Actually, you want the corporate income tax rate to be zero. It's a tax on investment and job creation. When profits are paid to the owners through dividends or capital gains is when you want to tax. Taxing retained earnings reinvested in the business is like a farmer eating his seed corn.
It's good to note what they were getting the 0.02% tax rate on. It's only on their savings account.
First Apple first pays income taxes on profits made in each EU country it does business in, including Ireland (12.5%), France (33%), etc. Then the remaining profits (retained earnings in accounting speak) need a location. They can't go back to the US, or a further 44% will be lost to income tax (federal 35%, California 8.9%).
So Apple worked a deal with Ireland so they could stash all of these profits there and not pay 12.5% on the interest/earnings. Ireland was totally cool with that because Apple isn't creating any costs for them by doing this, on the country their banks get hundreds of billions of assets they can loan out to Irish businesses increasing wealth and employment.
Trump and the republicans will almost certainly pass a earnings repatriation bill dropping the federal rate to 12% or so for companies bringing in foreign profits this or next year. Apple will bring it all back then, in fact it's likely that $2 Trillion plus of profits trapped off-shore by our ridiculous corporate tax code will be returned.
Yea, money gained in Ireland is not money "lost to the U.S.". These are profits from international operations, Apple already paid taxes on them in the countries where they were earned. We don't get to tax businesses in other countries because they don't generate costs in the US.
Imagine your US company opens a subsidiary in France. That subsidiary pays 33% in corporate income taxes. If your subsidiary was forced to also pay taxes in the US (California), then your total tax rate is 33% France, 9% California, and 35% federal, giving you about a 60% total tax rate. How well do you think your subsidiary is going to do competing against French companies when it has nearly double the tax rate, and barely is able to reinvest a third of it's profits?
US companies are only successful internationally because they don't have to bring profits back and can park them in low tax havens like Ireland. If that was ever taken away it wouldn't generate more taxes, it would decimate the ability of US companies to expand internationally. There would be a huge incentive to re-incorporate overseas to escape what would be the worst corporate tax system ever devised.
Remember, corporate income taxes are a tax on new capital, it's like eating our seed corn. Corporate income taxes are the dumbest possible way to tax, they are a tax on investment, new business formation, etc, leading people to invest less, create fewer jobs, etc. This year it's likely to pass a tax holiday that will allow repatriation of foreign profits at low rates, and at least $2 trillion dollar in capital will come back in the US. The question we should ask is, why a holiday, why not just abolish it?
Federal corporate income taxes accounted for only 9% of all federal tax receipts. Abolish it, and increase dividend and capital gains rates to regular income tax rates, and it would generate more tax revenues. Now you'd have a system where investment was no longer taxed, just when it was consumed, leading to more investment, more jobs and a higher standard of living.
Yea, this isn't true. It's not a loophole to have a foreign subsidiary, it's a necessary part of doing business internationally. Apple has to pay taxes in every jurisdiction it does business in.
It doesn't have to base iTunes in a high tax country or Luxembourg.
It doesn't have to pay taxes on profits made by overseas subsidiaries until it repatriates to the US, that's not a "loophole". And if the US closed that "loophole" it would make our terrible corporate tax system many times worse.
Imagine you have a business and open a subsidiary in France. It's profitable so it pays around 33% of it's profits to the French government. Let say you are forced to take the 67% remaining of the profits back to the US to pay out to shareholders. You are in California so you pay roughly 10% corporate income tax, and have about 61% left, then you have to pay federal corporate income tax, so now you have about 40% left. You can either re-invest it in growing your business (and hire more employees) or mail it out to shareholders as dividend checks. If you dividend it to shareholders, they pay state income tax on it, and 20-25% federal tax rate, so they will end up with about 30% of the original profits made.
Can you imagine how well any economies will do if you take 60% of it's new capital and set it on fire before they can be invested again?
Imagine how hard it will be for US companies to open international businesses and compete with local businesses if the local business pays 33% in taxes and the US based one has to pay nearly twice as much? Let's assume your subsidiary is a chain of restaurants. Any local french restaurant chain can ape what you do and make nearly double the net profit. Fixing this "loophole" would devastate US businesses and make it really hard to grow new businesses beyond the US borders.
We need to stop calling them loopholes and recognize how the system works. None of these companies is doing anything wrong, just trying to ameliorate the effects of a horrible US Corporate tax system.
