Via Dave Weigel (who posts the whole Subcommittee memorandum), as reported by Nelson Schwartz & Charles Duhigg in the NYTimes Business Day:
Even as Apple became the nation’s most profitable technology company, it avoided billions in taxes in the United States and around the world through a web of subsidiaries so complex it spanned continents and went beyond anything most experts had ever seen, Congressional investigators disclosed on Monday.
The investigation is expected to set up a potentially explosive confrontation between a bipartisan group of lawmakers and Timothy D. Cook, Apple’s chief executive, at a public hearing on Tuesday.
Congressional investigators found that some of Apple’s subsidiaries had no employees and were largely run by top officials from the company’s headquarters in Cupertino, Calif. But by officially locating them in places like Ireland, Apple was able to, in effect, make them stateless — exempt from taxes, record-keeping laws and the need for the subsidiaries to even file tax returns anywhere in the world.
“Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven,” said Senator Carl Levin, a Michigan Democrat who is chairman of the Senate Permanent Subcommittee on Investigations that is holding the public hearing Tuesday into Apple’s use of tax havens. “Apple successfully sought the holy grail of tax avoidance. It has created offshore entities holding tens of billions of dollars while claiming to be tax resident nowhere.” …
In prepared testimony expected to be delivered to the Senate committee by Mr. Cook and other Apple executives on Tuesday, the company said it “welcomes an objective examination of the U.S. corporate tax system, which has not kept pace with the advent of the digital age and the rapidly changing global economy.”
The executives plan to tell the lawmakers that Apple does not use tax gimmicks, according to the prepared testimony.
Mr. Cook is also expected to argue that some of Apple’s largest subsidiaries do not reduce Apple’s tax liability, and to press for a sweeping overhaul of the United States corporate tax code — in particular, by lowering rates on companies moving foreign overseas earnings back to the United States. Apple currently assigns more than $100 billion to offshore subsidiaries….
Atop Apple’s offshore network is a subsidiary named Apple Operations International, which is incorporated in Ireland — where Apple had negotiated a special corporate tax rate of 2 percent or less in recent years — but keeps its bank accounts and records in the United States and holds board meetings in California.
Because the United States bases residency on where companies are incorporated, while Ireland focuses on where they are managed and controlled, Apple Operations International was able to fall neatly between the cracks of the two countries’ jurisdictions.
Apple Operations International has not filed a tax return in Ireland, the United States or any other country over the last five years. It had income of $30 billion between 2009 and 2012. By shuttling revenue between international subsidiaries, Apple was able largely to sidestep paying taxes, Congressional investigators said…
The Senate investigators also found evidence that the company turned over substantially less money to the government than its public filings indicated….
Translation from the Weaselspeak: “The way we look at it, just for the honor of having Apple call itself an American corporation, you should be paying us.”
And yes, I am aware that Fully Legal As the Current Codes Identify, Terms of Art, also Immeasurably Value-Added Technology. Shenangians like this may not be illegal, but they’re sure as hell criminal.
JDM
So if I try this who wants to bet I won’t end up with a multi-year prison stay?
trollhattan
Don’t you see, Apple pays enough already. Leave Apple alooooooone!
The Google dude who got pantsed by the woman in Parliament the other day is probably still dizzy from the curt smackdown. I suppose he can be revived by looking at his portfolio.
jake the snake
Makes me proud not to own a single Apple product. My daughter does have an Iphone, but I don’t want a phone smarter than I am.
Shorter Apple, “revise the tax code so that we don’t have to work so hard to cheat,”
JWL
Name me a single, major U.S. corporation that is not a tax cheat-chiseler.
And then explain what differentiates them from the herd.
kc
I’m about to give up on The Daily Show for good …
? Martin
Well, here’s what I’ve always understood about how this works.
Apple set up their operations in Ireland in the 80s. The tax laws at the time (still in effect) allow Apple to share costs with the Irish subsidiary – that was done to promote R&D efforts with overseas groups. They’ve been doing this for far longer than I’ve been following the company (mid 90s). The Irish subsidiary only aggregates profits earned overseas. Normally, little of that money is repatriated. And like all other companies, Apple pays foreign taxes in the jurisdiction in which it’s earned.
Now, the tricky bit with the Irish subsidiary is that it’s except from Irish taxes because it’s a joint operation with Apple US. So, this is a loophole between the US tax system and the Irish tax system. We treat it as entirely foreign, and Ireland treats it as entirely foreign.
Now, the investigation underway doesn’t directly deal with this situation. They dance around it a lot, though. I think what Levin and McCain are suggesting is that we need to tax foreign profits in certain ways that we do not do now. That’s not so much to accuse Apple of wrongdoing, because this setup has been going on unchanged for 25 years now, as it is to use Apple to advocate to a (much needed) change to tax law.
But, the assertion that Apple is especially avoidance of taxes is a bit hard to swallow. Last year they paid 2.5% of all corporate taxes paid in the US.
