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Source: NYT

 

Unbelievable chutzpah:

“Thanks to what lawmakers called “gimmicks” and “schemes,” Apple was able to largely sidestep taxes on tens of billions of dollars it earned outside the United States in recent years. Last year, international operations accounted for 61 percent of Apple’s total revenue.

Investigators have not accused Apple of breaking any laws and the company is hardly the only American multinational to face scrutiny for using complex corporate structures and tax havens to sidestep taxes. In recent months, revelations from European authorities about the tax avoidance strategies used by Google, Starbucks and Amazon have all stirred public anger and spurred several European governments, as well as the Organization for Economic Cooperation and Development, a Paris-based research organization for the world’s richest countries, to discuss measures to close the loopholes.

Still, the findings about Apple were remarkable both for the enormous amount of money involved and the audaciousness of the company’s assertion that its subsidiaries are beyond the reach of any taxing authority.

“There is a technical term economists like to use for behavior like this,” said Edward Kleinbard, a law professor at the University of Southern California in Los Angeles and a former staff director at the Congressional Joint Committee on Taxation. “Unbelievable chutzpah.”

 

 

Source:
Apple’s Web of Tax Shelters Saved It Billions, Panel Finds
NELSON D. SCHWARTZ and CHARLES DUHIGG
NYT, May 20, 2013
http://www.nytimes.com/2013/05/21/business/apple-avoided-billions-in-taxes-congressional-panel-says.html

Category: Digital Media, Taxes and Policy

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.

50 Responses to “Apple’s International Tax Structure”

  1. Old Rob says:

    Some entity made the laws; Apple simply took advantage. Question: Does the IRS want more money? Simply have Congress change the tax laws. Everyone stop complaining.

    I don’t know why this article is even considered on TBP.

  2. TrainStation says:

    Yesterday the Big Picture had an article “IQ Valumentum Screen” that listed several companies with some very good numbers, including Eaton. Eaton has relocated its address to Dublin.

    At least Apple hasn’t pulled an Eaton.

    • TrainStation says:

      It makes good business sense for Eaton to relocate its address to Ireland. It competes in the global power transmission market against companies like Siemens (Germany) and ABB (Switzerland).

      Per Deloittes, Ireland’s corporate tax rate is 12.5%, Germany’s 15%, and Switzerland’s 8.5%. Whereas the USA is 35%.

      USA engineering/construction companies dominated Engineering News Record’s top international contractors thirty years ago. Today the list is dominated by European and Chinese companies for overseas work. They all get prices from the same sub-contractors, but US firms need to tack on more to earn the same net. Thus they lose market share.

    • willid3 says:

      well its a lot easier to do that if you dont sell to the public. and you want to keep selling to the government. cause I am sure a lot of them have noticed that on more than one occasion both parties have put into law restrictions on what the government can buy

    • pjschgo says:

      What difference does “pulling an Eaton” and relocating make if you’re not paying taxes either way?

      • TrainStation says:

        It’s interesting that we have the highest corporate tax rate and the highest percentage of attorneys. Coincidence? Doubtful.

  3. Moss says:

    All made possible by the Corporate stooges in Congress, and the bevy of Lawyers, Investment Bankers and accountants. The modern Corporation has no moral or ethical underpinnings as their one and only mission is to reap the maximum amount of profit. All else takes second fiddle. No doubt they have made many charitable contributions from their taxable income for which they receive a tax write off and are heralded as socially responsible.

    • willid3 says:

      i suspect the real mission is to make the bonuses as big as possible. if that means profits so be it. if it means short term views, so be it. if it means not listening to the owners of the company (those pesky shareholders) so be it,

  4. JoeGardener says:

    And exactly nothing will change….just more business as usual according to the Federal Government.

    GOP=DEM=INC

    Until that changes….nothing changes.

  5. GeorgeBurnsWasRight says:

    YMMV, but I don’t see this is any worse than Romney getting his lower tax rate from the hedge fund tax breaks. Getting personal, I’ve never understood why I was supposed to have automatically become a better citizen after I stopped renting and bought a house. I haven’t noticed any burst of moral growth. Yet the tax code now favors me in allowing me to deduct what my landlord used to deduct. (I bought the house I was renting.)

    And unless the tax code has changed, a plumber can incorporate and get tax breaks that a doctor cannot.

    The way we codify inequalities in the tax code, usually following the donation of large sums of money to legislators, is bad for our country in the long run.

