From: Silicon Valley (HBO)
Jack: Richard, I don't think you understand what the product is. The product isn't the platform, and the product isn't your algorithm, either. And it's not even the software. Do you know what Pied Piper's product is, Richard?
Richard: Is... Is it me?
Jack: Oh God! No! No. How could it possibly be you? You got fired. Pied Piper's product is its stock.
When the only product a company cares about its stock, and they only care about their accountability to the shareholders, we will continue to see mass tax evasion schemes and using any/all methodologies (including illegal/unethical) to maximize profits.
I wonder how differently the world would look if companies didn't operate like this.
There's something to be said for Apple's efforts to level the playing field against the favorable tax & public policies under which Samsung and Huawei Technologies operate. I'm not crying 'boo hoo' for Apple, but their tax strategies are understandable.
As it is, the most rational choice for them is to keep waiting for that amnesty/tax holiday unless they badly need the cash.
Another rational choice is to relocate the company, a la Burger King's move to Canada [1,2].
Then the government can counter with tariffs [3,4]. It's a balancing act, though.
 "Tax inversion", Wikipedia. https://en.wikipedia.org/wiki/Tax_inversion
 "Let's Abolish The Corporate Income Tax", John C. Goodman, Forbes, Aug 26, 2014. https://www.forbes.com/sites/johngoodman/2014/08/26/lets-abo...
 "Trump takes aim at Obama's ban on tax inversions", Larry Light, Moneywatch, April 21, 2017. https://www.cbsnews.com/news/trump-taxes-corporate-transfer-...
 "Trump to keep Obama rule curbing corporate tax inversion deals", Reuters, October 4, 2017. https://www.reuters.com/article/us-usa-tax-inversions/trump-...
At the end of the day, there is no way you as a corporation can entirely subvert a nation state. I find it odd even that rational individuals think its possible against an adversary (typically with effectively unlimited resources) that can tariff you, dissolve your organization, and even jail you.
I'm pretty sure China would be quite happy if the US punishes Apple. That means that their protectionist policy towards Huawei will be even more effective. It is difficult for me to imagine other nations either not rolling out the red carpet to bring Apple over, or giving virtually tax free giveaways to their own companies to gain smartphone supremacy.
If the US put onerous taxes on the purchase of Apple phones that might be true.
If the US instead just collects a larger share of Apple's profits then Apple is going to go on exactly as before and just not deliver quite as much cash to its shareholders.
>They’re both costs on apple’s revenue.
Hardly. Make zero profit and you pay zero tax on that profit.
Raising your prices in response to not making as much profit as you desired is not often a winning move in business.
Pretty much. It would render their stock worthless, but there's nothing about a 100% tax on realized profits from preventing a business from operating exactly as before.
>How would they build new factories, develop new products or hire more workers
With relative ease. Corporation tax is paid only on realized profits. Reinvesting earnings has often been a way of avoiding paying it at all, which is actually supposed to be a feature.
Yeah, but why would they? Why would any employee or manager have an incentive to do extra work to do so? Where do they get the money from, and more importantly, why would they reinvest the money if there is absolutely no gain to doing so, instead of paying it out to executives and shareholders and just cashing out?
> Corporation tax is paid only on realized profits.
I’m not sure you know what this means. A new factory is an asset, taxes are definitely paid on it if Apple buys a new factory with retained earnings. Are you claiming that a corporation can gain new long term assets without paying any tax unless investors put more money into the business or banks loan them money?
I'm sorry if I sound shocked, but I actually file corporation taxes for a small business. Corporate profits are taxable whether they get paid out to shareholders or reinvested into the company.
Coz they get paid.
>why would they reinvest the money if there is absolutely no gain to doing so, instead of paying it out to executives
It's true that with a higher profit tax you'd may see execs paying themselves higher and higher salaries and shareholders would be less inclined to prevent it.
>I’m not sure you know what this means. A new factory is an asset, taxes are definitely paid on it if Apple buys a new factory with retained earnings. Are you claiming that a corporation can gain new long term assets without paying any tax unless investors put more money into the business or banks loan them money?
>I'm sorry if I sound shocked, but I actually file corporation taxes for a small business.
So do I. Actually, the year before last I personally paid more in corporation tax than Facebook did (they paid £4,000).
I'm pretty sure they were taking neither investment nor loans.
Only when there's almost no cost to leaving, which in itself is a tax loophole. If you declare that residency is about where you do the most business and has nothing to do with which letterbox has the word "headquarters" on it then their reaction would be limited to tantrums in Wall Street Journal op eds.
>or overseas corporations outcompete them
That's not how corporation tax works. It's paid on profits and does not affect the competitiveness of the firm.
>Only when there's almost no cost to leaving, which in itself is a tax loophole. If you declare that residency is about where you do the most business and has nothing to do with which letterbox has the word "headquarters" on it then their reaction would be limited to tantrums in Wall Street Journal op eds
Or to the other two arms of the disjunction in the text that you elided.
>>or overseas corporations outcompete them
>That's not how corporation tax works. It's paid on profits and does not affect the competitiveness of the firm.
It has to come from somewhere. It can come from owners, workers, or consumers. If it came from consumers (higher price or lower quality for products and services) this would affect the competitiveness in a straightforward way.  and  claim that it instead comes from owners and workers, with considerable uncertainty about the ratio between those. If it comes from owners, it increases the corporation's cost of capital – but only to the extent that investment is global. If it comes from workers, it decreases the ability for the corporation to compete for labor – but only to the extent that labor is global. So you're correct that it does not affect competitiveness in a sufficiently non-global economy.
 "Who Pays the Corporate Income Tax", Bruce Bartlett, New York Times, Feb 19, 2013. https://economix.blogs.nytimes.com/2013/02/19/who-pays-the-c...
 "Who Ultimately Pays the Corporate Income Tax?", Uwe E. Reinhardt (Economics @ Princeton), New York Times, July 23, 2010. https://economix.blogs.nytimes.com/2010/07/23/who-ultimately...
Owners. It comes from owners.
>If it comes from owners, it increases the corporation's cost of capital
There is currently an almost absurd overabundance of capital relative to aggregate demand.
