Lobbying group Citizens for Tax Justice has called out Apple, Google and Microsoft and others for what it described as “accounting tricks” in which companies “pretend” to be based overseas for tax purposes. The claims were made in a report entitled Offshore Shell Games 2015.
Many multinational corporations use accounting tricks to pretend for tax purposes that a substantial portion of their profits are generated in offshore tax havens, countries with minimal or no taxes where a company’s presence may be as little as a mailbox. Multinational corporations’ use of tax havens allows them to avoid an estimated $90 billion in federal income taxes each year.
The group said that Apple has paid “a miniscule 2.3 percent tax rate on its offshore profits,” many of which have been entered into Apple’s books in Ireland. CTJ says that if Apple paid U.S. tax rates on those profits, it would owe $59.2 billion.
The controversy over the legitimacy of Apple’s overseas tax arrangements is not, of course, anything new …
A 2013 Senate hearing into Apple’s tax arrangements proceeded uneventfully, while an analysis by Adam Smith Institute Fellow Tim Worstall in Forbes last year explained how Apple is able to pay such a low tax rate on sales within the UK.
What Apple Ireland does, says Worstall, is to buy a licence from Apple in Cupertino, allowing it to manufacture and sell iPhones in the UK. Apple Ireland buys all the components, pays the manufacturing costs and ships the phones to the UK to be sold both through Apple Stores and third-party resellers, aka the carriers.
Because Apple Ireland charges close to retail prices for the phones it sells to UK outlets, most of the profits are made in Ireland, and those profits are taxed at the rates allegedly agreed with the Irish government: around two percent. While the morality of this may be debatable, it is, says Worstall, perfectly legal.
Google and Microsoft both employ similar tactics.
Two academic experts told Ars Technica that these arrangements are perfectly legal, and are unlikely to change anytime soon.
“There is, of course, an alternative,” said Omri Marian, a professor at the University of California, “to change the law so Apple actually pays taxes on this income. In [the] current Congressional environment, this will happen immediately after hell freezes over.”
Samuel Brunson, a professor at Loyola University Chicago, put it more succinctly. “Individual taxpayers don’t have a strong incentive to lobby for change,” he said. “Meanwhile, Apple has a $59.2 billion incentive to lobby for the law not to be changed.”
Apple’s own position is that it pays all the taxes it is required to, as Tim Cook stated in 2013:
I can tell you unequivocally Apple does not funnel its domestic profits overseas. We don’t do that. We pay taxes on all the products we sell in the U.S., and we pay every dollar that we owe.
Apple currently holds around $180 billion in cash overseas.
Photo: Stephen Lam/Reuters
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They should be calling out the U.S. government for its high tax rates that make businesses want to park all that cash over seas. Apple has said many times that they would bring that cash home, but why should they do that when they will be taxed out the ass for doing it? Anyone who criticizes Apple for not moving that cash to the U.S. needs to take a look at all the deductions that they claim on their tax return. Apple’s just doing what it is allowed to do under the law. What would all that tax money be used for anyway? Probably welfare programs for deadbeats who don’t want to work.
You’re right that tax laws need to be adjusted, but the rest of your post is naive. Why are so many business giants founded in the USA? Do infrastructure, education, federal grants, etc have an impact on idea generation/start-up success? Or are these non-issues and American innovation is just an amazing repetitive coincidence? Could these companies have actually been started without the government funding required to provide the 3 benefits listed above? How many great ideas are not being funded to full capacity because of accounting tricks used by the current giants? You could take the stance that the government is at fault for its tax rates and wants to just give the money to “deadbeats”, or you can wonder what this money could do to fuel further innovation and how much of the current cash/success is owed to factors entirely dependent on being from US soil.
Yes, corporate tax rates in the US are high but do you really think that is why companies do this? Other industrialized nations with way lower tax rates still have issues with companies cheating the system by holding profits outside of there corporated home (read any German money publication). To make Wall Street and other public markets happy companies would set up shelters if it saved them a mere 1% on their tax rate.
They need to fix the laws that allow for companies to hold money offshore and lower the tax rate. Doing one without the other is just going to cause more issues.
