
How Apple Sidesteps Billions in Taxes - alokt_
http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html?hp
======
grellas
The implied but never fully-articulated point of this article is that high-tax
domiciles resent it when rational actors having a choice in the matter will
routinely structure their business affairs to incur tax to the maximum extent
possible in low-tax as opposed to high-tax domiciles.

The issue becomes almost formulaic. Given (1) rational actors, (2) freedom to
choose and to structure business affairs using a multiplicity of entities for
different purposes, (3) resources with which to hire and pay for the talent
needed to sort out the tax issues and their complexities, (4) a business goal
of maximizing after-tax profits, (5) a multiplicity of domiciles from which to
choose, and (6) a ready means by which to direct resources from one domicile
to another (as with digital assets), it inevitably follows that every
sophisticated company meeting these criteria will avail itself of the tax
avoidance/minimization strategies. As the article notes, it is perfectly legal
and every big company does it (see, e.g., this similar write-up from a couple
of years ago on Google's comparable tax strategies:
<http://news.ycombinator.com/item?id=1815195>).

Nothing, of course, stops a given company from voluntarily subjecting itself
to higher tax rates by declining to follow this formula but why would it? Big
companies will routinely want to avoid high taxes if they can. So too do small
businesses. People may have social views that higher taxes are desirable but,
as individual economic actors, they will seek to avoid them. This may be right
or wrong but it is reality.

This means that high-tax domiciles will have no choice but to continue to
remain frustrated that they cannot have unchecked means of taxing their
citizens. As long as people have freedom, governments have to strike a balance
that people can live with. And that is not a bad thing.

~~~
yequalsx
Your first sentence of your last paragraph shows one of the problems with
globalization. We have seen in the U.S. municipalities competing with each
other to see who can give the most subsidies to large corporations. The
effects have not been so desirable. Now we are seeing this played out on a
grand, global scale. It's potentially a race to the bottom.

I think globalization without a proper international regulating agency is a
bad thing. It's great for the people who have the ability to move from one
country to the next. Who can find the optimal place for them to live in. Most
people don't have this luxury.

~~~
RawData
> Most people don't have this luxury.

Why not? Seriously. What's stopping anyone from doing this exact thing?
Inertia...that's really all - when you get right down to it..

~~~
yzhengyu
Well, you may call it inertia. But really, once you add up all these
challenges, it tends to be quite substantial.

For example, say, you are a skilled plumber who owns a similar business
repairing/installing plumbing in Shanghai, China. Theoretically, all these
skills would actually make him/her eminently employable or set up a similar
business, say in Sweden.

Unfortunately, that is really not the case.

Be as much as most of us would wish, capital has really achieved utter victory
over labour. Till we have some major innovation which will neutralize the
advantages of having mass amounts of capital, we are transitioning towards a
new feudalism.

As I was mentioning to a colleague, the only reasons why we have a job is that
software development/programming/computer systems is still sufficiently
complex enough for up to 80% of the world population.

Or else we would actually be quite screwed as well. ;)

~~~
RawData
OK...skilled plumber...he might not be able to move...I studied economics in
college and there are examples of industries that the professors would always
cite...like hair stylists...plumbers...etc. Sure.

BUT...that plumber could create a company hiring local plumbers in 20
different countries, and sell plumbing services locally in each of those
countries, and incorporate the overall business in a friendly tax country.

So your example isn't really valid. I argue that ANYONE can take advantage of
globalization with a little thought. If you choose not to, and Apple chooses
TO do...well its really your own fault and choice...isn't it?

That's just one simple example...that plumber could create a digital course
that teaches others to become plumbers...or teaches plumbers to market their
services better...he could package that digital product, incorporate a company
in singapore or WHEREVER he finds the best corporate tax rate, and take
advantage of the same things Apple does...

I could go on and on...it's all choice. You chose to be proactive or you
choose to snipe at others who do...A thing is not unfair if everyone has the
ability to take advantage of it...and some simply choose not to because it's
hard.

~~~
yzhengyu
Ah. Be careful where you are stepping.

Yes, its one choice. But personally, I find that to be rather too smug /
elitist and smacks of "Oh, its HIS/HER choice - there's nothing DEFICIENT or
FLAWED with the current setup" rather than recognizing that the market/world
is inherently complex and difficult to navigate.

Arguing that it's one choice is just sophistry. Kinda like those just world
people I meet who argue that the poor deserve their station because its their
choice.