Gin & Tonic
@JWL: Name another major American corp with $100B in cash.
NickT
@kc:
The “Jon Stewart looks like a surprised turkey and calls for civility” schtick does get old pretty quickly.
NickT
@kc:
One can get tired of Jon Stewart looking like a surprised turkey after a while.
Gin & Tonic
@JWL: Name another major US corp with $145B in cash.
Gin & Tonic
@JWL: Name another major US corp with $145B in cash.
kwAwk
Make Apple a deal they can’t refuse. We’ll lower corporate tax rates for repatriated money, but we’ll no longer dedicate any US government resources to ensure that their patents and trademarks are respected.
scav
Slick design is one of their cherished hallmarks, no?
Gin & Tonic
test
magurakurin
@JWL:
Just my own perceptions, but for me it’s that fact that Apple has always had, and amazingly still maintains, the image of being hip, cool, and somehow counter-standard corporate culture. Jobs, and his successors, managed to hide their true, greedhead nature. Now Apple is in bed with Sony hacking out the terms of a deal to ream music listeners for a few more pennies on songs they skip over when streaming.
Exxon Mobil, scum, we know. Walmart, outsourcing tax-cheats, always have been. But Apple manage to pull the wool over so many folks for so long. But Apple is nothing more than a money grubbing corporation that doesn’t give two shits about anything but its own profits. Time to drop the facade.
Hill Dweller
@kc: That’s the 4th time in the last 5 shows Stewart has talked about the purported Obama scandals without actually telling the audience anything new. Was he blaming Obama for not knowing about the IRS targeting?
Did you notice Stewart conveniently omitted the GOP when talking about the false leaked talking points?
But all that pales in comparison to his biggest offense, which was airing an awful, unfunny bit.
gene108
Why?
Apple pays its employer portion of Social Security and Medicare taxes for its employees in the U.S.
Apple pays real estate taxes for its offices in Cuperitno.
Apple pays sales taxes in the U.S. on the items it purchases here.
The same arguments that 47% of the people, who pay no federal income taxes, still pay taxes can apply to any corporation finding ways around paying federal income taxes.
The tax code isn’t designed to conform to some arbitrary definition of fair. Lord knows what standards it is designed to conform to, but fairness sure ain’t it.
gene108
Why?
Apple pays its employer portion of Social Security and Medicare taxes for its employees in the U.S.
Apple pays real estate taxes for its offices in Cuperitno.
Apple pays sales taxes in the U.S. on the items it purchases here.
The same arguments that 47% of the people, who pay no federal income taxes, still pay taxes can apply to any corporation finding ways around paying federal income taxes.
The tax code isn’t designed to conform to some arbitrary definition of fair. Lord knows what standards it is designed to conform to, but fairness sure ain’t it.
magurakurin
@JWL:
Just my own perceptions, but for me it’s that fact that Apple has always had, and amazingly still maintains, the image of being hip, cool, and somehow counter-standard corporate culture. Jobs, and his successors, managed to hide their true, greedhead nature. Now Apple is in bed with Sony hacking out the terms of a deal to ream music listeners for a few more pennies on songs they skip over when streaming.
Exxon Mobil, scum, we know. Walmart, outsourcing tax-cheats, always have been. But Apple manage to pull the wool over so many folks for so long. But Apple is nothing more than a money grubbing corporation that doesn’t give two shits about anything but its own profits. Time to drop the facade.
El Cruzado
Ireland is an offshore tax haven now?
scav
Other recent Aplle+ Govt new: Apple Mobile Devices Cleared for Use on U.S. Military Networks ($$$ flows correct direction there) and Tim Cook’s pitch for a corporate tax holiday suits Washington just fine.
JWL
@Gin & Tonic: I don’t have a clue.
But even if I did, what’s your point in asking that question?
I mean, is Apple so egregious a tax cheat-chiseler as to differentiate it from other major corporations?
If so, I’ll ask again: what accounting practices differentiates it from those others?
El Cruzado
@magurakurin: Yup, they are a big corp, required by law to act like psychopaths.
Still, shouldn’t we put them down for what the release rather than what some random websites post as rumors about the company?
It’s a pretty sad state of affairs when you can’t buy your electronics from a non-creepy company (go ahead and name one), but I guess you could say the same for the gasoline running your car or for most of the food you eat.
El Cruzado
@magurakurin: Yup, they are a big corp, required by law to act like psychopaths.
Still, shouldn’t we put them down for wh@magurakurin: Yup, they are a big corp, required by law to act like psychopaths.
Still, shouldn’t we put them down for what the release rather than what some random websites post as rumors about the company?
It’s a pretty sad state of affairs when you can’t buy your electronics from a non-creepy company (go ahead and name one), but I guess you could say the same for the gasoline running your car or for most of the food you eat.at the release rather than what some random websites post as rumors about thempany?
