The third installment in the very insightful and popular NYT iEconomy series is front page of the Sunday NYT.

Part 1: An Empire Built Abroad: How the U.S. Lost Out on iPhone Work

Part 2: A Punishing System: In China, Human Costs Are Built Into an iPad

Part 3: Protecting Profits: How Apple Sidesteps Billions in Global Taxes

Some of the details of Apple’s corporate tax-avoidance maneuvers according to the NYT are:

• Apple’s federal tax bill was $3.3 billion on reported profits of $34.2 billion last year, a tax rate of 9.8%;

• Apple allocates 70% of its profits outside the U.S. note that the value is created in the US, but the low end manufacturing is overseas.

A Nevada shell company let’s Apple’s U.S. business sidestep California state taxes. California corporate tax rate = 8.84%, while Nevada = 0%.

California gives tax credits to Apple for conducting R&D in the state worht more  $400 million since 1996;

•  The “Double Irish With A Dutch Sandwich” routes royalties and profits through Ireland and the Netherlands and the Caribbean. On paper, Ireland “generated” one-third of Apple’s revenue last year.

•  Salespeople working in high-tax countries are employed by subsidiaries in low-tax countries.

• iTunes sales “happen” in Luxembourg -- a tax dodge with local incentives. In 2011, iTunes S.à r.l.’s revenue exceeded $1 billion

The full series is Pulitzer bait, and deservedly so.

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Click thru for giant graphics

‘Double Irish With a Dutch Sandwich’

Shrinking Corporate Tax Rates

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Source:
How Apple Sidesteps Billions in Taxes
CHARLES DUHIGG and DAVID KOCIENIEWSKI
NYT, April 28, 2012
http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html

Category: Financial Press, Taxes and Policy, Technology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

44 Responses to “iEconomy, part 3: The Corporate Tax Dodge”

  1. stonedwino says:

    This just makes me sick to my stomach…and we wonder why we have deficits. It’s called lack of taxation, especially do when it comes to corporations. Washington politicians keep giving tax cuts to the wealthy and corporations ans we end up paying. What gives man?

  2. Equityval says:

    Looks like the Times credo of “behind every business success lies a crime” (or at the very least highy dubious ethics) is alive and well. So much for celebrating our business successes.

    All of these corporate tax machinations would be moot if we had saner corporate tax regime.

    ~~~

    BR: Let me point out that a) The tax policy is in very large part a creation of corporate lobbying and b) you are excusing very reprehensible behavior.

  3. Old Rob says:

    Instead of constant hammering of the so called ‘tax dodgers’ and doing the Governments’ bidding (NYT) as a ‘fellow traveler’, maybe there should be a concerted effort in routinely exposing worthless spending.

    Better yet, maybe the specific Congress members, presidents, ext should be exposed for passing the enabling legislation that created these insane tax laws.

    Question of the day: Why is ANYONE still reading the NYT??

  4. whatever says:

    Yeah, my son does not have ADD, autism or anything like that. Why should we spend billions on making them producitve members of society?
    I dont live in some no-name middle of the country hick town. Why should we have the USPS spend billions keeping those post offices? I say get rid of them, let them use the pony express for all I care.

    But yes, the congress is the most at fault, because once they create these loopholes, corporations are “duty bound” by some inane philosophy where shareholders come before god, country and self. More should be done to expose the congressmen and lobbies who created these lobbies in the first place.

  5. Mike in Nola says:

    Ironic that the US spent 10 years and God knows how many billions tracking down Osama, but can’t do the same for tax dodges that are publicly known. And these loopholes have probably damaged the US economy a lot more than Osama could have.

  6. godot10 says:

    1) Eliminate the corporate income tax.
    2) Implement a value-added-tax.

  7. Mike in Nola says:

    China has no monopoly on near slave labor enterprises:
    http://mondediplo.com/openpage/locking-down-an-american-workforce

    While that account may be a bit over the top, I recently read an article where one of the private prison companies was demanding guarantees of how much prison capacity was going to be used. Shows the perverse incentives in our criminal justice system. See here for an example:

    http://www.csmonitor.com/USA/Justice/2011/0811/Kids-for-cash-judge-sentenced-to-28-years-for-racketeering-scheme

  8. techy says:

    Before we all get riled up please remember this is all Legal, just like Romney’s <15% taxes.

    But wait maybe something will trickle down on those fools who keep voting year after year in the name of religious beliefs.

  9. rct01 says:

    I need to get a better accountant. I shelled out 35% in taxes this year, despite being structured as a S Corp (I’m the only employee), having multiple real estate and maxing my retirement. I need to get better at legally allowing less of my hard work and wealth to be destroyed by those “financial predators” at the IRS!