~~~
RawData
Sure there's tons of stuff flawed with the current system...but that's the
system, not Apple. Change the system if you don't like it, don't penalize
companies like Apple who play by the rules of that system. You can't have it
both ways...

I don't think my argument is sophistry...choice is very important. It's the
cornerstone of my beliefs and it's a valid philosophy.

------
acslater00
There is a really important lesson from all of this, and it is not that Apple
is wrong for rationally exploiting global tax laws to avoid paying US taxes.

The fact that California has no tax jurisdiction in Nevada, and that the US
has no tax jurisdiction in Ireland, is an unassailable fact of life. Tax laws
are subject to regulatory competition like many other things, and ignoring
that -- insisting that this is an issue of morality or fairness -- is silly.

If the US had a globally competitive corporate tax rate (say 15%), it would
make most of these tactics irrelevant. There's no need to shelter income in
Ireland if they have the same tax rates. Because of the reduced sheltering,
such a reform would probably raise revenue on net. But even if it didn't, it
would have many ancillary benefits, such as repatriating many billions of
dollars in corporate profits and increasing the degree to which they are
deployed in the US, which would far exceed the costs.

Even better would be to reduce corporate income tax to 0% and increase
dividend and capital gains rates to personal-income-tax levels to make up for
it. The main reason dividend income is treated preferentially in the US is
that corporate profits are already being taxed (in theory). Those multi-level
nature of the US tax code creates unnecessary loopholes, as well as costs and
confusion. Counter-intuitively, eliminating the corporate income tax would
make it much easier to tax corporate income, because those profits
_necessarily_ flow back to investors either in the form of dividends or
capital gains. If you are a resident of the US (and california) and you own 1
apple share, you pay taxes on your share of Apple's income. Even better, it
would be progressive. Rich people pay more, poorer people pay less.

Simple, right?

~~~
jacquesm
Of course it is an issue of morality. I could choose to avoid paying taxes in
the society that I'm a part of. It would be in my economic interest to do so.

But it is morally wrong because it is that same society that enables me to
make my money in the first place.

Simple, right?

~~~
forrestthewoods
That doesn't make any sense at all. Tax avoidance is perfectly legal. Tax
evasion is not. Playing within the rules created by society is not morally
wrong. Every deduction you take on your personal income taxes falls under tax
avoidance which you can't possibly be describing as morally wrong.

"The legal right of an individual to decrease the amount of what would
otherwise be his taxes or altogether avoid them, by means which the law
permits, cannot be doubted." - US Supreme Court

~~~
hej
> Playing within the rules created by society is not morally wrong.

There are people who honestly believe that? It’s not that simple, it really
isn’t.

I, for example, think there are many immoral but legal things and I want it to
stay that way. The law is not supposed to perfectly mirror our morality, that
would be a clusterfuck, tyranny, and otherwise a really bad idea. (For
example: I think not tipping in the restaurant is immoral. I, however, never
ever want that to become a law. Just one example.)

In short: Just because it’s legal, doesn’t mean it’s right. Just because it’s
not right, doesn’t mean it should be illegal.

~~~
philwelch
Taxes are purely a construct of law though. The only reason it's immoral not
to pay taxes is because it's immoral to break the law, at least if the law is
just. But we're not talking about people breaking the law, we're talking about
people obeying the law.

Think of it this way: if you can get an effective tax rate of x% by doing this
and y% by doing that, and x < y, what's the moral difference between doing
what you need to do to pay x% and the government changing the tax rate so you
pay x% either way? It's not a question of what's the most moral percentage to
pay in tax, it's a question of whether or not you're defying the law, which
you aren't in either case. If the government lowered the tax rate to x% and
you decided to cut out the middleman and just pay it, no one would howl at you
to voluntarily pay more. So why do people howl at you for obeying _other_ laws
that allow you to effectively lower your effective tax rate to the same
amount?

~~~
starwed
The reason it is immoral to pay taxes is that you are still benefiting from
the existence of the government but putting the burden of supporting it on
others.

You personally may agree or disagree with this, but that's what someone
probably means when they say it is immoral to avoid paying taxes, even if it
is perfectly legal. Taxes are part of the general social contract of our
society, and aggressively finding ways to avoid paying them tends to a tragedy
of the commons type situation.