It’s a pretty sad state of affairs when you can’t buy your electronics from a non-creepy company (go ahead and name one), but I guess you could say the same for the gasoline running your car or for most of the food you eat.
Eric U.
apparently the Irish subsidiary was a sham with no operations
srv
@Gin & Tonic: Name another “American” corp making a product worth having.
Joe Buck
Congress could fix this. They won’t, though.
Roger Moore
Could somebody please give Tunch the Heimlich maneuver? He seems to have swallowed the hamster again.
pseudonymous in nc
@El Cruzado:
A lot of US companies order themselves a Double Irish with a few Euro sandwiches. Amazon, Starbucks, Google, Dell, etc. Simultaneously taking advantages of the distinction between US tax law and individual EU nations’ laws, particularly on residence and liability, and taking a brief stopover in the Caribbean. So you might be a proud non-purchaser of Apple products, but put down your Frappuccino.
This is more of an long-term issue in the EU because it means that plenty of multinational companies are basically not paying any taxes at all in those nations. It’s bleakly comical that the US is catching up on this.
pseudonymous in nc
@Joe Buck:
Really? It’s fairly easy for the US to enforce its tax laws on citizens who live overseas — even if that’s an anomaly among countries — but I’d be interested to know your specific advice to Congress on how it can exercise tax-collecting jurisdiction over foreign companies, even if they’re triple-layered shell subsidiaries.
The problem here is that it requires action on multiple sides, and Ireland has, for a long time, enjoyed the benefits of serving as the European base for global companies, right up until the arse fell out of its economy.
The prophet Nostradumbass
Anybody want to buy a very, very valuable piece of NFL merchandise?
Ash Can
This server sucks the farts out of dead pigeons.
Little Boots
can congress do anything but posture? seriously.
Little Boots
congress is almost as useless as this commenting software.
Porlock Junior
Golly, what a complete and umitigated unreadable piece of shit this blog format changed to. On Firefox, that is. Where I have all my set of anti-spam, anti-tracker cookies and all.
E.g., the first line of this comment, as displayed, is “Golly, what a complete ” and the succeeding lines are of the same highly useful and readable length; as is all the blog text, unlike all the crap the left and right, which get vastly more space. Ultra cool.
Little Boots
like Congress wants to fix anything, ever.
max
@Porlock Junior: E.g., the first line of this comment, as displayed, is “Golly, what a complete ” and the succeeding lines are of the same highly useful and readable length; as is all the blog text, unlike all the crap the left and right, which get vastly more space.
On Firefox, I had to take the browser window and shove it all the way over to the left, such that it was sized 872×579 to get that effect. Are you running an 800×600 screen? Does this thing not now have a mobile version?
I just now had problems connecting to the database (?). But aside from that and ♥rounded corners♥! I haven’t noticed much difference.
max
[‘Gonna find out if entities work.’]
Debbie(aussie)
Has there been any new on soonergrunt and his family yet.i so hope they are all ok!
Not sure if anyone else is having issues, but I am having trouble getting expanded post ANC comments to load.
Debbie(aussie)
Has there been any news on soonergrunt and his family yet.i so hope they are all ok!
Not sure if anyone else is having issues, but I am having trouble getting expanded post and comments to load.
wasabi gasp
@Porlock Junior: Here’s a stylish theme that changes the layout to 1024 pixels. Maybe that’ll help.
Ash Can
Everything seems OK now (knock on wood).
cvstoner
Because the United States bases residency on where companies are incorporated, while Ireland focuses on where they are managed and controlled, Apple Operations International was able to fall neatly between the cracks of the two countries’ jurisdictions.
But this isn’t a tax gimmick, no siree. Not a gimmick at all.
raven
broke
Poopyman
(Tap tap) Is this thing on? How’d you guys get comments in over the past couple of hours when all I got were DB errors and then the message they were working on it?
cvstoner
@magurakurin: Just my own perceptions, but for me it’s that fact that Apple has always had, and amazingly still maintains, the image of being hip, cool, and somehow counter-standard corporate culture.
True, but I think the shine has been wearing off as of late.
CorbinDallasMultipass
@Porlock Junior: I don’t always read Balloon Juice, but when I do, I read it like this.
Patrick
@Hill Dweller:
And as far as I know, Stewart has yet to even mention that the IRS commissioner at the time was actually a Bush appointee. He also failed to mention, as far as I know, that Congress has blocked Obama’s appointment for the new IRS commissioner. I say, as far as I know, because I have avoided watching much of his dishonest/crappy show this week. It reminded me of his attack on ACORN. Just appalling.
By the way, it’s kind of hard to be responsible for an agency when you aren’t even allowed to have your own appointee run it.
Ash Can
@Poopyman: The joint crashed completely for me last night, but it straightened itself out just a little while ago.
Lurking Canadian
You’ve gotta love the chutzpah of the guy saying this is all the fault of the US for not being up to date with modern tax avoidance strategies. In his place I literally could not have got that out with a straight face.