  10. rohdemap says:

    And let us continue to cast a condescending eye to Greece where tax avoidance is a national sport. If they would just pay their taxes like everyone else they wouldn’t be in this mess.
    Apple is a Greek company, right?

  11. ConscienceofaConservative says:

    If this is the case, then it’s a largely a story of transfer pricing not done properly and the IRS should be getting more aggressive. There’s nothing wrong with setting up foreign subsidiaries, as opposed to simply purchasing from a foreign supplier. Assets sold to start up these subsidiaries are not being properly valued.

  12. Equityval says:

    rohdemap, Apple appears to be complying with the law, whereas the miscreants in Greece are not, and indeed are aided and abetted by bribe harvesting tax collectors.

    The right answer is a flatter and transparent corporate tax law with lower rates rather than one that favors the well heeled and influencial who can afford to hire tax lawyers to game the system.

  13. Herman Frank says:

    “Nice that I can read this on my Ipad!” :-)
    Joke! Don’t have one, don’t want one.
    The same can be said for the tax efficiency of GE, Apple, Microsoft, big-Pharma, and all their “brothers in arms”.
    “We don’t want it to happen!” No matter whether I’m your shareholder, I don’t want you to be an amoral skunk!
    Arm in arm they waltz their money out the door out of sight! Who said something about morals, fairness, social contract or win-win? The one paying the lobbyist to write and gets to pass the law in his favor wins! But “the win” is unsustainable and a loss for society.
    So we agree on “the moral issue at hand”, but where to turn to now??!! Our congressman who just got $100K in advertisement thru a super-PAC financed by those same companies? Don’t make me laugh! Perhaps the best we can do is hackle that congressman and those company boards next time we see them. Name and shame your congressman – that’ll be the day! And in the mean time time “take a paid subscription to the NYT for doing a citizen’s service of exposing this amoral behavior”.

  14. rd says:

    Out of sight, out of mind.

    Please keep in mind that many of the people that are protesting the development of Canadian oil sands, building pipelines etc. in North America are carrying iPhones, iPods, iPads etc.

    When societies build wealth, they want to live better. that means improving their environment, workers’ conditions etc. however, the people still want inexpensive goods, so they have other people do it in other countries where the environment and workers’ conditions are not protected.

    Hypocrisy is not the exclusive province of Congress.

    The good news is that in a few years, the Chinese will want better conditions and they will in turn see their work get out-sourced to another country.

  15. louiswi says:

    Here is the lesson of the day. Not from me but from one of the most astute politicians of all time.

    Here is what he said: “things are the way they are because someone(s) in power want(s) it that way”.

    It is really that simple. Corporate America is running the joint and all the grand ideas out there on how to change things are pointless unless first there is found a way to reign them in. I don’t see that happening.

  16. b_thunder says:

    The sequel to the “Wall St” and “Wall St 2″ movies will be called “Cupertino: iGreed never sleeps” with a sub-title “and never donates to charity”

  17. Petey Wheatstraw says:

    BR:

    Did any of the Young American Rainmakers you trumpeted yesterday say anything about ethics, fascism, globalization, public duty, personal responsibility, or the politics of greed and/or oligarchy?

  18. dsawy says:

    The solution is to dispense with corporate income taxation and institute a national retail sales tax. Then, no matter where an item is made, taxes are levied at the point of sale. We would gain two benefits immediately:

    1. We would be able to gain more tax revenue from imported goods, especially those goods coming in from the PRC which enjoy not only lower taxation and regulation burdens, but also a currency advantage. It would no longer matter where a company is domiciled – if they sell their products, services or goods in the US, there will be tax revenue that results from doing so.

    2. We could use the tax collection data as a much more reliable economic indicator than most of the nonsense we’re using now.

    As for the state taxes: Nevada has an entire industry of lawyers, law offices, etc set up to allow people and businesses in California to create shell constructs in Nevada to avoid taxes and to hide assets. It’s part of the charm of Nevada. California could solve the problem by changing their tax regulation, but California is run by a bunch of meddling, spendthrift loons who keep chasing business out of the state.

  19. Molesworth says:

    Yeah, but will the Apple fans boys care?
    I mean, after all, it’s Apple. They can do no wrong.

  20. VennData says:

    Does Apple pay a lower tax rate than their slaves in China?

    Who cares? Just lower corporate tax rates to zero and raise a European VAT on food, medicine and rent like the folks above who don’t read the New York Times. Go GOP.