~~~
jakeonthemove
You're thinking at country level. If you expand the thought to global level,
the supposed immorality disappears - in this case, the taxes are just paid in
another country, at a lower rate, but it still helps a part of society...

------
arvinjoar
No matter the tax rate or how diligently one tries to fix loopholes, in a
global world big corporations are going to dodge taxes (not always a bad
thing). It's just that this is much harder for small companies who don't have
armies of lawyers at their disposal, so it essentially creates an unfair
advantage for bigger corporations (leverage) over startups and skews the
economy towards the BigCo. This is why big corporations are often fine with
regulations, higher taxes and raised minimum wages, because they know it will
cement their market share. Just putting it out there, I find that it's often
overlooked when discussing regulations, tax rates and so on.

~~~
raganwald
I’m reminded of an old poker saying: “The more wild cards and crazy rules, the
better the expert’s advantage."

~~~
raverbashing
This is very true

What the "regulation fans" don't realize is that the bigger the company the
more lawyers/accountants it can hire and work the cracks in the system.

This is also valid in the case of Starbucks. Regulation is increased for a
reason, and the only company that has the resources to comply with it is
Starbucks.

Regulation has to be simple, and in the case of transnational corporations,
were country borders are mere a detail, increasing regulation will mean
essentially nothing to the company and a loss of revenue to the country.

------
philiphodgen
This kind of thing (on a smaller scale, admittedly) is what I do in my day
job.

In the same way we hear "The internet interprets censorship as damage and
routes around it" we can say "Money interprets taxation as damage and routes
around it."

Someone imposing censorship upon the internet might have all of the morality
and justification in the world behind his/her argument. Irrelevant. So too
with taxation. You can talk about moral imperatives all you want -- one should
support the country you're in by paying taxes. Irrelevant.

You make tangible objects float in mid-air by altering the law of gravity, or
by using magnificent quantities of effort (e.g., fly tons of metal through the
sky by burning vast quantities of fuel).

You (as a government) make money change course and come to rest elsewhere by
altering the law of taxation or by using magnificent quantities of rhetoric
(look for "should" and "ought" and "them" in sentences). Or you use
magnificent quantities of enforcement (tax audits, put people in jail, etc. I
live in this universe, too.)

Ultimately, the point by @yummyfajitas is correct. Countries have sovereignty
and can do as they damn well please.

The U.S. has the bullying power of the U.S. dollar and a lot of guns to
convince other countries to behave in ways that the U.S. wants them to behave.
This will work until it doesn't work anymore.

The way this will cease working for the U.S. government is that the bullying
will become unacceptable for other governments. They will rightly see this as
ceding national sovereignty to the U.S. government. This will not happen until
the U.S. dollar weakens and a plausible reserve currency appears. China's slow
moves to relaxing currency controls tells you where the next likely reserve
currency will be.

The other way this will cease working is visible in the cited article. Large
economic organizations -- like Apple -- are starting to develop their own
anti-gravitation fields and can float above tax laws of any particular
country.

It's fun to watch. Put your moral imperatives in your pocket for a while and
just observe. What is Congress doing, and why? Why, for instance, is a lot of
the anti-international tax legislation in Congress coming from Senator Levin
(D-Mich)? What are companies doing? After you see something happen, don't ask
"Why?" Better to ask, "And then what will happen?"

You might surprise yourself. The unintended consequences are sitting there, in
plain sight.

------
dageshi
My personal feeling on this is that the moment the tax system becomes so
complicated that you've got to employ lots of people to figure it out then
you've turned taxes into a business expense which is as susceptible to
optimisation as any other part of your business.

------
lunarscape
Regarding how Ireland is mentioned in the article- Apple has had a significant
presence in Ireland since the year 1980, has a workforce nearing 3000 and is
expanding, announcing 500 jobs just this month [1]. Hardly "little more than a
letterbox or an anonymous office " as could be misinterpreted rather easily
from this article.