Poopyman
Well, since things have momentarily ground to a halt here, let’s check the news, And by that, I mean let’s look at the Newsmax headings! Yay!
“North Korea Fires Sixth Missile in Three Days” — Have any of them come down yet?
“Cameron’s Conservatives Defy Him on Gay Marriage” — You lie down with assholes …
“Rep. Chaffetz: If Obama Wants, We’ll Do It The Hard Way” — Is this still about gay marriage?
“Financial Video Shows Secrets to Retire 10 Years Early” — Oh! Newsy!
“Did Obama Really Try to Help in Benghazi? Vote Now” — Because if you vote hard enough it becomes troof!
“White House Knew of IRS Probe in April” — So?
“Obama Movie Exposes Frightening Agenda” — I don’t even want to know …
“Obamacare’s Next Battleground: State Ballots” — I think that’s that “projection” thing I’ve been hearing about
“What’s This?” — Good question! Same question I have when I’m inspecting the bottom of my shoe, in fact.
gene108
Bruce Bartlett takes down the Bush Tax Cuts
Bartlett eviscerates the Bush Tax Cuts and basically states they have no redeeming value what so ever. Worth a read for the details of even other conservatives, who want to distance themselves from those tax cuts as being good economic policy,
Southern Beale
What is it about Tennessee Republicans and hungry children? Is there some kind of sadistic genetic trait in Tennessee Republicans that makes them like to watch kids suffer?
Citizen_X
Think different!
MikeJ
Bwahahah! Bigots worry about the funniest things:
Yes, Baron Tebbit of Chingford doesn’t want equal rights because of the spectre of a lesbian queen.
I'mNotSureWhoIWantToBeYet
(OT) mistermix and the rest of you magicians: Thanks very much for whatever you did to get rid of the horizontal scroll bar. It’s much appreciated!
Cheers,
Scott.
Poopyman
@MikeJ: Baron Tebbit of Chingford! That sounds very much like a Dickensian character. But there he is in Wikipedia. Given what it says from his (long) political career it sounds like he’s a real piece of work.
Citizen_X
@MikeJ: Yeebus. Writing that down: Things I Will Worry About After the Heat Death of the Universe, No. 2,349: How equal rights for gays will affect royal succession.
Patrick
@MikeJ:
I wonder if the bigots even realize that sometimes a heterosexual couple is unable to have children…
Suffern ACE
@Patrick: historically resolving that situation in a monarchy has led to more problems than lesbian queens ever will.
MikeJ
@Poopyman:
I was thinking he should be giving disapproving looks to Tuppy Glossop and Gussie Fink-Nottle. Something about a missing cow creamer or his black shorts march.
RareSanity
@kc:
You know, I’ve been feeling the same way, especially with his takes on the “scandals”. I’ve been trying to assess whether or not it’s been bothering me because I’m being overly partisan…but no, this is something different.
It was brought home to me last night when he tried to equate how Obama ran his Presidential campaigns, with the problems going on with the incompatible computer systems in the VA and DoD.
It was the way that he so smugly stated that the same person that is credited for running the most technologically advanced campaign, aggregating tons of data, into an accessible database, can’t fix the problem at the VA…like those things are even vaguely the same.
I’ve got news for you, Jon Stewart…these systems have been a political boondoggle, and general clusterfuck for close to a decade, that involves massive government bureaucracies and a dysfunctional Congress. To judge the President’s handling of it, by comparing to his handling of his own political campaign, where he has complete control of the money and resources involved is just flat out dishonest. And the scolding tone he uses to say, “You’re telling me the people that ran the most advanced campaigns in US political history, can’t fix these systems?”, was just insulting, and completely ignores the obstacles involved involved with addressing an issue such as this…not to mention, that it’s not his responsibility, nor does he even have the power, to “just fix it”.
I try to remind myself that it’s not a legitimate “news” show, and that he’s “just a comedian”…but, I know that he knows better than this, and that he’s just trying to score cheap points with his audience.
Then I see Colbert come out with the “Obama Scandal Booth, sponsored by Mazda”, where he says that he steps in, and little pieces of paper with possible scandals fly around…and just he picks one out of thin air…and sees if it catches on
Which is properly, and more humorously, mocking Republicans for pulling shit out of thin air. So I know it’s not just a “comedy” thing,
Debbie(aussie)
Has there been any news on sooner grunt and his family yet.i so hope they are all ok!
Not sure if anyone else is having issues, but I am having trouble getting expanded post and comments to load.
RaflW
G.E. many years ago set up a corporate division to manage the tax filings similar to managing any other profit center. They, like Apple, have become amazing at f*ing over the average taxpayer.
This pisses me off, no doubt. But if I were a small to midsize business owner, I’d be pantsing my Congrescritter every chance I got, because the average Mail Boxes Etc franchisee has not figured out how to offshore her profits for 0% taxation.