The tax incidence falls on owners - probably at least until profit taxes reach ~80% or capital became magically very scarce for some reason that clearly doesn't apply to the present day.
Corporations often need to raise money from investors, who will rationally only fund corporations that are expected to generate enough profit to produce a good enough return for the risk and so on. If profit is lower in some countries, that reduces the amount of money going to investment in that country as the potential reward has gone down. Therefore such companies are less competitive in fundraising.
I don’t think you’ve thought your solution through.
There are countless examples of this happening, from the East India Company (who essentially ruled India for a century) to the United Fruit Company to present-day Shell Oil.
The first sentence there ends with "this clearly established Parliament's sovereignty and ultimate control over the company". So not a very convincing example of company independence over its host nation.
[Influence and control over another, relatively weak country is clearly a separate issue, but that's not always clearly separable from the host country's influence]
But even in your personal purchasing, because you might shop around and even negotiate prices with sellers to get a good deal, does that make you an adversary of the economy? No, it makes you part of the economic structure, like the various corporate implements are part of various jurisdictions' tax structures, and the governments benefit from their presence in various ways, not just directly through taxes. That's what all the negotiations are based on.
Of course, I'm speaking of options that are legal, and it gets arguable (and sometimes flagrant) how some corporate actions get interpreted in that sense.
The EU made a move to close the loophole, apple found another.
I suppose there are loopholes with them selling IP assets to subsidiaries. But that's a different loophole than the one with them floating money around different countries. That money wasn't earned in America, so why are you trying to "repatriate" it? The better term would be "appropriate" it as it was never here in the first place.
Until it costs more for apple to pay interest on a loan (and/or penalties and fines) than they would pay in taxes, that money will never come here.
This is one of the very few areas where brexit might actually end up a net positive for the world at large.
I don't know that it counts as a "loophole" exactly that the system for corporations works the way it does. "Loophole" sort of implies an unintended consequence, when the reality is that the laws are written with the express purpose of making this type of tax avoidance possible.
Do you support this practice though? Does any other country try to tax people for income earned entirely abroad? This puts US citizens at a disadvantage compared to citizens of say, the EU.
In practice, the US has tax treaties with most other nations that permit foreign taxes paid (on income that would be taxable federally, so not on wealth taxes) to be taken as a dollar-for-dollar credit. That means that any country with a lower tax rate than the US will generally not increase your overall income tax bill. If you owed $X to a foreign country and $Y to the US for work done in the foreign country, you pay $X to the foreign country (regardless) and if Y is greater than X, you pay $(Y-X) to the US.
In fact this already happens at the state level in the US:
If the new cut cut cut tax plan passes and Californian's can no longer write off state income tax on their federal returns, you will see even more people leave California.
Never forget that you implicitly assumed this is because taxes on that segment are too high, rather than because various aspects of our economy were rigged to give those people a disproportionately high share of the total taxable income.
In other words: there are two ways to reduce your tax bill, and only one of them requires Congress to pass a law that puts you in a lower bracket.
This is an entirely handwavy and unsupported assertion, whereas stating the percentage of tax paid by the top 20% is a statement of fact with no implicit assumptions.
The people of a country get the tax system written by the representatives they voted for, and are complicit in any "rigging" of the economy.
What we have is a tax code that is layer upon layer of exceptions that came about when Group A supported a tax on Group B to pay for a benefit for Group A. Sometimes group A is in the top 20% (e.g. taxes used to subsidize an industry) and sometimes group A is in the bottom 20% (e.g. taxes used for food stamps). The former arises from things such as regulatory capture and the latter arises from uninhibited populism.
No politically active bloc of voters is innocent. Everyone from the rich to the poor are special interests and all are equally as guilty of "rigging our economy". Only a flat tax that treats no group as special is fair.
I'm curious what you think of Nozick's Wilt Chamberlain example:
In it, absent any tax code distortions, Wilt Chamberlain would end up with most of the taxable income through entirely voluntary transactions. If thousands of people voluntarily pay Wilt Chamberlain to be entertained and Wilt ends up with most of the income, is that a rigged system? Power law distributions in income are a naturally occurring phenomena. No rigging is required.
If the system is indeed rigged, it's rigged in favor of the 45% of Americans that don't pay any federal income tax. They get all of the benefits at none of the cost.
The idea that U.S. international tax policy is somehow hampering Apple is just not true. There's a big world out there outside U.S. borders.
What it is hampering is U.S. domestic investment and job growth.
A fine example is wire fraud. Existing fraud laws didn't really cover it, and innovative criminals made extensive use of the loopholes until wire fraud was criminalized. (For those interested, the Yellow Kid's autobiography is a fun read. )
Same thing with any sort of security hole, really. We'll always have on-line attackers, but that's not a reason to give up. It's a reason to keep plugging holes and improving state of the art.
If anyone is knowledgeable in accounting and wants to point out some future loopholes that may arise, sure we can get those as well but... don't let the perfect be the enemy of the good.
On the other hand if you tell them, they get to look at your clever idea and decide to either allow it, change the rule for next year, or go to court saying you're wrong this avoidance method doesn't work so you owe taxes.
Though to be perfectly honest, I'd rather the state used the funds for the betterment of man, but then I'm a boring lefty
to bring business and money here, make the corporate tax rate very low (5%?) and have no writeoffs and no exemptions
The tax havens are almost all small islands that are dependent on food and fuel imports. Iran-level sanctions would collapse them in a week.
The logical solution is to get rid of the corporate tax altogether. The only reason why it exists is to be a plank for politicians who want to tax the "greedy corporations." All corporate income is either paid as dividends, paid as salaries, or reinvested. When it is paid as dividends, it is taxed as capital gains. When it is paid as salaries, it is taxed as income. When it is reinvested, it is either lost, or eventually becomes income and capital gains. There is no need to have another layer of taxation that just makes a giant accounting mess and creates all sorts of ridiculous incentives to use tax shelters.
Alternatively, we could cut a bunch of spending, but that turns into its own dogfight.
I also happen to think that taxes should be lower overall, but I think it’s best to divide the two issues: 1) how much we should be taxed, from 2) how we should be taxed.