[1] [http://www.reuters.com/article/2012/04/20/us-apple-
ireland-i...](http://www.reuters.com/article/2012/04/20/us-apple-ireland-
idUSBRE83J0PI20120420)

~~~
rmc
To put it in perspective, the 80s in Ireland were very bad economically, very
few jobs, lots of emigration. Apple also have their office in Cork (not
Dublin) which would have fewer native industries and employment, so they
probably qualify chore all kinds of 'kindness' grants.

------
carbocation
They do this by following the tax laws; laws which we as a society have
created in order to induce businesses to behave in certain ways.

~~~
cooldeal
So innovating the double Irish with a Dutch sandwich is "following" the law?
It's more akin to hacking or circumventing them while still staying legal.
Just because something is legal does not mean that it was the spirit of the
law or the intention of society. That's why you see laws being changed to
frequently to adapt to new scenarios and "innovations".

Not to mention that society hasn't much of a say these days, Congressmen need
campaign money from corporate firms. As they re-invest some of that saved
money into politicians to further gain more money, what chance does an
individual voter have? Voting people out doesn't matter much when the
alternatives are almost the same and need money for their re-election too.

~~~
carbocation
And yet, we are the ones who have voted for these people who have created this
system. It's not like the voters are without agency; I can still vote for the
nominee with $100 in her bank account even if her opponent has $1 trillion in
his.

~~~
sbov
How exactly would a nominee with $100 in her bank account even let you know
she exists?

~~~
tedunangst
The internet.

------
pclark
Well I'll just say it as I do not think anyone else has: I find this
disgusting and it seems like capitalism gone too far. California is struggling
and would benefit from the contributions of the worlds largest contributions
that reside within its borders.

~~~
mhartl
California is "struggling" because of atrociously bad management. It's not
like the state lacks in physical or human capital. I mean, Jeebus, the Golden
State is home to the capitals of two of the world's greatest industries
(entertainment and technology). It takes world-class incompetence to squander
such riches.

Don't blame the state government, though. The problems are structural, not
personal. If we replaced the current slate of corrupt, incompetent
politicians, new ones would take their place. The internal incentives of the
system would see to that. In modern politics, corruption is a winning
strategy.

On the other hand, if the state government of California were run more like,
say, _Apple_ , they wouldn't be in such a bind. But that would mean running
California more like a for-profit business. This suggests a possibility: the
problem may not be that capitalism has gone too far—it could be that it simply
hasn't gone far enough.

~~~
jarek
What if pushing capitalism far enough results in California being run like an
Enron, a Blockbuster, a Lehman, or any number of tech bubble 1.0 darling
businesses instead of like Apple? Apple is pretty lean and is winning the
market cap game right now, but the largest companies haven't always been as
good.

~~~
mhartl
Such disasters could happen, and minimizing their frequency is an important
engineering problem. But you have a long road to hoe if you want to argue that
the average quality of private management isn't _much_ better than the average
quality of public governance.

~~~
jarek
It's not the disasters we should really be concerned about, it's the normal
bigcorp experience. People are promoted based on office politics and taking
credit for others' work. Big useless projects to raise a manager's profile
happen all the time. Consultants are hired to produce reports that say exactly
what the company, or part of the company, wants them to say to cover people's
asses. Market leads and shareholder value are squandered by corporations
unable to adjust to changing business or consumer climates.

Plenty of people on this site quit their bigcorp jobs because they couldn't
stand the wastefulness and the politics. Every time HR is brought up, HN
seethes hate at their uselessness. Middle management, that most corporate of
jobs, is almost universally derided.

 _Much_ better? I'd doubt it, but neither of us has data and personally I'm
not sure how that would even be quantified.

~~~
greedo
It's not the disasters we should really be concerned about, it's the normal
government experience. People are promoted based on office politics and taking
credit for others' work. Big useless projects to raise a manager's profile
happen all the time. Consultants are hired to produce reports that say exactly
what the department, or politician, wants them to say to cover people's asses.
Taxpayer funds and freedoms are squandered by politicians unable to adjust to
changing business or consumer climates.

Plenty of people on this site quit their government jobs because they couldn't
stand the wastefulness and the politics. Every time HR is brought up, HN
seethes hate at their uselessness. Middle management, that most corporate of
jobs, is almost universally derided. Much better? I'd doubt it, but neither of
us has data and personally I'm not sure how that would even be quantified.