Actually Ireland gets to tax of all Apple profits on business based in Ireland. iTunes is super profitable so this is going to transfer a hella amount of taxes from Luxumberg to Ireland. Since Apple doesn't have a ton of actual employees in Ireland, Ireland doesn't really have much in the way of additional expenses from these massive free tax revenues. Whoever negotiated the Apple agreement for Ireland should have been knighted, made a saint and nominated for the nobel prize.
The EU isn't claiming Apple owes the EU more in taxes, it's claiming Apple's Ireland tax rate is too low and it needs to be higher, so it's essentially claiming Ireland needs to (retroactively) raise Apple's tax rate.
The reason Ireland can serve as a tax haven in the first place is the USA's awful corporate tax system. Every year when a company makes a profit, it owes income tax to the federal and state governments, on average it's around 40% combined. Then it can either re-invest the remainder, or pay it to shareholders. If it is paid to shareholders they owe federal dividend taxes and state income taxes. So more than 50% of profits are taxed away.
Apple has paid taxes on it's international profits in the countries they are earned. But if it repatriates the remainder back to the US, it will owe about 42% in state (CA) and federal taxes, and shareholders after dividend/state income taxes get about 45%.
So instead it keeps as much business in ireland and saves all it's international profits into Ireland, that minimizes the tax rates on the business it does from ireland, and saves them from US taxes on repatriation. That means they have nearly twice as much money to invest. Obviously this is all not only ethical and moral, but they are obligated to minimize tax rates for thier shareholders. Likely this year the US will either fix the corporate tax system or pass a repatriation bill that will dramatically lower the rate on overseas profits returning to the US (last time they did it was 12% IIRC), and Apple will return everything at once, and the US will get dramatically more capital to invest (since at least $2 Trillion in overseas profits are trapped overseas by our tax system).
Patents and patent laws are indeed awful but have nothing to do with this.
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Actually, you want the corporate income tax rate to be zero. It's a tax on investment and job creation. When profits are paid to the owners through dividends or capital gains is when you want to tax. Taxing retained earnings reinvested in the business is like a farmer eating his seed corn.
It's good to note what they were getting the 0.02% tax rate on. It's only on their savings account.
First Apple first pays income taxes on profits made in each EU country it does business in, including Ireland (12.5%), France (33%), etc. Then the remaining profits (retained earnings in accounting speak) need a location. They can't go back to the US, or a further 44% will be lost to income tax (federal 35%, California 8.9%).
So Apple worked a deal with Ireland so they could stash all of these profits there and not pay 12.5% on the interest/earnings. Ireland was totally cool with that because Apple isn't creating any costs for them by doing this, on the country their banks get hundreds of billions of assets they can loan out to Irish businesses increasing wealth and employment.
Trump and the republicans will almost certainly pass a earnings repatriation bill dropping the federal rate to 12% or so for companies bringing in foreign profits this or next year. Apple will bring it all back then, in fact it's likely that $2 Trillion plus of profits trapped off-shore by our ridiculous corporate tax code will be returned.
The EU is going to raid an Irish citizen's home because they don't like the amount of tax he and the Irish government agreed he should pay?
Wow, now I understand why the Brits left.
Except in this case you have the government telling Apple they don't owe the money, and the EU telling the government they do.
Companies should not pay income taxes, it's a tax on job and capital creation and bad for all concerned.
Ireland has the right to set it's own tax rates.
Ireland has the right to set it's own tax rates. The EU is full of it on this issue.
A corporation paying taxes in a country with only post box in a lawyers offices is a huge benefit to that country.
In reality, corporations should not have to pay any income taxes. It's a tax on the creation of jobs and capital. Eliminating it would increase both.
Yea, money gained in Ireland is not money "lost to the U.S.". These are profits from international operations, Apple already paid taxes on them in the countries where they were earned. We don't get to tax businesses in other countries because they don't generate costs in the US.
Imagine your US company opens a subsidiary in France. That subsidiary pays 33% in corporate income taxes. If your subsidiary was forced to also pay taxes in the US (California), then your total tax rate is 33% France, 9% California, and 35% federal, giving you about a 60% total tax rate. How well do you think your subsidiary is going to do competing against French companies when it has nearly double the tax rate, and barely is able to reinvest a third of it's profits?