  6. Fred C Dobbs says:

    Rob Trainstation, Moss are right. There is no claim made of illegal or criminal conduct. Apple pays taxes in every country it sells product and generates revenue, and pays the full amount of taxes due on those sales in those countries. Levine complains Apple is not paying more tax in the US than it is obligated under US law to pay. Levin is worse than a Communist. He wants people to pay more than they should. Why? Does he? How much? What chutzpah Levin has.

  7. HarryKlein says:

    Why is nobody crying foul that Apple is using loopholes to also eliminate all profits in the international subsidaries. The same thing is also happening at Amazon and plenty of other multinationals.
    It really looks like those corporations have already decided that they will not be responsible for their fair share of financial responsibility.

    • beaufou says:

      Apple, Amazon and Google are getting sued in France for hundreds of millions, not sure about other countries though.

  8. I question if this arrangement is completely kosher;

    at the very least, it pushes the envelope very very far…

    • raholco says:

      This is just mind-blowing. Then Again, in light of their recent debt-offering makes me wonder if this wasn’t a maneuver to prevent Apple from becoming a target of arbitrageurs who could use Apple’s cash against them?

  9. grcacc says:

    This is all part of a US congress sideshow in an attempt to take attention away from Obama. Surely they are smart enough to know they look like fools.

    All large multinationals strike agreements with the US IRS regarding their organizational structures and transfer pricing plans in order to avoid prosecution. The IRS is at their place of business every day auditing transactions for compliance with their advanced pricing agreements.

    There is no doubt Apple has self created or purchased patents that have been created/acquired by the international subsidiaries which in effect makes them the risk takers for their international sales, which means no profit is due the the US for internationally acquired, manufactured and sold products.

    What this really demonstrates is a TOTAL lack of understanding of the complexities of and how international business operates.

    If the US IRS has an issue, they can take Apple to court and Apple can force the IRS to abide by international tax treaties. They didn’t do that. They put on a show for the peoples entertainment.

    And just so you know, with companies moving R&D offshore, the US will have even less of a leg long term to attempt to collect taxes on transactions that have no US substance. And forcing companies to keep their offshore earnings outside the US, will only make this worse in the long term. Companies are becoming supernational, where decision-making, financial strength and research is spread across many nations.

    In the end the US congress wants to collect taxes on transactions that they have no right to.

    Personally I think Rand Paul is one of the few senators who has any concept of what the US needs to do. The rest of the bunch, are simpletons deserving of ridicule…

    • willid3 says:

      actually is was Congress that force Apple to come and testify. but it wasn’t even a subpoena that Apple responded too. I suppose we could always make it so that doing business in the US mandates paying taxes in the US. and if the EU joined the US what are the chances that any multi national would survive long if they didnt comply. not sure that there are tax treaties that allow Apple to do what it did. but maybe there are. and maybe they get revoked? and i suppose you will also sell us how the last tax holiday for multinationals went? seems like we expected to get jobs out of that. and we zilch from it.

      • Tim Cook appeared voluntarily — no one was forced

      • grcacc says:

        Tell me, should the US tax Samsung, a Korean corporation, on items they manufacture key parts in Japan and assemble in Vietnam and sell in Germany?

        Why or why not? They sell products in the US.

        Consider Apples international sales the same as Samsung’s.

        It’s easy to think that Apple is just one huge company that everything flows into and out of. That is a US parochial perspective that ignores the laws of the many countries Apple operates in. The reality is Apple is a series of corporations that pay tax in every country they operate in and taxes are a result of taxable transactions. Dividending money from an international corporation back to the “mother” corporation is a great way to increase your taxes with no benefit. Why not take those funds and invest in foreign subs to grow the business? It happens all the time…

  10. VennData says:

    I love the partisan buffoons who blame Congress when it’s the corporate lobbying that made the tax code what it is. you think they would add a special breaks for oil and gas if oil and gas didn’t pay lobbyists for it?

    These commentators are so clueless. Levin called these guys in to fix the tax code, not dismember capitalism.

    • grcacc says:

      As one buffoon to another, since when do lobbyists vote on tax laws in the halls on congress? I forgot they had that power.

      On the other hand, I can’t believe how cool Tim Cook stayed in the face of such bumbling idiocy. And I hate apple products.

      TTFN,
      GRCACC, Buffon, BS. MS. CPA, 25 years ihigh tech, Europe, Asia, USA

      • beaufou says:

        Lobbyists don’t vote but they do write the laws and congressmen vote for them for a price. Just because a puppet pushes a paper doesn’t mean he wrote it, in most cases he didn’t, lobbyists do, ask Abramoff.
        As for Tim Cook proposing another tax holiday, the last time it happened it made no impact on the economy.
        Apple doesn’t pay taxes not because they’re broke or short of cash, they do it because they’re greedy and most of all they can. If such good will as paying taxes was at play, why did they in-debt themselves for 17 billion to distribute dividends and pay even less?