As far as I’m concerned, if corporations are people for speech and poltical contributions sake, then they should pay the top friggin personal income tax rate.
The rich are pulling away from the rest of us so fast we may be serfs before we even realize it.
Kay
I know they’ll do anything to get out of taxes, but I think these kinds of pieces are good because the attitudes towards these large corporations bug me.
We have this fawning gratefullness towards Apple (and others) that just drives me crazy: “thank you for doing business with us, here in our country!”
It’s a commercial transaction. They’re not our friends, and they’re not doing us a favor.
It starts so young, too! I watched the mayor of Chicago falling all over an over-priced sneaker company and a junk food producer for “donating” towards an excercise program in schools.
Why are we lining up little kids to sell product?
Do I really have to grovel in front of Walt Mart when they agree to hire veterans?
Were they NOT hiring veterans? Why not?
I think we need to get back to the idea that this is not a personal relationship and we’re not beggars.
burnspbesq
Do you pay more income tax than you are legally obligated to pay?
No?
Then explain why any company should do what you refuse to do.
Jasmine Bleach
@RaflW:
No, Apple is nowhere near GE’s level.
First, GE, despite having $19.6 billion in profits, paid $0 in taxes in 2012.
Apple, with $56 billion in profits (worldwide, not in the US alone), paid $14.2 billion in US income taxes in 2012. Apple was the 3rd highest corporate tax payer in the US last year, beat out only by Exxon and Chevron (according to Forbes).
Other companies besides GE that paid no income taxes despite making billions in profits–Verizon, Boeing, PG&E, Con Edison.
Look, a couple things here. Apple is fun to pick on because they are now the 800 lb. gorilla in the room and you’re sure to get lots of page hits. But two-thirds of Apple’s profits are made overseas and therefore are not subject to US income taxes anyway, so all those complaining of Apple’s $102 billion overseas stash of cash not being taxed really don’t have much of a leg to stand on. Whatever Apple makes in the US, it pays taxes on, as evidenced by the numbers.
Now, I will agree that corporate taxation is full of ridiculous loopholes which should be closed, of course. But Apple is hardly the worst of the offenders–they’re not even in the same room as the worst offenders, who pay zero income taxes.
And Google, Amazon, Microsoft, Dell, and Facebook have similar operations in Ireland. Where’s the “I’m so glad I don’t use their products!!!” hate against them? At least Apple makes quality product and actively supports same-sex marriage . . .
Maude
Apple has 3 subsidiaries without a country. This makes it hard to tax them.
Gus
The fact that all this shit is legal is a good argument that Cook would be right to say that the corporate tax code should be overhauled, though probably not in the way he’d like to see.
? Martin
@Eric U.:
Not true. Over the 30 years that Apple has had that operation in Ireland, they’ve had manufacturing there (I still have hardware in my house made in Ireland – though mfg left there some time ago), their european call centers are located and/or run out of there. European sales are run out of there. There’s quite a lot in operations there, actually.
? Martin
@Gus: Another big part of the problem is that there’s a race to the bottom on taxation – same as we see in the US between the states with places like Texas handing out huge tax breaks to woo jobs. Apple has negotiated very low tax rates in Ireland. It’s not clear how simplifying the tax code (while good on its own merits) will help solve the problem of what other nations charge in taxes, and how that will lead to higher tax receipts in the US.
Apple is also one of the largest taxpayers in California. They’ve stayed here in spite of high sales taxes and average corporate taxes. They’ve stayed because the benefits of being in California outweigh the tax burden. And that’s at least part of how you need to solve this problem.
Kay
@Maude:
Apple (or any entity, because I do think the NYTimes is weirdly obsessed with Apple) isn’t “without a country” when they need a civil or criminal legal system or scheme to enforce a contract, conduct trade on terms that are favorable to them or protect what they own from thieves.
This “without a country” concept on some issues but not others is a pretty good deal.
? Martin
@Jasmine Bleach:
You’re misreading that. Exxon and Chevron had higher tax burdens, but almost none of it was to the US government. They paid a lot of taxes to foreign governments (extraction taxes in most of their foreign markets are very high) which offset their tax liability in the US. Apple was the largest US taxpayer last year. As I said above. 2.5% of all federal corporate taxes were paid by Apple.
Tja
You know, if Apple wants to horde its profits in tax-exempt or tax-minimized off-shore havens, I’m fine with that. That’s okay. It isn’t illegal? Fine. No problem. Really.
The real corruption comes when they try to bring those profits into the country, which at some point they need to do. That’s when the bill comes due. That’s when they (and others, of course) launch their lobbying offensives to “persuade” Congress to let them bring that cash into US without paying the taxes they’re due, under some “amnesty” or other. They’ve done it before, and it worked. They’ve been trying again recently, but I’m not sure it has quite worked yet. This attention that’s being paid to them lately, all that could be part of the negotiating strategery. Someone in Congress holding out for more, flexing a bit of muscle.