See how that works?

~~~
jarek
Yeah. Sounds fairly similar. You forgot to update the sentence about middle
management, further strengthening my point about indistinguishability. Thanks
for underlining that private sector isn't "much" better. :)

------
aakil
There really should be some sort of movement to shame apple (and hopefully
other California companies) for doing this. They've benefitted immensely from
the infrastructure we've provided and are doing nothing to invest back into it
now that they're on top. At the very least they should help with the rising
tuition costs at public schools (UCs, Cal States, etc.)

~~~
jlarocco
Shaming them for what? They're simply taking advantage of the confusing and
loophole filled tax laws you provided them.

Nobody pays more taxes than they absolutely have to. If you don't want people
to abuse loopholes, fix the loopholes.

~~~
hej
Using loopholes when you know they are loopholes seems pretty immoral to me.
You don’t have to agree with me on that, but that would for example be a prime
reason for shaming them. Morals are not equal to the law. Immoral things stay
immoral even if they are legal. And there is nothing wrong with calling out
immoral behavior.

~~~
jlarocco
Some people would say collecting tax is already immoral.

------
newbie12
Apple, as a corporation, should pay ZERO taxes. The resources invested in
Apple were taxed before invested, and will be taxed again when investors
realize their capital or income gains. Corporate taxes are double taxation.

It is Apple's moral duty to legally pay the minimal amount of taxes possible.
Every dollar Washington or Sacramento takes from Apple and gives away as some
political handout is one less dollar available for perhaps the most innovative
tech company in the world. Taxes on Apple, and other tech leaders, literally
undermine American competitiveness...

~~~
jarek
Yeah, especially those political handouts that pay for maintenance on the
I-280.

------
forrestthewoods
The magic phrase to me in the article is "Apple serves as a window on how
technology giants have taken advantage of tax codes written for an industrial
age and ill suited to today’s digital economy." So true.

Our laws, and not just tax laws, were not created for a digital environment.
Throw in multinational corporations spanning the globe and many laws fall
apart. I honestly have no idea how that can be fixed nor have I read a
realistic proposal to do so. Everyone says "close the loopholes" but I've
never seen a list of proposed loophole changes that was viable.

------
jasonkolb
Taxing money when it is earned instead of when it is spent will result in the
money being shuffled around the globe in complex ways. I always get blasted
for saying this, but the only way to get taxes from these profits is by
shifting to a sales tax model instead of an income tax model.

------
tvon
It's somewhat interesting (or just entertaining) that things large
corporations have been doing for ages are gaining new attention because we can
throw Apple's name into the mix.

~~~
cooldeal
It does change the scale of things materially because of Apple's high profits
compared to other large organizations that you talk about.

~~~
jlarocco
Not really. Companies of every size have been taking advantage of stuff like
this for decades. Stuff like Delaware's corporation laws [1] are pretty well
known. It's common sense, really. Why would anybody pay more taxes than they
had to?

[https://en.wikipedia.org/wiki/Delaware_General_Corporation_L...](https://en.wikipedia.org/wiki/Delaware_General_Corporation_Law).

~~~
nirvdrum
Unless I'm grossly mistaken, there's no tax benefit to incorporating in
Delaware. Their franchise tax is actually pretty high. The reason to
incorporate there has to do with reducing legal costs, AFAIK, which is a
separate matter.

------
zobzu
So when the state takes 50% of the salary, it's bad but it's life. It's what
the state needs to survive and enhance.

When companies pay 0% tax rate, quick, defend them. If they did pay the tax,
the CA state certainly wouldn't have any money problem. But no, that's not
important, right? Shares etc are!

I'm surprised everyone finds it ok. I'd almost dare to say it's an issue that
is especially present in the US (that people think it's fine and to "blame the
game not the player" kind of crap)

~~~
paulhauggis
or how about the fact that many people think that monopolies are bad, yet are
fine with the government completely taking over things like health care, which
would create a monopoly. The same rules will also apply (IE: no competition=no
innovation).

~~~
zobzu
I actually think that some government monopolies are not bad. The problem is
that they can't be implemented properly if there's corruption (and there is,
always).

For example in France the state owned the electrical company and the telecom
company for a long while.

Result?

\- Single electrical network

\- Single, full fiber, telecom network.