      • grcacc says:

        Tim Cook didn’t propose a tax holiday. He said that idea was bad. He wanted comprehensive and sensible tax reform…

        You seem to think corporations have feelings. Corporations are not structured as social welfare agencies. They are structured to design, produce and sell products and services efficiently and reward shareholders, ie pension plans, retired people, mutual funds, etc….
        I guess you are saying shame on them for rewarding their owners rather than paying into the US tax system to redistribute their funds,

        On Apples $17 billion debt, wouldn’t you borrow money to buy a house at 1,85% if you could. And along the way they are planning to reward their owners…

      • beaufou says:

        http://www.guardian.co.uk/technology/2013/may/21/apple-wants-single-digit-corporate-tax?guni=Network%20front:network-front%20main-3%20Main%20trailblock:Network%20front%20-%20main%20trailblock:Position1

        Similar, “Cook said the tax rate for repatriated money should be set “in single digits”"
        “Standard tax for US profits should be, he said, in the “mid 20s”.”
        Corporate profits are reaching new highs.

        “You seem to think corporations have feelings” don’t know where you got that one from?
        As for paying into the tax system, I pay my share without cheating or evading because I believe in society and you’re right, I believe in working for a living rather than taxing younger workers with some fancy plan designed by Wall Street crooks.
        Money works in society only if it is earned, no sucked out in a parasitic way or in desperation because one couldn’t figure out how to earn enough, for 90% of the population, it is an everyday worry.
        Rewarding pension plans or retired people or owners is a tax on the real economy, the project started decades ago that is essentially ruining younger generations by redistributing their earnings to older generations and/or rewarding an oligarchy that calls itself elite but is nothing but a bunch of predatory imbeciles.

        And yes, 1.85% would be nice for the average folk struggling, not the billionaires who have more than enough.

        I don’t have an owner.

      • grcacc says:

        Here’s a clue,
        when you save earned income, its called capital.
        When you invest those funds, either in a company or a CD or treasury note, you own it.
        In return for your ownership, you expect a return.

        Else, you believe society via the government owns everything. That’s called socialism or sometimes communism. Glad to know where you stand on individual ownership of property. Also glad to know how you feel about workers who saved a lifetime to help themselves in their old age. You clearly feel as if society is responsible for taking care of you in your old age….

    • Trader2012 says:

      Are you serious? The lobbyists didn’t put guns to the heads of congress. They are only bought and paid for because they put themselves up for sale! Since congress set up the rules of the game, it forces all the corporations to play accordingly or they will be at a competitive disadvantage.

  11. Fred C Dobbs says:

    grcacc has it right. Levin has it wrong.

  12. Joe says:

    Stuff like this reassures me that I’m still in the real world, the one I grew up in; The Lord Helps Those Who Help Themselves. And Do They Ever. Nothing helps protect your money like being able to afford to protect it. Ya wanna be always right? Bet that people will serve their own interests. And on the very rare occasion when you get it wrong, you end up amazed and gratified that you were there when it happened…

  13. Frilton Miedman says:

    Agree with Venn, gcac is ignoring details of tax code to make a partisan blanket statement.

    Furthermore, the statement that this is a “show” for the public is 100% correct, public awareness is the best tool for change in any Democracy.

    One comment in the testimony today caught my attention, when Ayotte mentioned that corporations remain in the U.S. and keep their patent rights here because we are the best in the world at protecting them.

    If a multinational is selling products elsewhere and our resources protect their intellectual property – shouldn’t at least impose a small tax on foreign sales for that reason alone?

    • grcacc says:

      Please enlighten me, where did I make an incorrect statement regarding taxes? This should be fun….

      On the show in congress, I’m just glad Tim Cook took his time to try and explain things. I seriously doubt the congressmen listened. Most, spent most of their time making partisan statements. They apparently didn’t care what Cook said.

      Why is Samsung winning Apples customers left and right? Must be those tough Korean patent protections.

      In high tech, the best patent protection is innovation. Patent protection is generally the last resort for the has-beens to try and get some revenue from the innovative companies

      And here’s the scary thing, why are more and more companies looking outside the US to setup HQ’s?

      As of 8/2012 – Since 2009, at least 10 U.S. public companies have moved their incorporation address abroad or announced plans to do so, including six in the last year or so, according to a Wall Street Journal analysis of company filings and statements. That’s up from just a handful from 2004 through 2008.

      The companies that have moved recently include manufacturer Eaton Corp., ETN +0.91%oil firms Ensco International Inc. ESV -1.02%and Rowan Cos., RDC -2.42%as well as a spinoff of Sara Lee Corp. called D.E. Master Blenders 1753.