That little issue is purposefully glossed over for the sake of sensationalism to sell advertising, of course.
I don't think this is a good idea; I'm just demonstrating that it's not impossible.
That's the sort of knowledge journalists learn in journalism 101, before they advance to their seminar on "sensationalism and selling advertisement" and the group therapy session "some know-nothing on the internet thinks I have anything to do with the BBC's business side, completely ignoring that online advertisement is, like, 0.001% of the BBC's revenue and that, being one of x thousand people working for the BBC, and my articles' revenue going into one big pot with all the others', my personal future is almost completely devoid of anything resembling a link to my articles' readership numbers".
which is why this would never happen.
Also, as a meta point, since I seem to see these kinds of challenges often: any time a person is put on the spot to name a specific change to a specific provision of law to enact a policy goal, it's probably going to be difficult to immediately give a specific answer. To translate policy into legislation often requires the assistance of multiple layers of paid staff and legislative analysts.
So the difficulty of answering that type of question is a function of the complexity of legislating, and not necessarily a sign that someone's preferred policy is a bad idea.
I am sure foreign nations would be quite happy to gain any advantage for their own companies over US corporations like Apple. Personally I would prefer that the US maintain a technological advantage for as long as possible.
If we need to prop up the U.S. tech sector with special tax handouts because they can't compete, we can do that on a targeted basis when that day comes rather than continuing to perpetuate an open-ended tax giveaway enjoyed by major companies in every sector of the economy.
And in the meantime perhaps we can use the missing revenue to bring our infrastructure up to parity with the rest of the modern world.
At the moment, tax policy basically penalizes companies bringing money earned in other countries home into the United States. It's stupid. Tax holidays are also stupid. Fix the problem at its heart.
Owing to its source it doesn't sound like this idea is going to be popular on hacker news, in spite of its blatant rationality.
Apple is in compliance with our tax laws. The laws, not Apple, are the underlying problem.
At a physics conference Wolfgang Pauli heard a talk that was so misguided that his comment was that “it wasn’t even wrong.” IMO your comment isn’t even wrong.
But right now that money isn't taxed at all. That money is what the Irish subsidiary owes Apple US for the license to Apple IP. So the Irish subsidiary isn't paying taxes on it, and Apple isn't paying taxes on it in the US because they are refusing to "bring it home".
That is why Apple is lobbying so hard for some sort of "tax holiday". They want to pay 0, nada tax on those overseas profits.
You seem to be missing this little detail.
In other words, for tax there is no distinction between the spirit and letter of the law. They’re one and the same.
The GAAR takes the spirit of the law into consideration when considering whether the law has been broken.
The Ramsey Principle (first stated with respect to a case governing circular transactions) also raises the spirit of the tax law being superior to the strict rules based interpretation.
That said, when it comes to most tax law the mischief rule doesn't apply (because in principle it needs to be dealing with a limitation of the common law). The golden rule rarely comes into play with tax law (though consider the case of murdering a parent and the consequences on inheritance tax, for example). So yeah, the literal rule almost always applies.
Should we force companies to repatriate all foreign-earned profits?
If yes, then the US will lose its economic advantage. No international company would be insane enough to incorporate in the US.
If no, then we have our current situation.
IMO the tax law itself is broken, not Apple’s response to asinine laws. Remember that Apple has not violated the law. I also agree with the comment you replied to - for tax law, there should not be a difference between the law and the intent. What is written is what needs to be followed. And right now Apple is following it to the letter of the law.
HMRC's essentially disagreed with the spirit was being followed in this case and Google paid up:
Also, the spirit of the law argument seems more like a pass to politicians for doing crappy legislative work. If you make proper laws, this shouldn't be an issue.
... then the US would immediately end up losing all it's multinational companies to less insane countries.
I’m not a tax expert but IME the people who are blaming Apple don’t know what they’re talking about. Only the US has such an insane attitude towards international profits.
And remember that there’s no loophole to close, unless the “loophole” is deciding what to do with your capital. Who is the US to tell Apple that its foreign subsidiaries must return their foreign-made profits back to the US?
Also remember that with our current laws, repatriating the money before a tax holiday is arguably a violation of Apple’s fiduciary duty to its shareholders.
Maybe repeating a string of specious arguments that have already been debunked or refuted elsewhere in the thread isn't the best approach for your brand-new HN account.
I admit I haven't provided much in the way of evidence. However we're talking about a complicated tax situation so it's hard to stick to the concrete.
Do you agree that the only way to "close the loophole" is to force companies to repatriate their earnings? I don't see another way to address it.
Right now the issue is that iff Apple repatriates its money, it must pay taxes. So Apple has been fulfilling their fiduciary obligations by opting not to repatriate (which would destroy 30%+ of the value, I don't know the actual number but I believe I am being conservative), instead choosing to take on cheap debt domestically to fund share repurchases.
Thus I don't see a "solution" to the "loophole" (obviously I don't believe it's a loophole because it's the law) that doesn't involve forced repatriation.
If there's something wrong with what I've said or something I haven't considered, I'm all ears.
They're looking for ways to close some of these loopholes that are keeping a ton of tax money out of the coffers belonging to We the People.
Please don't conflate "closing tax loopholes" with "making it illegal to operate internationally".
The "loophole" as far as I can tell is that a company can choose not to repatriate their earnings, which is completely legal.
Are you walking that back, and want to talk about loopholes now?
I do want to talk about loopholes. How do we close the "repatriation loophole"?
For obvious reasons, no other developed country in the world has a corporate tax system like the US. We should try to reform it, not make it worse.
A lower repatriation rate seems like a good idea to get money back into the US for local spending as well as collecting a bit in taxes.
There are no bugs, only features?
I am not convinced that new laws are necessary, in fact, I think this just used to distract from the issue and to allow the polishing of that old chestnut about more laws creating more loopholes.
It is my opinion, but I do feel the argument that the problem is the law, and not the large corporations who can afford to flout them, is disingenuous. Apple is under no obligation to pay as little taxes as they can convince themselves is reasonable.