  21. Inquiring Minds says:

    I paid over ~50% in taxes last year (Federal, California State, Real Estate, Sales Tax, etc) vs. Apple’s 9.8% (and I am not Buffett’s secretary – President Obama wants to tax me even more for not paying my “fair share”).

  22. VennData says:

    Pulitzer?! This is anti-American. Taxes just make corporations waste money. We need to start taxing … er …a…expand the base …er …a make the poor feel like they are part of the system, show some responsibility…and lower corporate taxes so they don.t feel responsibilty …er …a make them more likely to work…

    The only person who should get a Pulitzer is Obama for admitting he eats dog. Id we had a 25% VAT on dog you can be sure he would have eaten some normal American food, like canapes.

  23. VennData says:

    What I meant to say is poor people do not respond tax breaks … Otherwise they would be part of the 1%… But corporations do, since they are … Uh… Well. I HATE OBAMA and LOVE ROMNEY.

  24. josap says:

    National sales tax, but don’t tax food, utilities, housing.
    Don’t tax the basic nessecities of life.

    Maybe a low tax for clothes, higher for furniture, very high for private jets type of tax structure.

  25. techy says:

    inquiring minds:

    does that mean you make better than 1 million per year. I want to be in a situation like you so that I can pay higher millionaire taxes :)

  26. rct01 says:

    I think our U.S. voting system should have some type of “multiplier” for votes. If you pay $100k in income taxes your vote should count say 10X more than the person that pays $1k in taxes. And the person who pays no taxes should get say 1/4 of a vote. Why shouldn’t the people that carry the financial weight of paying like 90% of Americas tax income have more say in where that goes than those who make $30k a year and pay no taxes?

    People like my sister who is really far to left (and by the way gets section 8 welfare) who never pays taxes b/c she never has a j0b or makes enough money, has no problem voting to raise taxes on those “bad evil right people”. And she sees the solution to all that ills, taxing the rich. She of course has no problem voting and being very pro big tax increases since she NEVER pays taxes herself. I suspect she would feel very different if she were in my shoes working 70 hours a week hustling to get ahead and build wealth, only to have the financial predators at the IRS suck that wealth out of me every April 15th only to squander it on Big Government and the criminal vampire squid public pensions.

  27. Patrick Neid says:

    I would feel contempt for Apple had they written the tax code. They did not but our fearless leaders did. Perhaps if both sides of the isle get outraged enough we will finally get tax reform. I’m not holding my breath nor am I outraged by anyone’s avoidance of taxes. OK, Geithner’s excuse was pretty lame.

  28. Orange14 says:

    This is precisely the reason that VATs are so popular throughout the world. Even within the EU there has been tax avoidance strategies on the part of multi-nationals because of country specific taxation policies and incentives. This has been with us for years and I see no change in this at all.

    @VennData – we now understand where you are coming from; you don’t need to shout from the ramparts. Maybe your candidate will abolish the SEC and repeal Dodd/Frank and Sarbanes/Oxley. Then we would not have to worry about reading balance sheets any longer because they wouldn’t be worth the paper (or electrons) they are printed on. Be very careful what you wish for since I assume you are an investor like the rest of this otherwise you wouldn’t be reading this blog.

  29. Northeaster says:

    “A Nevada shell company let’s Apple’s U.S. business sidestep California state taxes. California corporate tax rate = 8.84%, while Nevada = 0%.” -

    No one cares. I pointed this out back home here in MA and politicians don’t care. How do I know? I did it for a living for my firms clients.

    Wyoming is the other state this was common, but the State Legislature there was in the process of closing the loophole. Entities could be formed with no questions asked, and no one at Secretary of States Offices check and of the stuff we filed. This has been going on a long time. Best Statute of Limitation state? Delaware. Play hide your money/profit? Nevada (possibly Wyoming).

  30. theexpertisin says:

    I wonder how many times money has to be taxed before the government is satisfied it has extracted enough?

    Actually, I know the answer: Until all political payoffs are made and elections are won.

    Corporations and individuals legally pay the least tax possible. This is decided law.

    You want to solve the problem? How about a two tier flat tax on everyone, including business. And the elimination of tax exemptions for all entities.

  31. cfischer says:

    I’m absolutely amazed at some of the posters that are defending this behavior like it’s okay – what is wrong with you?

  32. Lyle says:

    Add Boeing to the list it delivers its planes to customers more than 12 miles offshore thus avoiding Washington sales tax as well.

  33. Francois says:

    That we have defenders of such behavior never ceases to amaze me. I call it the Syndrome of the Sucker. Said Sucker believe he/she will be able to do exactly like the offender. Hence, they engage in all sorts of rationalizations and pathetic excuses targeted at defending delinquency.