      Stay tuned, without change, the rest of the US will slowly turn into Detroit. Is that what you want?

      Here’s a research question – Why did Halliburton in 2007 establish a Corporate HQ in Dubai? So their HQ is split between Houston and Dubai. The way things are going, it’s just a matter of time before other companies follow this lead…

      In the past, it was labor rates forcing companies to move jobs overseas. Today, it’s tax rates.

  14. willw1 says:

    The arrogance of the government is astounding. Senator Levin acted as if it is the federal governments money when in fact Apple earned it and is duty bound to their shareholders to minimize tax obligations legally, which they did. And Levin tried to blame some of the federal governments problems on Apples refusal to hand over the money. That’s chutzpah.

  15. Joe Friday says:

    Tim Cook’s testimony to Congress was Orwellian.

  16. par1 says:

    Enough with the “who can blame Apple for simply following the rules” BS! These”rules” didn’t write themselves or get handed down on Mount Sinai, they’re the product of intensive lobbying and revolving door rulemaking by the corporate elite. And that’s just the core of the rules – whether Apple’s house of cards structure with no-residency subsidiaries (I think of them as Schrodinger quantum subsidiaries – merely observing them causes them to change their state!) even fits in the penumbra of what they got their dependents in Congress and the IRS to enact is another question.

  17. Willy2 says:

    1. Why do you complain ? It’s all very legal.
    2. There’s however one flipside. It means that US wage earners that can’t make this kind of tax evasion schemas have to pay more.
    3. Why are you outraged ? The US runs the largest tax evasion scheme in the world !!!

  18. constantnormal says:

    Corporate taxation in Bananamerica, especially of multinationals, is a complete charade … This is just one example of how the citizens (and with the 99% carrying a grossly disproportionate amount of te load, based on their incomes and living expenses vis-a-vis those of the 1%) are left picking up the tab for legislative ineptitude and corruption.

    http://www.reuters.com/article/2011/11/03/us-usa-tax-corporate-idUSTRE7A261C20111103

    The tax code is so moth-eaten, it is beyond repair. Start with a flat tax, adjust that to make the impact proportional to income, assets, and living/operating expenses, and tax earned income EXACTLY the same as unearned income, and things would be a lot more equitable … for a while, until the legislative moths chew holes in it again.

    What I want to know is why, out of the sea of egregious corporate tax compliance (see suuplied link), Apple was targeted, a company that pays a ton of taxes, and brings in a huge amount of (yes, untaxed) revenue into this country (even if it is locked up in offshore subsidiaries, until this latest debt-based repatriation scheme). Isn’t that what we want our corporations to do?

    So what corporate PAC is pulling McCain’s strings on this? Mr Softee? Google? Amazon? SAMSUNG?

    Just asking the question …

  19. constantnormal says:

    Chutzpah?

    http://www.reuters.com/article/2011/11/03/us-usa-tax-corporate-idUSTRE7A261C20111103

    So why doesn’t McCain go after these companies?

    Who benefits from this witch-hunt?

    Samsung? Can they fund a PAC? You betcha.

  20. constantnormal says:

    As I recall (and I might be mistaken), Dell ran an Ireland subsidiary for similar purposes, but it did not help them to overcome their innate handicap, and I read somewhere (here?) about Microsoft’s software purchases going through Lichtenstein, even when made over the web in this country?

    Didn’t Merrill Lynch push profits around its various foreign subsidiaries back in the day? How about JPM, or GS? Fidelity has a money-market fund that shuffles amounts to various FDIC banks overnight, ensuring that no one bank has more of a client’s money than the FDIC limit, making it possible for Fidelity to offer an FDIC-backed money market account for amounts exceeding the FDIC limits. I think that one needs to be tested in the courts, but it certainly seems legal, to my simple mind. Not that anyone is much interested in money market accounts these days …

    Nobody seemed to find fault with those “schemes”, but when Apple runs its large international profits through this Congress-legislated warp gate, it is “pushing the envelope”? Since when does the size of the money have anything to do with the legitimacy/illegitimacy of a loophole?

    It’s either legal, or it’s not. And if it is not, then it should be barred from use by ALL companies, not just Apple. Tax profits to the parent company, and bar offshore holding companies owning American subsidiaries — THAT’LL go over like a leas balloon …

    Our Congresscrooks need to be better lawyers and better legislators … But then that would get in the way of their selling themselves to the moneyed PACs … Just accept the laws that the lobbyists write (and Apple’s lobbyists did not write this one), and play the game like good little boys and girls. Because it’s all just a game …

    We have the best government money can buy, and until we make selling Congressional actions treason (as it should be), nothing is going to change. Probably nothing would change even if we did that, it would just get a lot less obvious.