If you use Germany as the example of lower tax country, you don’t know what you are talking about. Germany taxes are even higher than those in USA. You should compare to Ireland, or even Netherlands to see some difference. BTW – if you ever head of what Laffer curve is, it is exactly about what we are talking about.
And dont mention “what all good can be done with that government money”. Last couple of years I saw what US is doing with all that money and I’m not impressed. Why do you think with more money they get any better?
@Jirka Stejskal
First – Don’t make assumptions, nothing in my argument even remotely talked about “what all good can be done with that government money. You just look like an a s s putting words in my mouth.
My points were simply they need to fix both sides not just trying to close the loop holes (aka Germany) or lowering the tax rate and most companies have an options to save just 1% with low enough barriers they are likely going to take it.
They rest is all just conjecture by you.
The problem isn’t Apple, Google and Microsoft. It is the federal governments. Change the laws or stop grandstanding.
Didn’t Apple actually say it would gladly pay a higher rate, just not insanely higher? But the government has yet to enact anything. They would rather stick to their stance and collect a higher tax off of $0 than a lower tax on any amount.
While 9to5Mac mentions two other companies, Google and Microsoft, I can guarantee you that other tech blogs will make this an Apple only hit piece just like thew Chinese labor stories.
This is nothing new nor is it restricted to big tech companies. Automotive companies have done it for years, CPG companies, basically any large corporation is set up like this. It’s the rule, not the exception.
They’re minimizing their tax exposure, not avoiding it. There’s a huge difference, but you’re right that it will be completely misrepresented in the media.
Media will also vilify Apple as if it’s a singular person like Scrouge McDuck swimming in piles of gold. Meanwhile US citizens are the beneficiaries of Apple’s large profits in the form of stock performance, dividends, high salaries and of course the income tax that every Apple employee pays on their own personal earnings.
The media won’t cover any of this.
Why should any company pay any tax on earnings not on US soil. Its not american money its foreign money. Companies should pay tax on their US earnings in the US.
Precisely. What these activists seem to forget is that taxes have already been paid on these monies in the countries where the sales were generated.
Essentially, the US Government is instead of applying a repatriation fee, trying to “double-dip” by levying full taxes on Microsoft, Google and Apple for their earnings after prior overseas taxation. This is nonsense and should not be allowed to fly.
That’s is complete bs. Apple and other companies avoid national corporation taxes through other countries. For example, in the EU Apple pays all its corporation tax through a secret deal with the Irish government that guarantees it 1% corporation tax. If that isn’t wrong, I don’t know what is.
What you @Ben are referring to is a separate practice, whereby all EU sales are registered in a low-tax EU member, and is a matter being deliberated within the EU. At the present time, those accounting methods are legal, but a change will likely come in the near to mid term.
The US Government’s insistence on taxing those funds on repatriation is a separate matter, and the idea of its being double-dipping is not bs, it’s the reality of the matter, and can be seen as punishing high-performing US corporations that are doing well abroad.
They are not trying to double-dip. There is no double-tax. Companies are asked to pay the difference between the taxes they currently paid vs. what would be paid in the USA. If tax paid is 6% in country X, and USA is 35%, then repatriating this money from country X would come with a 29% tax.
and to ask this of companies is ridiculous and btw sometimes you don’t get tax credits on foreign paid taxes which does lead to double dipping. My dad works exclusively in a foreign country but lives in california, but the state of california doesn’t give him tax credits for the taxes paid in the foreign country and he’s taxed on that money as if he had earned it in the state.
Ireland is the one really benefiting from the arrangement. They see that 2% of something really huge is more than 40% of something really small. They make a lot of tax revenue from doing absolutely nothing except being philosophically pro-business. It’s the only case I can think of where a philosophy degree actually makes money. Just like a business that cuts prices to stimulate sales, the US could easily make a bunch of money by creating a pro-business atmosphere where companies want to do business in the US, instead of trying to pass laws forcing companies to do business here.
Questions raised in UK over whether Apple should pay UK corporation tax on the profits from sales in UK.
Obviously sales tax (“VAT”) is paid in the UK – but I’m paying that, not Apple.