You don't just get to reinterpret the law because you don't like what effects it has. The courts are only really able to interpret ambiguities. Where the law is clear (and it is pretty clear here), you need to change the laws.
There are lots of other good questions, and it may not turn out to be the case that everything Apple has done is legal. For instance...
Is it legal for Apple to attribute all of their intellectual property to their Irish subsidiary?
Is it legal for Apple to avoid paying taxes in Ireland by sending the money to a fictitious head office with no physical location?
And so on and so forth.
The law says “if you bring your foreign-earned profits abroad, you must pay taxes”. (I left it vague because I’m not an expert but my understanding is Apple would be responsible for around a 30% or higher tax rate).
Apple says, “okay we’re not going to bring the money back at that rate. Instead we’ll leave it invested in liquid assets abroad and take on cheap debt in the US to fund our share repurchases”.
So what’s your proposal? Forced repatriation? I hope it’s clear why that isn’t a good approach.
Our international tax code is completely fucked. Apple’s not the problem.
Full disclosure: My portfolio is heavily weighted towards Apple at an average cost of $120/share
Once profits collect in Ireland, Apple moves the profits to it's "head office", which not only is not in Ireland, it's not physical in any way. Thus they avoid the bulk of Irish taxes. The EU is suing Ireland and seem fairly serious, at least in this case it looks like Apple will pay some of the taxes, eventually.
Is this the only way they are avoiding taxes? I strongly suspect it is not and that they are breaking the law in more than one case.
I surmise that you're stating that the two are linked. That's fair. However isn't Apple already paying taxes on its US-sold goods?
This thread seems to specifically be about the repatriation side of things, and the only way to force repatriation is to...force repatriation.
It isn't clear to me. Why is that?
How many times do we have to reiterate the point that large corporations and the people who own them spend a fortune on lobbying sitting politicians and bankrolling their election campaigns, and that the controls on such spending limits have been systematically dismantled over the years, in decisions like Citizens United, among others?
Trotting out these facile arguments like 'it's not corporations, it's the laws!' without acknowledging this point borders on trolling. Could you please do your fellow HNers the courtesy of acknowledging what they're actually saying instead of just repeating simplistic shallow comebacks?
> The company specifically outlined in its filing that a strong focus of its lobbying has been for immigration.
> In addition to immigration, Apple’s government filing indicates lobbying for climate change, patent reform, accessibility, health initiatives, diversity, and education.
Seems like worthwhile lobbying to me.
Right. And we're supposed to eat that up. Why didn't they add happiness, rainbows, and kittens to that list.
Play many board games? I have. With any sufficiently complicated ruleset, there are always cheats, exploits, holes.
To have a good time together, players often agree to play in the spirit of the game, vs the literal rules.
An hour later, this statement is proven hilariously accurate given the number of "rules as written having loopholes doesn't mean anyone's breaking the law" replies to this post.
It's literally cheaper for Apple to store the cash outside the US and then get loans for the money they can't bring into the country.
That's just wacky. For a country that is incredibly pro-business and pro-corporate the USA is very strange on this front.
Part of this I think may actually be intentional, to prevent the accidental creation of technically-legal-but-obviously-exploitative loophole tax strategies. If it's fuzzy, you have to weight your risk of audit, your ability to justify your choice, and so on.
Anyway, in the corporate case there are also fundamentally difficult-to-define areas. For example:
Company A transfers its global IP portfolio to Subsidiary B. B is incorporated in Ireland, but is controlled and managed by directors based in a low corporate tax jurisdiction such as Bermuda, the Cayman Islands or Andorra; crucially, under Irish law, this characteristic renders B tax resident in these havens and therefore subject to their relevant tax legislation. Subsequently, B grants licences to exploit the IP portfolio to Subsidiary C which is incorporated and tax resident in Ireland; it is this link between two Irish subsidiaries which yielded the name “Double Irish”. C is the actual operative unit of the Company A: it owns real estate, it employs workers, it exploits the IP portfolio, it sells advertising and collects payments, ultimately generating earnings. Nevertheless, C does not make profits, as it has to pay royalties to B for the IP licences; crucially, B pays very little corporate taxes because it is based in a tax haven. Thus this structure allows A to shift all profits emerging from its IP portfolio to a jurisdiction where they will not be subject to a significant rate of taxation.
This scheme depends in part upon the ability of the company to set royalties and IP transfer costs at whatever they like, independent of the real value of the IP. Clearly this is not quite right, but what is the real value? Who determines it?
For example, what if they said that the taxable location of the entity was a function of the output of a quantum state? This is a grey area, but is even this enough for us to say that they are clearly just trying to pull the wool over the governments eye?
How could that be the basis for an intelligent taxation system?
What if the literal interpretation create unfair loopholes?
Then you change the law.
Specific laws don't preclude the ability to use common sense and judgement, and the law shouldn't be expected to explicate every possible permutation in order to be enforceable.
In the case of Apple, many employees are high-income individuals. One way to tax them is to raise Apple's effective tax rate, by closing loopholes. Another would to move these individuals to a higher bracket, and tax them directly on income. The latter would allow the tax system to target only those employees who actually are high-income individuals. I don't know how that plays on Hacker News, but it doesn't seem to be politically feasible.
Apple's individual investors are probably mostly high-net-worth individuals. (Apple might have more non-rich investors than a blue chip like GE does. I know quite a few middle class individuals whose only outside of funds are in APPL or TSLA. They have brand loyalty even if [with TSLA] they don't own the product. It's like playing fantasy football.) (The individual investors with the greatest number of shares are super-high-net-worth, of course.) To a progressive, it seems fair to tax them more, which taxing Apple effectively does. Those individuals aren't going to pay taxes on stock appreciation unless the capital gains exemption is rolled back. Now that Apple is paying dividends instead of just appreciating, raising the income bracket could be an alternative to closing the loophole.
My understanding is that institutional investors in general are largely funds, endowments, and pensions. Apple seems to be mostly funds. Funds are probably held by middle and middle-upper class individuals with mutuals or indices in their portfolios. (The poor don't own stocks. The rich own them directly.) The loophole benefits them. [Big disclaimer: I'm a novice in how to interpret this, and I wouldn't be surprised to be wrong.]