\- Health care, even if not perfect, is way better than in the US.

Those work very well and are among the best in the world.

When mobile phones came to the game, they did not interfere in any way.
Result?

\- Each operator has a set of frequencies, successful operators have no
bandwidth left (I'm sure you know of that issue in NYC, SF, and all big US
cities if you're on AT&T. Same issue.)

\- Deployment and coverage takes forever (again in the US it's the same, so
many areas don't even have 3G or any cellular network _at all_ ) since not all
zones are as profitable

\- Same issue every time a new tech comes up (good luck til all the country is
covered by LTE)

This concludes into: the state has to organize and regulate things for the
good of the people (which actually also leads to faster innovation, see the
fiber example again. France's full fiber network is in place since many
decades!)

The problem is that no country really does even a little bit of that anymore.
Every party is backed by corporations and sustain only their interests. The
scheme is well oiled with several steps, and we aren't very different from the
people in Europe from the 1700's (regardless of the country)

------
jashkenas
For the truly curious, the source documents for this story are available here:
[http://www.nytimes.com/interactive/2012/04/29/technology/app...](http://www.nytimes.com/interactive/2012/04/29/technology/apple-
tax-documents.html)

------
protomyth
Yep, given a set of rules and the means, people and companies will use them to
reduce their bills.

The biggest problem with our tax laws is that they have moved from a way to
raise income to being used to control behavior which results in "rule
lawyering" to get the best deal. Simple rules mean actual income, complex
rules means a lot of employment for accounts and lawyers to get a lower bill.

------
NHQ
I'd like to see Apple or any company to do as they threaten and move their
headquarters. Try asking all of your top talent to move from their nice
property values and school districts to some tax haven.

~~~
guga31bb
Boeing moved from Seattle to Chicago in 2001 [0]. A major company moving
headquarters is not unheard of.

[0] [http://www.nytimes.com/2001/03/22/us/boeing-jolting-
seattle-...](http://www.nytimes.com/2001/03/22/us/boeing-jolting-seattle-will-
move-headquarters.html?pagewanted=all&src=pm)

~~~
Drbble
Boeing moved less than 1 percent of their employees to Chicago.

------
eps
Similarly IKEA pays zero tax by channeling all it's profits through a very
complicated setup to an Irish non-profit. GE not only pays zero tax, but also
manages to extract tax _refunds_ from the US government.

The big question if an evasive tax setup makes sense at lower profit levels,
or if the costs of setting up and maintaining it are prohibitive. Does anyone
know?

~~~
Drbble
If governments wanted to solve this problem, they could do so trivially by
setting wealth taxes on the human owners of those corporations

~~~
DanBC
Rich people can afford good accountants and lawyers. Tax avoidance[1] skirts
the edge of tax evasion[2], but that's what the good accountants are for.

Putting different taxes on the owners of some corporation just means that no-
one owns the corporation and that everyone is an employee.

[1] Avoidance is legally using loopholes to reduce a tax bill.

[2] Evasion is illegally using loopholes, or just plain not paying tax.

