in the tax laws have more loopholes than shotgunned swiss cheese. That is the fault of Congress and no one else.
That's the fault of congress and the people who elected them. If you want to talk about eliminating all the "loopholes" that the current income tax laws have built in, you'll need to survive the onslaught from just about every person in the US, from those who are taking the mortgage exemption, all the way down to those who get earned income credit.
Those "loopholes" exist because the government thought it should use taxes as a way of social engineering. That means if someone thinks that solar energy needs a helping hand in the market but doesn't want to hand over a few billion to a company that will go bankrupt in a year, they enact a tax credit for people who buy solar stuff. Or trade in a "clunker". Or do any of a number of things they wouldn't otherwise do. And yes, sometime in the distant past, someone in congress decided it was good to help people who otherwise couldn't afford it to buy a house, so they added mortgage payments to the list of deductions.
... but I'm pretty sure the IRS doesn't have the authority to do what you propose either.
They don't, and I don't want them to have it. Can you imagine the "social engineering" if the IRS had the authority to determine what someone "should" be paying in taxes and could go after them for that amount? Can you imagine the effect on business if they had the authority, on a whim, to go through every account in a company to decide what the company "should" be paying? It would certainly take more than a "someone", it would take an army of them.
Tax avoidance schemes are remarkably common among large successful coporations. Other successful U.S. tech companies exploit the "Double Irish With a Dutch Sandwich" loophole. Ikea pays almost no tax by incorporating in Holland and exploiting its permissive rules for non-profits.
Which raises two questions:
- Are tax rates so high that it is necessary to engage in complicated tax avoidance schemes in western democracies to be successful in business?
- Is it best that companies do avoid taxes? Do we trust Larry Page, Sergey Brin, Vinod Khosla and Bill Gates to invest efficiently for the betterment of society more than we trust Harry Reid, Nancy Pelosi, Barack Obama and Hillary Clinton? And I would ask the same of the Republican counterparts of those politicians. Though that the comparison is somewhat unfair to Republican politicians because it is their objective to reduce the concentration of wealth under their own control by shrinking government, regardless of the political persuasions of those who would benefit from that dispersal of wealth. I have never understood why, for those who believe wealth is dirty, that its transfer to the political class is somehow purifying.
Ceci n'est pas une signature.
Fascinating. More evidence that my universe intersects an alternate universe in which Apple invented everything.
How can I believe you when you tell me what I don't want to hear?
Up until about a decade or so ago in Australia, some clever private individuals established companies and worked their 9 - 5 job through the company, enjoying much lower tax rates and other such benefits of corporate law (shifting losses to other years, etc).
The Australian Tax Office stepped-in and declared if you look like a private individual, walk like a private individual and quack like a private individual ... you're a private individual and will pay tax at the appropriate rate. You'll also receive a fine for trying to be clever.
So clearly, the government is able to crack down on those who try to be clever and follow the LETTER of the law but not the SPIRIT of the law. Unfortunately, the government is very SELECTIVE when deciding where to act.
No, not all companies do it. Most companies in fact don't do it. Only those who are big enough to afford to do it get to do it. The rest of them are stuck paying more (comparative to their earnings) than all of the successful companies.