 "Top Apple Shareholders for 2017", John Edwards, Investopedia, October 6, 2017. http://www.investopedia.com/articles/markets/120115/top-5-ap...
 "Apple Inc. Institutional Ownership", NASDAQ. http://www.nasdaq.com/symbol/aapl/institutional-holdings
I don't think there's much argument that a near-zero corporate tax rate is ideal; unfortunately wealthy individuals would simply take advantage of that to lower their individual taxes and the country would end up with a revenue crisis.
I would actually argue that the largest contributing factor to the success of the US over the last 80 years has been our ability to consistently collect tax revenue. Many other countries are not nearly as successful at enforcing and collecting on their tax code as the US is (but then, their tax agencies don't have nearly as much power as the IRS).
(These are all, except , popular press articles. I imagine that there's more considered discussion in the academic literature.)
 "Six Policies Economists Love (And Politicians Hate)", Planet Money (podcast).
http://www.npr.org/sections/money/2012/07/19/157047211/six-p.... This contains interviews with
Dean Baker (co-director of the Center for Economic and Policy Research in Washington, D.C.); Russ Roberts (George Mason University economics professor); Katherine Baicker (professor of health economics at Harvard University's Department of Health Policy and Management); Luigi Zingales (professor of entrepreneurship and finance and the University of Chicago's Booth School of Business); and Robert Frank (professor of management and economics at Cornell University's Johnson Graduate School of Management).
 "Simulating the Elimination of the U.S. Corporate Income Tax", Hans Fehra, Sabine Jokischb, Ashwin Kambhampatic and Laurence J. Kotlikoff. NBER Working Paper No. 19757. Issued in December 2013, Revised in April 2014.
 "Abolish the Corporate Income Tax", Laurence J. Kotlikoff (Economics @ U. Boston), New York Times, Jan 5, 2014. https://www.nytimes.com/2014/01/06/opinion/abolish-the-corpo...
 "Let's Abolish The Corporate Income Tax", John C. Goodman, Forbes. Aug 26, 2014. https://www.forbes.com/sites/johngoodman/2014/08/26/lets-abo...
 "Why Do We Tax Corporations?: Wouldn't it be easier just to tax individuals?", Christopher Beam, Slate, Oct 17 2008. http://www.slate.com/articles/news_and_politics/explainer/20...
 "10 reasons we should tax corporations", Nicholas Shaxson, The Guardian, March 15 2011. https://www.theguardian.com/commentisfree/2011/mar/15/tax-co...
But regardless of what system we choose, wealth redistribution needs to be a primary goal before inequality reaches "torches and pitchforks" levels.
Fool me once, shame on you. Fool me twice, shame on me.
Investigate. Confiscate. Incarcerate.
I'm done with the "business" line of rhetoric.
If, however, you do mean to ask "...back into the US economy," then ... jobs. How they choose to place the money into the economy is definitely a question, but ultimately any use should indeed support employment of the labor force. Loan the money out? The borrower puts someone to work. Use it for R&D? Hire humans to perform the research.
Why should Apple have the US government lay claim to the revenue/profits that it generates in non US countries?
From the article:
"This allowed Apple to funnel all its sales outside of the Americas - currently about 55% of its revenue - through Irish subsidiaries that were effectively stateless for taxation purposes, and so incurred hardly any tax."
If you support the taxation, do you also support the IRS taxing the wages of expats living abroad?
"If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside."
EDIT: To answer your question, no, I don't like that, but I don't think "companies" should be exempt.
However obvious it is that EU Apple is a sock puppet of US Apple, directly imposing taxes on foreign companies operating in foreign countries would be met with retaliation. It is not a smart nor a profitable trade policy.
 This actually does happen: https://en.wikipedia.org/wiki/Accidental_American
I'm not sure I follow. Apple is an American company.
Of course, typically you aren't taxed on the first $100k of income abroad, but likely businesses have similar carve-outs...
So if you earn less than 100k, you need to file US taxes, but will only pay the foreign tax rate. If you earn, say 200k, then you’ll pay at least as much as the US would have taxed you on that income.
There are still absurd pieces of this law: for instance, if you buy a home using foreign currency, then sell the home for the exact same amount, but the foreign currency became a lot stronger, you owe US taxes on the change in USD to your home’s value.
I think it is fair for a nationality to claim that there is a certain minimum amount of our production we wish to divert to social causes, in that case I also think it is fair that, for products sold in that nationality the government can claim any shortfall in paid taxes on the value accrued to that point. Let's assume that China has a 10% VAT on 5% of the value, Bermuda .5% on 90% of the value and USA 8% VAT on 5% of the value. The tax owed to the US might be calculated by ignoring the first 5% of the value, since china already collected a sum exceeding the sum the US would collect, then the US would collect a 7.5% remainder tax on the middle 90% and a full 8% on the last 5%.
These collections would only be owed on products sold or incrementally improved in the US, any items that never entered the US could live by their own rules.
Regarding the IRS taxing the wages of expats living abroad, it follows much the same system. An expat is only required to pay the difference between the taxes they are paying and the taxes they would owe if they resided in the US, this is a silly rule that probably shouldn't be on the books since expats living abroad gain none of the benefits from their citizenship.
So I agree, Apple as an American company should pay taxes on the money it makes abroad. And again, I would vouch for a larger tax break, but still pay on their income abroad - as expats do.
Let's say an iPhone is sold in the UK, generating a $200 profit. How much of that profit was really generated in the UK and how much in the US? The answer is to consider what would happen if Apple's US and UK operations were two distinct, independent companies: Apple in California would determine almost everything about the way iPhones are sold in the UK - where the Apple stores are located, what the stores look like, what their TV and billboard advertising should look like, what happens when a customer returns a product, etc. Apple US would then take this list of requirements and negotiate with a UK business partner. In that negotiation the UK partner has very little leverage - if the UK partner doesn't like terms Apple US is offering, Apple US can just find another partner. The UK partner then sells phones according to Apple's specification. The result is that the UK partner will have thin margins and almost all profit will flow back to the US.