? Martin
@Tja:
Why do they need to do it? They’re using that money for capital expenditures outside the US – to the tune of almost $10B a year. Most of their new store growth has been outside the US because most of their sales growth has been outside the US. And even with the bond issue, they’re using that cash as collateral to a low rate, without having to repatriate it.
Apple will only need to repatriate it when US sales fall off enough that it can’t cover their domestic operations. They aren’t anywhere near that. In fact, in terms of cash held in the US, no corporation holds more domestic cash. Apple could crank along for the next 4 years without a single penny of revenue, just off of their US cash holdings.
Sure, eventually that day will come, but it’s very far off. The pressures on Apple are so difficult to compare because they have so much money to fall back on. I don’t think any corporation has ever really been in their position. They have built themselves a permanent endowment. If we see days of 7% interest rates again, they can generate $10B a year in profits just off of their cash – not unlike a mid-sized national bank.
burnspbesq
@Tja:
A big part of the reason why Section 965 (the one-year repatriation holiday) got through in 2004 is that it was estimated to cost only $5-10 billion. That estimate was a WAG, because there was no historical precedent to draw on, and it turned out to be waaaaay too low. The revenue estimators on the staff of the Joint Committee on Taxation have learned from that debacle. A renewal of Section 965 will be estimated to cost over $100 billion, which makes it harder to get it through. Not that the Republicans won’t try to offset the cost by further shredding the social safety net.
Catsy
@burnspbesq: When the average American individual or family has the option to avoid paying taxes by exploiting international loopholes and tax shelters like the ones Apple and most other corporations do–without the IRS hauling us into court–your “point” might come within a light-year of being mundane.
Until then, you’re just being the same mendacious contrarian hack as always and it shouldn’t surprise you in the least that no one here takes you seriously.
iLarynx
@burnspbesq: “Do you pay more income tax than you are legally obligated to pay?”
I don’t see that anyone here, including the author Annie Laurie, has even bothered to reply. The silence speaks volumes about the lack of knowledge being displayed here regarding tax law, corporate governance, even logic in the comments.
Like everyone else here who pays their taxes honestly, Apple is playing by the rules written by Congress. If Congress doesn’t like the loopholes, Congress has the power to close the loopholes. If an individual here has an opportunity to take a tax deduction for education expense, are they “criminal” to exploit that opportunity? Of course not. It would be absurd to claim as such, but this is what is being claimed here by Ms Laurie and a gaggle of the commenters here.
Beyond that absurdity, Apple is obliged to pursue every legal tax break it can. If Apple does not do so, it can find itself on the wrong end of a shareholder lawsuit for failing its fiduciary responsibilities.
Ms. Laurie would do herself and her readers a favor by doing a little more research than just reading a Gawker headline (Slate, whatever) and firing off a half-baked Mike Daisey-like screed just before bed.
For reference and the record, Annie’s “criminal” charge is utter bullsh!t – at least, according to Merriam-Webster and Congress itself. From the WSJ transcript of the hearing (12:48):
More reiteration here by Senators and execs that everything Apple is doing is legal.
Also, for the record, I’m not anti-tax myself. I favor one of the options offered which is the adoption of an international tax code to remove the tax havens and rectify these types of situations. (Additionally, I believe that tax rates on everyone but the lowest quintile should be paying progressively more in income taxes, education should be fully funded and higher ed should be heavily subsidized, and we should get rid of the ACA and replace it with a single-payer plan as has been successfully done in G.B. and France).
So, I’m for a more sustainable, progressive and internationally-aware tax system, but spewing hysterical, contradictory nonsense about how someone is a “criminal” (right after saying what they’ve done is not illegal) doesn’t help one’s cause at all.
Bottom line: Don’t fault the rules that Apple (and Google and Microsoft and Facebook etc., etc.) are playing by. They ARE playing within the rules. Whining about it is every bit as useful and attractive as p!ssing in the wind. If you don’t like the rules, work to get the rules changed.
.
Jasmine Bleach
@Catsy:
But Apple isn’t avoiding paying taxes on its American profits. They paid over $14 billion in US income taxes last year. Third-highest (or first-highest if you believe Martin above) corporate tax payer in the US. So you’re comparison to the average American family having the option to not pay taxes rings hollow here.
Sure, maybe they SHOULD pay more taxes (I’d probably go along with that). Maybe they’re not paying ENOUGH taxes on their foreign assets (that’s mostly up to governments outside the US how things are taxed or what loopholes are legal), and I’d give you some credence.
But you’re making false equivalencies there. As I stated above, Apple is far, far from the worst offender.
iLarynx
@iLarynx:
Corrected:
Bottom line: Don’t fault Apple (and Google and Microsoft and Facebook etc., etc.) for playing by the rules.
dollared
@Jasmine Bleach: @? Martin: Way late to the party, but you Apple fanboys have it all wrong.