US companies are only successful internationally because they don't have to bring profits back and can park them in low tax havens like Ireland. If that was ever taken away it wouldn't generate more taxes, it would decimate the ability of US companies to expand internationally. There would be a huge incentive to re-incorporate overseas to escape what would be the worst corporate tax system ever devised.
Remember, corporate income taxes are a tax on new capital, it's like eating our seed corn. Corporate income taxes are the dumbest possible way to tax, they are a tax on investment, new business formation, etc, leading people to invest less, create fewer jobs, etc. This year it's likely to pass a tax holiday that will allow repatriation of foreign profits at low rates, and at least $2 trillion dollar in capital will come back in the US. The question we should ask is, why a holiday, why not just abolish it?
Federal corporate income taxes accounted for only 9% of all federal tax receipts. Abolish it, and increase dividend and capital gains rates to regular income tax rates, and it would generate more tax revenues. Now you'd have a system where investment was no longer taxed, just when it was consumed, leading to more investment, more jobs and a higher standard of living.
Yea, this isn't true. It's not a loophole to have a foreign subsidiary, it's a necessary part of doing business internationally. Apple has to pay taxes in every jurisdiction it does business in. It doesn't have to base iTunes in a high tax country or Luxembourg. It doesn't have to pay taxes on profits made by overseas subsidiaries until it repatriates to the US, that's not a "loophole". And if the US closed that "loophole" it would make our terrible corporate tax system many times worse. Imagine you have a business and open a subsidiary in France. It's profitable so it pays around 33% of it's profits to the French government. Let say you are forced to take the 67% remaining of the profits back to the US to pay out to shareholders. You are in California so you pay roughly 10% corporate income tax, and have about 61% left, then you have to pay federal corporate income tax, so now you have about 40% left. You can either re-invest it in growing your business (and hire more employees) or mail it out to shareholders as dividend checks. If you dividend it to shareholders, they pay state income tax on it, and 20-25% federal tax rate, so they will end up with about 30% of the original profits made. Can you imagine how well any economies will do if you take 60% of it's new capital and set it on fire before they can be invested again? Imagine how hard it will be for US companies to open international businesses and compete with local businesses if the local business pays 33% in taxes and the US based one has to pay nearly twice as much? Let's assume your subsidiary is a chain of restaurants. Any local french restaurant chain can ape what you do and make nearly double the net profit. Fixing this "loophole" would devastate US businesses and make it really hard to grow new businesses beyond the US borders. We need to stop calling them loopholes and recognize how the system works. None of these companies is doing anything wrong, just trying to ameliorate the effects of a horrible US Corporate tax system.
Actually Ireland gets to tax of all Apple profits on business based in Ireland. iTunes is super profitable so this is going to transfer a hella amount of taxes from Luxumberg to Ireland. Since Apple doesn't have a ton of actual employees in Ireland, Ireland doesn't really have much in the way of additional expenses from these massive free tax revenues. Whoever negotiated the Apple agreement for Ireland should have been knighted, made a saint and nominated for the nobel prize. The EU isn't claiming Apple owes the EU more in taxes, it's claiming Apple's Ireland tax rate is too low and it needs to be higher, so it's essentially claiming Ireland needs to (retroactively) raise Apple's tax rate. The reason Ireland can serve as a tax haven in the first place is the USA's awful corporate tax system. Every year when a company makes a profit, it owes income tax to the federal and state governments, on average it's around 40% combined. Then it can either re-invest the remainder, or pay it to shareholders. If it is paid to shareholders they owe federal dividend taxes and state income taxes. So more than 50% of profits are taxed away. Apple has paid taxes on it's international profits in the countries they are earned. But if it repatriates the remainder back to the US, it will owe about 42% in state (CA) and federal taxes, and shareholders after dividend/state income taxes get about 45%. So instead it keeps as much business in ireland and saves all it's international profits into Ireland, that minimizes the tax rates on the business it does from ireland, and saves them from US taxes on repatriation. That means they have nearly twice as much money to invest. Obviously this is all not only ethical and moral, but they are obligated to minimize tax rates for thier shareholders. Likely this year the US will either fix the corporate tax system or pass a repatriation bill that will dramatically lower the rate on overseas profits returning to the US (last time they did it was 12% IIRC), and Apple will return everything at once, and the US will get dramatically more capital to invest (since at least $2 Trillion in overseas profits are trapped overseas by our tax system). Patents and patent laws are indeed awful but have nothing to do with this.