------
Dove
This seems like an appropriate place to mention that the FairTax proposal
makes tax evasion very difficult. If you haven't read about it, you really
should -- I think it's pretty well thought out.

~~~
Drbble
Sure, if we stop trying to tax, we will stop failing. But that doesn't
actually help.

------
honopu
I think it is pretty simple. Apple and any other company is required AND
expected by its shareholders to minimize taxes paid and keep all expenses
under control. Saying "well gee we should pay more tax, it's really the right
thing to do, lets change around a bunch of stuff so we pay a higher rate of
tax" would never fly.

------
jarek
California should call Apple's (and others') bluff. Let companies decide if
saving 8% in tax is worth leaving the Silicon Valley ecosystem and
infrastructure.

------
byrneseyeview
This indirectly brings up the point that it's hard to make the case for
directly taxing corporations at all, aside from the fact that it's convenient.
Ultimately, all corporations are owned by tax-paying people (or nonprofits).
So why not tax their distributions as income? If I forgo working, and instead
develop some skill that I could use to raise my income, nobody taxes me on the
increase in notional wealth I have from being more skilled; I get taxed when I
get paid in a form that I could use for consumption.

Meanwhile, corporations:

a) Get taxed on their profits

b) May pay lower notional levels, but only by paying people to game the rules

c) Get taxed on their dividends (essentially a 15% surtax on the 35% tax on
their profits)

d) Also get taxed through capital gains--which is a change in the (un-
inflation-adjusted) net present value of future dividends (which, remember,
are taxed when they're earned, then taxed when they're paid).

If you give our tax code enough credit, the 35% tax rate is a lower bound. If
the government is willing to let you pay $X less in taxes for doing Y, they're
saying that the benefit of Y exceeds the forgone tax income of $X. So if I get
a $5K tax credit for installing solar panels, the amount of tax-equivalent
benefit the government has derived from my behavior is _at least_ $5K.

You could argue that the tax code is imperfect, and that action Y is not
always worth $X. But then you're suggesting that we transfer money _from_ a
competent rule-follower _to_ an incompetent rule-writer. If governing skill is
constant across tax collection and other government behaviors, then exploiting
tax loopholes is just in proportion to how exploitable they are--a government
so screwed up that it can't manage to legally tax you for anything is a
government that definitely shouldn't have its hands on your money.

Obviously, the government has other core competencies besides taxation. But
corporate taxes are worth reconsidering. I'd much rather have dividends taxed
as regular income--turning corporations into a pure savings vehicle. Taxing
corporation-generated wealth four times--when it's generated, when it's
calculated, when it's distributed, and when ownership is transferred--is at
least three times too many.

~~~
notJim
Another person suggested this idea and the thread, and this was the problem I
had with it:

> Ultimately, all corporations are owned by tax-paying people (or nonprofits).
> So why not tax their distributions as income?

Many companies don't pay dividends and sit on their profits for a long period
of time, so in practice, that money might never be taxed.

~~~
joesb
Owner of the share/company is going to want to use that profits before they
die, so the transfer of money from company to individual will happen one day.

~~~
notJim
But certainly not all of it. As another commenter upthread put it, I might
have a company that makes $5 billion/year and a $100 million/year lifestyle. I
will never spend all of that money.

------
mpat
"As of September 24, 2011 and September 25, 2010, $54.3 billion and $30.8
billion, respectively, of the Company’s cash, cash equivalents and marketable
securities were held by foreign subsidiaries and are generally based in U.S.
dollar-denominated holdings. Amounts held by foreign subsidiaries are
generally subject to U.S. income taxation on repatriation to the U.S."

[http://files.shareholder.com/downloads/AAPL/1826229879x0xS11...](http://files.shareholder.com/downloads/AAPL/1826229879x0xS1193125-11-282113/320193/filing.pdf)

These tactics don't exempt corporations from US federal taxation, they just
serve to delay when the taxes are payable. Apple owes US federal income taxes
on the earnings of its foreign subsidiaries that is payable upon repatriation
of the cash to the US. Accordingly, Apple and has booked an $8.9 billion
liability for the taxes it owes on the unremitted earnings of foreign
subsidiaries. Unless Congress moves forward with a "repatriation holiday,"
that liability will remain until Apple brings back the cash to the US to fund
domestic investment or to return to shareholders and pays the US taxes it
owes.

------
nikcub
These structures only defer taxes. They will eventually be paid somewhere.
Surprised there was no mention of the recent large Apple dividend, which will
require that cash to be repatriated to the USA.

What is unfair is that an international shareholder in Apple stock only gets
their dividend after US taxes are paid and is then hit again with their local
taxes.

------
daniel-cussen
A company will act in its own best interest--this is expected and in no way
alarming.

That they try to legally avoid taxes is beneath obvious.

------
sriramk
Apple isn't the only one. Microsoft has an office in Reno for exactly this
purpose ( they deal with all licensing).

------
jerf
You know, it's not as if this money has escaped being taxed. At most, it's
escaped one layer. It'll be taxed if they use it to pay someone. It'll be
taxed when that someone uses it to pay for something else. If they move any of
it somewhere else, it'll be taxed, if it becomes someone's capital gains it'll
be taxed. If they use it to buy something, that purchase will be taxed, as
will the thing they purchased at pretty much every layer. If it does pretty
much anything other than sit there, it'll be taxed, and the next people to get
it will have their use of the money taxed too. It isn't money that has
magically been freed of taxation, it's just money that isn't being taxed this
exact second.