In the UK, Apple pays their tax in the Republic of Ireland, not in the UK where the sale occurred.
Sounds like when Apple talks to Americans they say tax should be paid in the country where the sale occurred – not the US – but in the country where the sale occurred they say something else.
Anything illegal? I’m sure it’s not.
But does it put me off Apple? Yes, it does.
U.K. Is comprised Ireland, Scotland, and England. UK is the country. Any sales in England, scotland, or Ireland are part of UK.
The United Kingdom includes Northern Ireland, but not the country of Ireland – which is where Apple is based for its UK sales.
People are so hypocritical. Would you pay 30% taxes if you didn’t have to? Most educated people will look at the tax laws and do whatever they can do reduce their tax liability. What’s stupid is just moving money from one country to another requires being taxed? That money was already taxed in the counties they sold product in. The Fed’s are taxing to the point where companies can’t be as competitive and it makes it difficult for the average person to become financially secure.
they are just moving money from once country to another, and that means it should be taxed 30%. they don’t have to move the money if they don’t want to. They use some of that money to build more Apple Stores, distribution centers, data centers, support centers in other countries so why move money back and forth and get taxed each time they do it.
‘Citizens for Tax Justice’ needs to get their priorities straight. Google, Apple and Microsoft simply follow the existing tax laws, they do not create them. These companies are not breaking the law.
If any groups believe that these companies are not paying enough taxes, and there is some evidence to support that, they should act to get the laws changed, not blamed law-abiding companies for taking advantage of existing laws.
BINGO! I hate this idea that complying with the law is somehow a “loophole.”
Tax law in the US is corrupt and unjust, plus much of the money collected via federal tax is wasted and burned, put in the pockets of overpaid politicians and their friends running government contracts for military and other schemes.
Why should anyone or any company have to pay US taxes on money their overseas subsidiaries make overseas? They already pay tax where the money is made, the US just wants to double-dip. Sorry, double-dipping is for porn, not taxes.
If you’re paying high tax rates, it’s not because corporations are paying less, it’s because you’re not doing anything to fight it. You’re not getting your money’s worth back from the government at any level. Look at the tax rates in other developed nations and what their citizens get back in return and you’ll be shocked.
And just the record, Tim is completely correct — Apple does pay the US tax rate on all sales made in the US, around 26 percent IIRC. It does not funnel any of that money offshore (unlike a lot of other US companies) and does not “pretend to be foreign-based” as CFTJ alleges. What it *does* do and is *allowed* to do is funnel its non-US sales through regional offices (so one office — in this case in Ireland — for all Euro sales) to get the lowest tax on those sales possible. Not only is this legal (though the EC could change it if they wanted), it has nothing to do with the US — that is not money or taxes Apple “owes” the US government, it is the US government (as someone already pointed out) trying to collect tax on sales outside the US. The government tries to do the same thing on income earned by US citizens outside the US — I pay two sets of income taxes because I don’t live in the US but don’t want to renounce my citizenship. The US, it should be noted, is the ONLY country that does this.
Generally speaking, taxes are legalised theft. Of course there are exceptions and you can argue until the cows come home. Nobody likes to pay tax. Most of the wage you earn goes on tax, over 65%. So it is funny to see everybody crying out about tax avoidance as if everybody adores tax and has turned into a government agent. Another point of view would be to call such an attitude ridiculous.
It is more than that. It is robbery, even robbery under the arm thread. Anyone has a right to protect himself against robbery.
Agree with most comments about risk of double taxing, however, the low tax regimes (Ireland, Netherlands, Singapore) allow no tax to be paid on incomes in those foreign countries where the sales are made. In Australia, most companies practice ‘tens fear pricing’ where the mother company registered in Singapore/Ireland “loans” money to the local entity at exorbitant interest rates!!(over 20%).. Interest is repaid before tax is calculated..Apple makes a nominal loss in Australia..with sales of $4billionAUD..so too Google Microsoft, all our mining companies, as well as Uber, and Airbnb
The loss to our tax base is twice the current deficit of $40bAUD..$80billion a year!!!
Dodgy, tricky…and all completely ” legal”