Apple DOES NOT make two thirds of its profits overseas. It uses a series of shell corporations to transfer a significant portion of its profits overseas.
Apple makes no money atall in most countries in the world. The US is still more than 50% of its revenue and profits. If you really want to understand this, think about this: Microsoft sells in 200 countries, and generates 60=65% of its profits overseas. Apple has trivial sales in most of the emerging markets, almost none in Asia. It could not possibly have Microsoft’s domestic/foreign ratio.
Why does Apple claim that “2/3rds” business? Because that’s the core of its tax avoidance. It transferred its IP at bargain prices to tax shelter countries, and then those shelters overcharge for IP rights back to Apple. The profits are then transferred out to places like Ireland, where Apple’s effective tax rate is .015%. Microsoft does this too, but obviously not as aggressively, or it would claim that 75% of its profits come from overseas.
The transfer pricing that Apple uses to launder that 10-20% of its profits is entirely subject to reasonableness standards, and it is obviously more aggressive than its peers in global technology companies – see my Microsoft example for “aggressive but reasonable.”
Fuck them. And kudos to you guys for being so worldly and savvy – and completely missing the point.
burnspbesq
@Catsy:
What would you have Apple do, dumbass?
dollared
@burnspbesq: Pay its goddamn taxes, dumbass. It’s claim that 2/3 of its profits are from overseas is patently false. It is based on transfer pricing between subsidiaries that is out of line with its competitors. It needs to fix that and pay up.
burnspbesq
@dollared:
You pretty clearly have no fucking clue how cost sharing works.
What actually happens is that the participants in a cost sharing arrangement fund intangible development in exchange for the right to exploit the developed intangibles in a defined geographic territory or field of use. Each participant’s cost share is directly proportional to its share of “reasonably anticipated benefits” derived from exploitation of the developed intangibles. There are several permissible ways of computing RAB shares. Revenue is most commonly used. The payment back to the United States is not, as you so humorously described it, an overcharge for the use of IP in the United States. It is a reimbursement, at cost, of a pro rata share of R&D and product development expenses.
It is possible that Apple Ireland underpaid for the original transfer of non-US rights to pre-existing intangibles back in 1981. I don’t know that, and neither do you.
I’m curious as to how you “know” that Apple “makes no money at all in most countries in the world.” Its publicly available financial statements absolutely don’t support that assertion? Do you have access to Apple’s general ledger or consolidation package? If so, do please share. I’m sure it makes for interesting reading.
burnspbesq
@dollared:
If you have some actual evidence that Apple’s transfer pricing is out of whack, please share. Otherwise, stop making shit up.
pseudonymous in nc
@? Martin:
Actually, there’s some assembly for the EU market back in Ireland. Cork, specifically. And they’re hiring right now.
Perhaps it’s pragmatic, done to secure grants or tax writeoffs, but the same thing’s happening with some BTO models in the USA.
@dollared:
The IP transfer (a standard component of the Dutch sandwich) is one of the things that Apple says it doesn’t do. I’m willing to believe they’re lying about that if you have evidence for it.
dollared
@burnspbesq: Since I don’t have the access you think you need to stop fellating Apple, here’s what the US Senate says –
“Apple has set up three foreign subsidiaries that the company claims are not resident in any nation for taxing purposes, in an effort to avoid paying tens of billions of dollars in taxes to the U.S. and other countries, according to a new report from a U.S. Senate subcommittee. ”
Let’s see, that’s $10B per year in transfers to a single tax free entity in a tax free jurisdiction, not counting Ireland.
Tell me how that is possibly justified. In corporate operations terms, not in we-got-these-cool-ad hoc rules-we-think-we-can-exploit-to-avoid-taxes terms. Having an emasculated IRS is not the same as actually being legal.
http://www.pcworld.com/article/2039299/senate-report-apple-claims-subsidiaries-with-no-taxing-jurisdiction.html
Jasmine Bleach
@dollared:
Umm, no. Here’s one chart from a year ago as to where Apple’s revenues come from (second chart down):
http://www.theatlantic.com/business/archive/2012/04/apples-monster-quarter-in-4-charts/256311/
and Apple’s revenues have only become more global over the past year. Profit tracks revenues.
Revenues outside the US are northward of 60% (how far north is open to a bit of speculation because the retail segment isn’t broken down, and includes retail within and outside of the US), for the most recent quarter:
http://biz.yahoo.com/e/130424/aapl10-q.html
You’re accusing Apple of lying in its SEC documents, which there is zero evidence for other than you fevered imagination, and if true would put the company in for a world of hurt.
Show me some data. Show me the charts. Otherwise, it’s just your uninformed opinions and possibly outright lies. Notice how I provide data, and you provide ad hominem attacks.