------
epoxyhockey
Every time I read about these tax schemes, I think, "I want to do that, too."
Is there any company out there that will help the _little guys_ making all of
their money online complete a double Irish Dutch sandwich?

~~~
driverdan
Define little. It's only worthwhile when you reach a certain level of profit.
There are quite a few lawyers and accountants that specialize in offshoring.

~~~
epoxyhockey
Little, as in, a few hundred thousand per year. I was thinking that if the
money of several small companies were pooled together, something beneficial
could be done.

------
brianobush
If I were an aapl shareholder, I would hope they were exploiting every
opportunity to avoid paying unnecessary taxes. Adjusting tax rates are used by
many jurisdictions to lure (and control) businesses.

------
drumdance
One reason corporations are so diligent about avoiding taxes is scale. If you
can save, say $1 million, byt paying lawyers & accountants $500,000, the
decision is a no-brainer. I'm sure this is exactly how Apple's outside counsel
sells it.

I think the best approach is just to eliminate corporate taxes. If instead you
just tax the dividends, that same $1,000,000 in liability will be distributed
among thousands of shareholders, who will not have nearly as strong an
incentive to hire $400/hour lawyers.

------
robertpateii
No easy answer to this. All the tech companies do it, and if you start
legislating the loopholes closed, they'll go to another state and maybe even
another country. And you can't expect the companies to change on their own.
They'd be sued if they didn't exploit all legal means of increasing
shareholder profits.

I think it will take smart legislation added in increments over the course of
years and years. good luck with that, Congress.

------
bceagle
I don't feel any ill will for Apple. Companies are always going to try and do
what is best for them and that makes sense. What is crazy is why the idea of a
flat tax has never gained more traction. I understand that there are some
potential issues with a flat tax, but at the very least it simplifies things
and levels the playing field.

------
nazgulnarsil
I think a bot should auto repost Graham's Mind the Gap and How to Create
Wealth in the comments of every economics post.

------
appleaintbad
So- if there is anything unfair about this, it is that small companies that
can't choose to relocate from Cali bear the tax burden. But it is ridiculous
to make it look like Apple is avoiding paying its bills. Instead why don't we
see this as a perfect case in point for why we should privatize government? If
we paid government directly for its services rather than requiring it to
parasitically suck cash as it is set up to now, then Apple would have to pay
its fair share of the services rendered in Cali and elsewhere. But, it won't
be billions, because "billions" is not a fair price to pay for what it gets
from the government- at least, unless there is something it is getting that I
don't know about.

------
gravitronic
The article mentioning Ireland touched home for me. That's where the bulk of
RIM's developer payments come from. Until now I thought my dj app was just
REALLY popular with the Irish.

------
staunch
Would a corporate "buffet rule" solve this? Let companies do whatever
shenanigans they want, but if they operate in the US and earn > $1 billion
they can't owe less than 15%?

~~~
protomyth
It would pretty much hand overseas corporations the US market given the fun of
"licensing fees" paid to a parent company overseas. See Monster Cable for a
great example. I also believe the Japanese and German car makers pull this
one.

The "Buffet Rule" is a pretty good acknowledgement that our tax system is way
too complicated, will end up like the problems the AMT is causing, and shows
how broken the the discussion is on the news of "amount" and "rate".

------
seanalltogether
So if Apple is operating as a foreign entity for selling this stuff, does that
not mean they have to pay import taxes, or are they somehow exempt?

------
whatusername
The Kerry packer (Australian media baron) quote is always appropriate:

During the inquiry he repeatedly berated the politicians conducting it, and
the government. When asked about his company's tax minimisation schemes, he
replied: "Of course I am minimising my tax. And if anybody in this country
doesn't minimise their tax, they want their heads read, because as a
government, I can tell you you're not spending it that well that we should be
donating extra!"

------
gulbrandr
single page link: [http://www.nytimes.com/2012/04/29/business/apples-tax-
strate...](http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-
aims-at-low-tax-states-and-nations.html?_r=1&hp&pagewanted=all)

------
DavidAbrams
California rips companies off and begs for this kind of behavior.

Ask anyone who has started a small business in California. For example, your
business can make zero dollars (or even lose money), and you will still owe
California $800. EVERY YEAR.

Fuck you, California.