  21. jonhendry says:

    It’s my understanding that these arrangements have been in place, for the most part, for decades. Late 70s or early 80s, predating the Macintosh.

    (The retail-oriented entities in the chart are likely only as old as the Apple stores, so post-2000.)

  22. [...] Apple’s International Tax Structure (The Big Picture) [...]

  23. Marc P says:

    If Congress wants to really dig into tax games it should look no further than Wall Street. The current derivatives outstanding now exceeds $1200 trillion. These are just contracts; they can be placed anywhere in the world instantly and moved instantly. If you expect the price of oil will go up, then make that bet in the Caymans while making an exactly equal bet that the price of oil will go down in the US. If the price goes up, you’ve just lost money in the US and made money in the Caymans, effectively moving paper profits to the Caymans. If the price goes down, then oops, just write another set of offsetting contracts for the next round. It is a little more complicated than that in the real world, especially if you want to cover your tracks to make audits more difficult. But it’s legal, available, and Congress looks the other way while whistling and taking the payoff money from south Manhattan.

  24. Marc P says:

    @jonhenry: yes, the foreign subsidiary intercompany transfer pricing techniques have been around for decades.

    The reason Congress can’t plug the loophole is because other countries won’t cooperate. Ireland built a tech economy on the basis of low corporate tax rates. It chose to become a tax haven for US companies in Europe because it would bring business, jobs, and help educate a generation of tech workers. It succeeded. Ireland is not likely to give that up just because Senators Levin and McCain are whining on TV.

    Maybe the US should simply beat the others at their own game. Eliminate the corporate income tax, tax distributions to shareholders, and enforce the accumulated earnings tax. Attract business to the US for a change. Corporate taxes don’t actually raise much revenue, the compliance costs are astronomical, and most of those taxes just get passed to customers in the form of higher prices anyway. Corporate taxes are there to salve the ego of politicians who don’t know economics and are bad at math. Plus, that which is taxed is that which makes political contributions.

    • Trader2012 says:

      You nailed it, Marc P. Excellent comment. I wish others understood this instead of simply reacting emotionally and playing right into the politician’s hands.

  25. formerlawyer says:

    Canada has it right. The Canada Revenue Service includes in its tax code an Anti-avoidance Rule, section 245 to cover extreme cases like this.
    see:
    http://www.cra-arc.gc.ca/E/pub/tp/ic88-2/ic88-2-e.html
    http://laws-lois.justice.gc.ca/eng/acts/I-3.3/page-398.html?texthighlight=245#s-245.

    Why can’t we include something like this?

  26. Moss says:

    The US tax code is the biggest scam on earth. Individuals get waxed every which way. Is their a Corporate ATM? Are Corporations limited as to how much in capital losses they can claim? Why can’t individuals claim a loss on a home sale? Intuit lobbied to make it illegal for the IRS to provide a free web based simple 1040. An individual, with the know how can’t buy the software or even file an Estate Tax return. I had to pay a CPA 4k to do one even as I provided every figure for the 15 different schedules.

  27. Joe Friday says:

    constantnormal,

    The tax code is so moth-eaten, it is beyond repair. Start with a flat tax, adjust that to make the impact proportional to income, assets, and living/operating expenses

    Unfortunately, those are mutually exclusive goals.

    The originators of the ‘Flat Tax’ admitted from the getgo that it would egregiously favor the wealthy and severely punish the Middle-class and Working Poor, and what it would take to “make the impact proportional” would require it not be a flat tax.

    and tax earned income EXACTLY the same as unearned income, and things would be a lot more equitable

    True dat.

  28. RW says:

    Apple on the Hill: What Can be Learned from Yesterday’s Hearing

    The problem isn’t Cook or Apple. They’re following the incentives we’ve set up for them and they alone cannot resolve the split those incentives engender between country, profits, and shareholders. Therefore, instead of wasting time with these types of ambiguous investigations, what Congress should be asking is how can we shut down the vicious cycle and restart the virtuous one?

    …[e.g.,] moving international firms to an apportionment model. Under that framework, a firm’s liability in a given country would be determined by their share of sales, employees, or property (or some combination of those shares) in that country. This immediately shuts down offshore Cayman accounts since none of those factors exist on those lovely beaches. …

  29. [...] is the Senate report on how Apple used shell companies to save $44 billion in taxes, and this is a chart of the company’s international tax structure. “Tech has replaced banking as the new [...]