Now perhaps I'm being hard on Apple's UK employees - maybe they are doing more than simply working to a specification given to them by their California colleagues. In this case it would be fair to say that a somewhat larger portion of that $200 is actually generated in the UK - so the total tax Apples pays on that $200 profit would be a combination of US and UK tax rates. But there is absolutely no reason why Irish tax rules should apply to the allocation of profit on the sale of an iPhone in the UK.
Unsure why we laud capitalism and then act horrified at the result. Here in America we've made our decision - profit rules above all else. It is more profitable to lobby congress than it is to upgrade a refinery, it's more profitable to auto-deny every health insurance claim than it is to provide the services your customers think they're paying for, it's more profitable to avoid taxes than not (as long as you can avoid breaking the law TOO hard).
Consolidated money is power. The only way that capitalism can work long term is if there are rules actively countering/fighting using that power to change the rules.
Money is power and capitalism consolidates money. So capitalism consolidates power. Consolidated power can change the rules in its favor to consolidate more.
The only options are prevent entities from consolidating money (which means you're risking losing capitalism), Or prevent entities from using money and power to change the rules (which, if you think of all the ways gratuitous money could be used to influence, is the social equivalent of solving the halting problem).
I think you've misunderstood the free in free market. If anyone is allowed to make rules like that, it is not a free market, not superlatively, not normally, not even slightly.
The problem here is that you have a government apparatus which has outgrown its mandate in ways that were not adequately accounted for, which makes it ripe for the picking.
But I don't agree with your conclusion. If there were truly no Govt. creating and enforcing rules, there would be Guilds/Cartels that would (e.g. see how criminal gangs behave and operate). Which is why we do need an overarching authority that has the power to create, change and enforce rules that make the market less free, but potentially more beneficial to more rather than a few.
The problem isn't that the government apparatus has outgrown its mandate. Its that its become more easily influenced by money. Reduce that influence and you will have a Govt. that works for the general interests of its people.
I recently found out about an old solution that would achieve that goal: Sortition. Instead of having elections every few years, we could randomly pick a hundred people from the population and task them with creating a law. After an initial preparation, they would deliberate like a jury and their decisions would be written as law. After a single task, they should disband and new groups should be selected for new tasks. With a country of hundreds of millions of people, it would be a light burden on the population to serve from time to time.
The benefits are: 1. by random selection, every social category is represented equally, 2. there is no need to have elections, so no lobbying and money in politics, and 3. because the legislative group only works on a single task, once, they can't grasp power, like politicians do.
I believe a group of 100 random people would make more heartfelt and wise decisions than a parliament full of professional liars. Regular population is more in touch with reality. Regular population needs to be heard directly because politics sucks, and this is a way to do it.
No, every social category would be represented similar to their ratio in the rest of society. This wouldn't line up well with many groups that want much stronger support for minorities.
Take Native American concerns for example. With just over 1% of the population being Native American they will probably only end up with a few representatives out of the 100. The remaining ~98 people are going to be spending a bunch of time concerned about their own problems and won't put effort into making sure Native Americans get equitable treatment due to past issues.
In other words, by cutting out the ability to lobby for rich people to help themselves, you also cut out the ability to lobby for legitimate issues as well. Lobbying has (rightfully) been seen as a terrible thing, but it does have the legitimate purpose of bringing issues to a representative's attention that he/she would never even think about otherwise.
My parents had me at 17 and had no idea how to raise kids. They see a commercial of kids eating cereal and poptarts, so they feed me cereal and poptarts under the false assumption that that is a healthy meal, and that plus other factors led to me growing up fat and unhealthy.
Basically, if lobbying is a problem, disinformation through mass marketing is a MAJOR problem.
I think it's simpler than that: you need to have one entity which could ever possibly have the mandate, and then bind them eternally never to use it. The supreme court is supreme, but it also has rules. When the supreme court plays by its rules, it does not create a power vacuum for violations, it creates an assurance against them.
We call that crony capitalism and it is very much the opposite of a free market. I do agree with you however that we don't have effective barriers between money and government (or other forms of) power and therefore the stable state for liberal democracies with capitalist markets is crony capitalism and regulatory capture.
Yes. This is why I'm in favor of term limits, as well as a rule that outlaws "revolving doors".
I have an open mind on term limits, but since they exist in multiple jurisdictions why don't you show, with data, that they are leading to qualitatively different outcomes where they have been implemented?
Elsewhere in this thread, the concept of lobbying is being questioned as well. Find a way to prevent this and that removes a huge chunk of the problem, in my mind. Not that I can figure out how to prevent it.
Stopping corporate donations to political campaigns would be another thing.
Our current selection process overwhelmingly favors white male lawyers who are good at talking corporations into giving them money for their election campaigns.
That is neither the only way, nor a particularly effective way. I think we should go back to having representatives who represent a reasonable number of people (~100-500), and who are not full time politicians. Then regulatory capture would be much more expensive and difficult.
The ONLY solution to an abuse of power by government is more government exercise of power? How about limiting the powers of government to remove the "direct incentive to lobby"?
Nation states are social constructs, whereby some people collectively lay claim to some land, and have their claim recognised by all the other states. In order to be able to do this, a key thing you must be able to do is defend your patch of land. This requires some sort of military, who will need paying. You can further entrench your position and standing amongst the group of nation states by doing trade with them. The greater your economic output, the more likely the are to treat you well, be your ally, and do trade with you in return.
However, keeping a military, and generating power and providing infrastructure to enable economic activity (roads, ports, airports, healthcare(?), fire, police etc.) costs money, and to raise this money, the state charges people tax. All states raise money via taxes, and it's the predominant way they do raise money. So there's the question, who do you tax, and how much? Do you tax everyone the same (a poll tax), or do you tax people who have less money less? Or people who have more money less? The power to decide who pays is one of the key roles of Government, and one of the main expressions of Government power.
I would be interested to hear how you would see a limitation of the powers of Government, by which I assume you mean limiting their ability to set tax law would work.
Let me take you through your scenario.. you give government increasing power to censure corporations it doesn't like, effectively making it kingmaker of the economy. You end up with something like China where every company is state-sanctioned, and there is widespread graft and corruption.