    Unreal!

    And Yes! Politicians deserve a big heap of scorn and blame too. But what the hell can one expect from a 18th century political system based on counties and districts versus a globalized economy?

  34. Tulips says:

    Whatever said: “I dont live in some no-name middle of the country hick town. Why should we have the USPS spend billions keeping those post offices? I say get rid of them, let them use the pony express for all I care.”

    Well every household in America deserves to receive junk mail just like every American child deserves to receive a junk education.

  35. Greg0658 says:

    LOL Tulip
    VAT – I’d only start to think about it if there was no NO manufacturers exemption
    but the scofflaws of here there everywhere is a real issue .. like we don’t need no sticking government services none NONE .. riiiggghhhttt

  36. normal1 says:

    When it was decided that the best way to run our government was to emulate big business, as no one knows capitalism better, our fate was sealed, so to speak. The fact that dodging taxes is celebrated as a strike against tyranny, instead of as passing the buck to the next guy exemplifies how deeply engrained this belief has become in American life.

  37. Moss says:

    We are a Nation of corporations not citizens. We do not have a representative democracy, but a Corporalism. This is what we have like it or not. The tax laws, are simply a piece of the puzzle that makes it so. The fact that it is probably legal simply validates the state of things.

  38. whatever says:

    Tulip, you like to free google. Do you complain about all the ads thats paying for your free encyclopedia? Talk about entitlements. Those junk mail is paid for by advertisers thats keeping your 1st class mail stamp from going to $10.
    Honestly, do you have the same reaction every time you receive something for free/below cost which is ad supported?

  39. Greg0658 says:

    whatever- NOTHING is free – it just looks like it * – Rascal Scooters for Everyone
    and lets start with Segways for every USPS sidewalker

    its sorta called the advertising hook – or inflation to some – or a job to others – or plain old churn
    but ITS NOT FREE – Churn Jobs for Everyone

  40. DeDude says:

    If we have an alternative minimum tax for people who don’t we have one for corporations. I mean, corporations are people too – no need to discriminate against them.

  41. roscaf says:

    It seems some of the numbers in the article are off according to the analysis here http://www.theregister.co.uk/2012/04/30/apple_corporate_tax_rate/
    “In 2011 Apple coughed up the cash for estimated corporate income tax. That estimation being based, as the law says it should be, on profits for 2010. As in 2012 they’ll be sending in quarterly dosh based upon 2011′s profits, after they’ve made that balancing payment to Uncle Sam for 2011′s profits being larger than 2010′s.

    Now, bear in mind that Apple’s profits have soared into the stratosphere. They have doubled in a year.

    Which is how we can get to a 9.8 per cent tax rate for Apple: they paid in 2011′s taxes based on their 2010 profits, those 2010 profits being less than half of 2011′s. But this is clearly and obviously insane as a method of calculating Apple’s actual tax bill on its 2011 profits: it’s entirely ignoring the balancing payment they have to make to bring estimated payments up to what is actually due.”

  42. socaljoe says:

    Since most growth is overseas, maybe these multi-national corporations would be better off relocating to a more friendly tax jurisdiction in another country.

  43. Sacrifice says:

    It’s enough to make a Democrat weep…

    The synoptic gospels state that hostile questioners tried to trap Jesus into taking an explicit and dangerous stand on whether Jews should or should not pay taxes to the Roman authorities. The accounts in Matthew and Mark say that the questioners were Pharisees and Herodians, while Luke says only that they were “spies” sent by “teachers of the law and the chief priests”.
    They anticipated that Jesus would oppose the tax, as their purpose was “to hand him over to the power and authority of the governor” (Luke 20:20). The governor was Pilate, and he was the man responsible for the collecting of taxes in Roman Judea. At first the questioners flattered Jesus by praising his integrity, impartiality, and devotion to truth. Then they asked him whether or not it is right for Jews to pay the taxes demanded by Caesar. In the Gospel of Mark (12:15) the additional, provocative question is asked, “Should we pay or shouldn’t we?” Jesus first called them hypocrites, and then asked one of them to produce a Roman coin that would be suitable for paying Caesar’s tax. One of them showed him a Roman coin, and he asked them whose name and inscription were on it. They answered, “Caesar’s,” and he responded
    “Render therefore unto Caesar the things which are Caesar’s; and unto God the things that are God’s”
    The questioners were impressed (Matthew 22:22 states that they “marvelled”, ἐθαύμασαν) and satisfied with the answer, they went away.