Also, if you live in the US, how’s about supporting a US company that is a top tax payer for once? If you want the tax code stricter, by all means let’s do that, but the vitriol against Apple is ridiculous.
burnspbesq
@dollared:
The data are in Note 8 to the financial statements in Apple’s 10-K for the fiscal year ended September 2011. Setting aside retail, which isn’t broken out by geography, operating profit in the Europe, Japan, and Asia-Pacific segments adds up to $23.596 billion. Operating profit for the Americas segment (which includes all of North and South America, not just the United States) is $13.538 billion. Non-Americas is approximately 63.5 percent of the total.
Two-thirds is “patently false?” I think we have a difference of opinion on the meaning of “patently false.”
dollared
@Jasmine Bleach: Because the subsidiaries transfer the income outside the US. My point is that the tax avoidance and the claim about the origin of the profits are one and the same.
It’s how it’s done. Please. Follow the game or stop commenting from the stands.
Same to you, Burnsie. You should know better. The basis for the tax is the country of origin of the profits. So the key is transferring the profits outside of the US. That’s the scam.
It’s really no different from the off balance sheet entities that were the source of Enron’s fraud. You transfer the financial effect of operations to some made up entity and then tell the world the “after transfer’ story as if it were the “before transfer” story. Burnsie knows how to do this.@burnspbesq:
burnspbesq
@dollared:
I’m not playing your false-dichotomy game.
Under U.S. law, the residence of a corporation for tax purposes is determined by its place of incorporation. A democratically elected Congress decided to have that rule.
Under Irish law, the residence of a corporation for tax purposes is determined by its place of effective management. A democratically elected Dail decided to have that rule.
Under the U.S -Ireland income tax treaty, each country agrees to determine the tax residence of corporations in accordance with its domestic law. That treaty was negotiated by democratically elected governments, and ratified by democratically elected legislatures.
That asymmetry is goofy. I happen to think it should be eliminated. Every dollar of revenue earned by multinational enterprises should be taxed once, and only once, in the country where the predominant amount of economic activity that gives rise to it takes place.
But until one or the other democratically elected governments chooses to do something about it, there it is.
dollared
@burnspbesq: And the entity with $30B of profits and no taxable place of operations?
burnspbesq
@dollared:
Nope. The key is determining where the income is earned. In transfer pricing jargon, where are the functions, assets, and risks that give rise to the income. Unless the answer to that question is “in the United States” or the income is Subpart F income of a controlled foreign corporation, the United States doesn’t get to tax it until it’s repatriated, and there has to be a foreign tax credit or similar mechanism to prevent double taxation.
burnspbesq
@dollared:
@burnspbesq: And the entity with $30B of profits and no taxable place of operations?
Exists because two democratically elected governments want it to exist.
I don’t make the rules. I just understand them.
burnspbesq
What I’d really like is for Sen. Levin to say the following:
“We, the United States Congress, fucked up. We handed U.S.-based multinational technology companies the keys to the Treasury by continually blowing holes in Subpart F and denying the IRS the resources it needs to effectively enforce the transfer pricing rules.”
No, I’m not holding my breath, either.
? Martin
@dollared:
Actually, yes they do. Seriously, I track this data constantly and have for 15 years. 35% of Apple’s revenue comes from North and South America. That’s very heavily tilted toward the US, but there’s a decent Canada chunk in there. Brazil is coming up. You add in a bit of additional US retail sales and you wind up pretty near that 35% number. China is about 15%. Europe about 25%. The rest is Japan, India, Middle East, etc.
Those corporations aren’t shifting profits out of the US.
? Martin
I think the bottom line on what Congress is trying to say here is the following:
“We want US corporations to pay a fixed corporate tax rate across all jurisdictions. If they aren’t paying taxes to Ireland or whoever, then they owe that money to us.”
That’s not how the tax code works, but that seems to be how they want it to work. The states seems to be looking at the same problem of disparate tax rates across the country and seeking similar goals. That’s fine if they want to use Apple as an example of how the current system is failing, but there’s nothing new here. Apple has been operating this way since they went public in 1980. Are they really just getting around to noticing?
I’ll add that I don’t mind if they change the rules in that way, so long as everyone is held to them.
pseudonymous in nc
@dollared:
While the US is allowed to operate border checkpoints in Ireland, I don’t believe that extends to allowing the IRS to operate there, nor to allowing Irish Tax & Customs to operate in the US.
As burnspbesq says, these distinctions in local laws allow a lot of arbitrage, and the IRS needs to adapt to it, but there seems to be a kind of belief that there are small special-ops audit platoons that can be dropped in foreign countries to recover taxes.
dollared
@? Martin: No, we want the corporations to stop laundering money fraudulently so that it appears to be foreign income when it ain’t. Then we want to tax it appropriately.
It makes no sense to tax Apple’s legitimate China income.
burnspbesq
@dollared:
You still are a little light on evidence of any activity by Apple that can fairly be characterized as “laundering” or “fraud.”