What is the point of a constitution then?
It may come as a surprise to you but some people aren't so greedy as to believe that they are entitled to the fruits of other's labour.
But because it is a bridge, we Irish don't really have a strong claim on that money: the revenue was generated somewhere else, and it's going somewhere else, it's just resting in Ireland for a while.
There's a bunch of hypocritical talk from other EU countries criticising Irish tax rates, all the while having lots of carveouts and tax breaks of their own that reduce supposedly high rates to nearly nothing in various deals. For example, France has an effective rate of about 8% on profits for companies in the the CAC40. Luxembourg is much worse, it's practically a tax haven that avoids being listed as such somehow, probably down to location.
In principle I'm in favour of something like the common consolidated corporate tax base. The problem with taxing multinationals comes down to game theory: if there's a common market between countries, there's a race to the bottom in tax rates for hosting multinationals. So there needs to be a pact.
If you are, are you going to tell us with a straight face that you've read the US'?
It's about 3,500 pages long, written in esoteric accountant speak. Considering that in the USA "32 million adults in the U.S. can’t read. That’s 14 percent of the population. 21 percent of adults in the U.S. read below a 5th grade level, and 19 percent of high school graduates can’t read," I think it's an unfair burden to place on a population.
It would seem to me that with compulsory education everyone was afforded an opportunity to learn to read and write, if they choose ignorance I would not say it's an unfair burden. I managed to learn to read and write before my compulsory education began. Using this rare and mysterious ability I incurred about a dollar fifty in late fees at the library and became very well educated. I do find most people to be quite ignorant, but I must respect their choice to remain ignorant while surrounded by knowledge.
It's certainly an unfair burden if they were never afforded an opportunity to learn, however, in the United States I think you'd have to agree that if you don't know how to read and write it's a matter of personal choice rather than lack of opportunity.
I don't personally know the tax code as well as I'd like as it's not my area of expertise but I do consult with those much more well versed in it.
>Using this rare and mysterious ability I incurred about a dollar fifty in late fees at the library and became very well educated.
>with compulsory education everyone was afforded an opportunity to learn to read and write,
I have enough respect for your intelligence that to expect if you're here, you're aware of the vast educational chasms between the privileged and unprivileged. Basically, I'm confident you're aware that your experience is not necessarily the norm for every American. With that in mind, I'm curious why you still maintain such high expectations for tax code knowledge, especially considering all the evidence to the contrary of American financial literacy.
If the population is unable to read the code that is used to relieve them of wealth, something is off--in both their own ignorance and in their inability to appoint people they trust to handle that for them.
Where is this agreement you speak of?
Is there any situation you can imagine where Apple, or any corporation, could have done anything wrong when it comes to how it pays taxes?
I would say that when the sovereign is in agreement the payment of taxes that it can't be construed as evasion, however, I'm not super well versed on how much of a sovereign Ireland really is given it's membership in the EU. Perhaps the EU is the real sovereign in this case and Apple has erred in consulting with the Irish government who lacks authority to set tax policy in its territory.
There is a distinct and strong sense of unaware irony in this comment.
This is not the decision "we've made in America". What you're describing is the behavior of some giant companies. There are millions of small to medium sized businesses that operate within the rules just fine and don't use the "corrupt the politicians" move as part of their business strategy.
My point is that you are implying government is the alternative ("they will govern morally! academics will keep them in check! journalists will keep them in check!") then you need to rethink your conclusions
I implied nothing on purpose, though I understand people will find meaning in other's words on their own.
What sort of solutions do you have in mind, if not governmental? Or do you not think solutions are necessary (that this isn't a problem)?
The laws, that I get to, in at least some way, help craft as a citizen of a country are the only real voice I can meaningfully exert, far more than a boycott or trying to buy shares and sit on a board. And that's a power every voter has.
Heck yeah I want to maximize the government's power to make a better life for me and everyone else--the corp's not looking out for us, but we are.
There are obvious constraints on this slider. Set the slider too low, and a weak government is vulnerable to take-over. Set too high, the people are oppressed, unhappy, and will revolt.
The West's slider is pretty firmly in the middle, although it's uneven from policy to policy (it's set very low on gun ownership; it's set very high on commercial flying).
The US Federal government could acquire far more power in a variety of ways. For example, they could federalize local law-enforcement. They could run drones within our borders, for both surveillance and assassinations. They could outlaw independent media and control all media output (a la Russia). They could require us all to carry Federal ID and require us to show this ID to any law-enforcement on-demand, for any reason. They could require us to run special DRM/tracking software in our smartphones, and fine/jail us if we remove it.
To put it in a more concrete sense, the government can decide to tax whisky at a rate of $1m per barrel. But it almost certainly doesn't have the power to enforce this against moonshiners, rights and law or otherwise.
The government hasn't remotely maximized its power.
If i own a stock that increases 50% this year, am I doing something unethical by not selling it until january so i don’t have to pay taxes on the gain for another year?
That’s equivalent to what Apples doing. It pays all the taxes it owes in every country it does business in. It pays taxes in the US, UK, France, Germany, etc, etc, and what’s left over from the foreign profits it chooses not to bring back to the US, or leave in France, Germany, etc, etc.
Instead it moves those profits to Ireland or the Channel islands so it doesn’t have to pay more taxes on their interest every year while it waits for US corporate tax policy to no longer be so irrational so it can directly return that money to its owners, Apple shareholders.
No economic system can live up to its design when corrupt governments interfere with it.
corrupt governments interfere with it
Are those not in opposition? Another solution is a better breed of business that doesn't see $ as the most important thing in the world, but not sure how you change that. Capitalism can and should be a conduit for innovation without outright greed.
They recently had to lay off 60 of their ~200 people.
What would have been better? Should they have been greedier, given fewer benefits, and prevented the layoffs? Or should they have given more benefits, and not had layoffs, and simply collapse in bankruptcy in a couple years?
Money gives you options, and it is the tool which enables us to provide for people. I think your anti-greed position just... misses the point.
If you will look at most tech companies, they are poorly run. Github lost $66 million in 2016 hosting code. You don't gotta be Warren Buffet to know that something is wrong with that setup.
The greed aspect comes into the everything needs to be big, because for too many companies the end goal is not the product, but money. That's greed. That's not just a failing of morality but a practical failure of building sustainable businesses.
Just because something is bad at the extremes doesn't mean it is always bad. We need a government that steps in to address the well known issues with unfettered capitalism (externalities, tragedy of the commons, etc).
Which way do you expect the mutual fund's proxies to vote when electing the board?
Multi-polar coordination (competition markets) have a lot of bad Nash-equilibrium states, but they are better than any command market in history.
There is no legal basis for this claim.
So to take your differently put question, would I buy stock in a company that doesn't act this way? Hell yes I would. It means they're likely adults and not just looking out purely for the bottom line. Which tends to lead to bad results.
Thanks; Intresting. A look at what the duties are might be this: http://www.oecd.org/daf/ca/corporategovernanceprinciples/187...
A competing theory is guaranteeing the long-term health of the company instead of short-term profits (current shareholder value). Another is being a good corporate citizen in society.
These are usually all at least in a bit of tension.
The reason shareholder value is often (almost always?) pushed at any large company is because it so often aligns with the boards' and managers' short-term goals, i.e., make lots and lots of money while the making is good.
For a long time, and perhaps even still, Amazon has been held up as an example of a company that is not especially driven by the theory of maximizing shareholder value.
YES. I don't want to maximize profit, I want sustainable profits and minimal externalities. The economic logic that says all considerations can be reduced to a single metric of utility are extremely suspect (per results from behavioral economics, in both humans and animal species), and also rest on a false utilitarian conceit of perfect foresight that leads its adherents to wildly overestimate the quality of their own judgement (which is one factor in the failure of command economies).
If a business maximizes its dividend payouts by stiffing its workers (i.e. potentially my neighbors, friends, family), it's a shitty business and I want it to go away.
If a business maximizes its payouts by wrecking the planet (i.e. my future kids' playground), it's a shitty business and I want it to go away.
BUT, after a business looks out for its people and the planet, I want it to make as much money as possible.
Anything else, what kind of shitty life is that to live, or legacy to leave behind?
Why do you try to cast this as a matter of greed. Apple is getting billions of dollars in benefits from being a US-based company, directly and indirectly.
A ambassador might take advantage of his diplomatic immunity to commit a crime with impunity. One could say, "what's wrong with that? he was acting within the law." Or one could say, "That ambassador is a vile person and is taking advantage of the system."
However, what I have noticed is that like Apple those who lobby for a different policy do not pay what they advocate for but rather the minimum (like Apple).
I'm asking if anyone on this thread who thinks Apple should not avail themselves of these deductions or loopholes knows of deductions or loopholes available to them that they don't take because it doesn't represent their views on tax policy.
Given the predominant view amongst those that advocate for higher taxes that paying more tax improves their lot in life it surprises me that they don't take individual action to purchase more government. For instance I think technology improves my life so I purchase a lot more than the average person.
I always find what people do to be far more instructive as to their views than what they say, the general consensus seems to me to be that paying more tax generates poor returns on investment so people minimize these costs.
I'm also wondering due to people not purchasing much lobbying if it's really as effective as they say it is, surely if a few million dollars would result in drastically higher taxes that someone would make a kickstarter to lobby for more tax and then voila a year later they're paying more tax. Could it be that increased taxes is not something that is palatable to a large segment of the populace and thus it is the votes and not lobbying dollars that results in the current tax policy?
Just wondering... is purchasing the services of lobbyists something that is not available to regular citizens and only corporations may purchase?
I've also noticed the poor spend a lot of money on lottery tickets, cigarettes, and alcohol so I surmise there is available funding amongst the great unwashed masses to purchase lobbying, however they find lotteries and various vices to be a better way to utilize their capital.
- The US federal government cannot sue someone for not following the spirit of the law. Thankfully.
- Per Justice Learned Hand: "Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."
- "Offshoring" isn't the right word, because it implies that the money was in the US and moved offshore. In fact the money is from product that was sold outside of the US, and the money is remaining outside the US.
- Did Justice Learned Hand make this statement with this type of scenario in mind where the amounts of money are on the level of an entire small country? Isn't he just talking about private citizens?
- The point is just that they didn't pay taxes, either to Ireland or to the US. To the extent that they could have paid those taxes to the US government, its still dodging taxes.
- No, in order to sue you must have standing, which in a super short version means that the plaintiff has to be really close to the harm, not a bystander who witnesses something.
- Obviously Apple did not not exist when Justice Hand said that, but I think he would be fine with it. Apple is complying with the letter of the law, and their responsibility on that issue goes no further. Apple is in no way obligated to pay more than what the law requires. If there is a problem with the tax law, then it is up to congress to address that.
- I guess I am less bothered by it than you are. Apple paid what it owed under the law. A lot of corporations pay 0 tax because they are set up as pass-through entities, like S Corps. Is it OK to set up a S Corp for tax reasons?
My understanding (as a person who has taken a couple tax law classes) is that it isn't an explicit law but a combination of things, all of which are reasonable, which yields what could be said to be a surprising result:
- companies pay taxes on profits
- profits = revenue - expenses
- It is OK to expense licensing of IP
- It is OK to sell IP to a subsidiary
So Apple creates a subsidiary in Jersey, transfers IP to that company, then charges the Irish subsidiary fees which are more or less equal to the revenue for selling the phones. In this way the Irish subsidiary makes no profit, so there is nothing to tax. All the profit goes to Jersey, which happens to have no tax.
It needs to be said that the money is stuck there, if Apple wants to get at the money then it would in fact be taxed depending on where it goes. So it is not even really dodging taxes, but more like delaying when they get paid (hoping for a better tax rate in the future, I suppose).
I am not even sure if US law is to blame here, it seems like the EU is the one that is upset at Apple, and Jersey is under EU law not US law.
Should Apple pay 35% if they can legally pay 5%, with some maneuvering?
Then we can ask: Why not pay 50% since they're really profitable?